How to establish a software escrow agreement

To establish a software escrow agreement, you must appoint an independent third-party agent to hold a copy of your source code and documentation. This ensures that if your company ceases to trade or fails to maintain the software, your clients can legally access the code to keep their business running. It is often a mandatory requirement for winning contracts with large enterprises or government bodies who cannot risk their operations on a small startup that might disappear.

What is software escrow?

In the SaaS world, an escrow agreement is a three-way contract between you (the developer), your client (the beneficiary), and a specialist escrow agent (the custodian). You provide the agent with the "keys" to your software. Under normal circumstances, the agent simply keeps these keys locked away. However, if a specific "release event" occurs—such as your company going into liquidation—the agent hands the source code over to the client so they can continue to host and manage the software themselves.

The step-by-step process

Establishing an agreement is a moderate task that requires both technical and legal coordination. Follow these steps to get set up:

1. Select a reputable escrow agent: Choose a provider with a strong UK presence, such as NCC Group or SES. These companies are industry standards and their names carry weight with corporate legal teams.
2. Determine the agreement type: You can choose a Single-Licensee agreement (for one specific big client) or a Multi-Licensee agreement (where many clients can register under one master bond).
3. Define "Release Events": Work with your solicitor to define exactly when the code should be released. Common triggers include formal insolvency, your company ceasing all business operations, or a material breach of your support obligations.
4. Technical deposit: Upload your source code, build instructions, and third-party library details to the agent. Many modern agents integrate directly with GitHub or GitLab to automate this process.
5. Verification: Most agents offer a service to test the code you have deposited. This proves to the client that the code actually works and isn't just an empty folder.

Who pays the fees?

Escrow services involve setup fees and annual storage fees. In most UK business deals, the client pays the cost of the escrow because they are the ones receiving the protection. However, you should clarify this during your sales negotiations. If you are using the agreement as a marketing tool to appear more professional, you might choose to absorb the cost yourself.

Pro Tip: Don't just "set and forget." Ensure your agreement includes a schedule for regular deposits (e.g., quarterly). If the code in escrow is two years out of date, it is useless to your client and could lead to legal disputes later.