What if the seller refuses to release escrow after the holdback ends?

A dispute over escrowed money is a contract question before it is a court question. The purchase agreement, and any separate escrow agreement with the lawyer or other agent holding the funds, set out when the holdback ends, who may give release instructions and what a buyer must do to keep a claim alive. Read those documents first, because a seller’s refusal to sign only matters as far as they say a signature is needed. For the basics of how a holdback works, see what an escrow holdback is.

What the documents decide

Look for the release mechanics. Check whether the agreement releases the money on a date unless a written claim notice was delivered first, or whether it needs both parties to sign joint instructions. If the buyer gave a claim notice in time, ask what the agreement says happens to the amount claimed while the dispute is open. If no notice was given, ask what the agreement says happens to the funds when the period ends. Then check what the agreement lets the escrow agent do: whether it gives the agent any role in a dispute, or only lets it act on the instructions the agreement requires.

The time limit keeps running

Do not assume a refusal to release stops the clock on a lawsuit. Under Ontario’s Limitations Act, 2002, unless the Act provides otherwise, a proceeding shall not be commenced after the second anniversary of the day the claim was discovered (s.4). That period does not run while the parties have agreed to have an independent third party resolve the claim or assist them in resolving it (s.11), and a limitation period applies despite any agreement to vary or exclude it, subject only to the exceptions in s.22(2) to (6). British Columbia’s Limitation Act says that, subject to the Act, a court proceeding must not be commenced more than 2 years after the day the claim is discovered (s.6). Alberta’s Limitations Act looks to 2 years after the claimant first knew, or in the circumstances ought to have known, of the injury, that it was attributable to the defendant’s conduct and that it warrants a proceeding, or 10 years after the claim arose, whichever expires first (s.3(1)). Each Act has exceptions, and other provinces run their own regimes.

What to bring to your lawyer

• The purchase agreement, the escrow agreement and the closing statement.
• Any claim notice you sent, with proof of when and how it was delivered.
• Emails and letters with the seller or the seller’s lawyer about the release.
• The date you first learned of the problem the claim is based on.

Ask whether a written demand to the seller and the agent is the right next step. Ask whether the agreement requires mediation or arbitration before a court, and whether the time to sue has already started. If the funds are still with the agent, ask whether they can stay there while the dispute is resolved.