Your lawyer just asked: “Do you have a source code escrow agreement with your developer?”
You paused. Then Googled it. Now you’re here.
Quick Take: Source code escrow is like insurance for your code—a third party holds a copy in case something happens to your developer or software vendor. Sounds important. For most small businesses, it’s expensive overkill. There’s a simpler solution that works better.
Why it matters: You just spent €50,000 building custom software. Your business depends on it. Your developer has the code. What happens if they get hit by a bus, their company goes bankrupt, or they hold your code hostage? Escrow is one answer. Direct ownership is usually the better one.
What Is Source Code Escrow (In Plain English)
Think of it like putting a copy of your house keys in a safe that only opens under specific conditions.
Here’s how it works:
- Your developer/vendor deposits your source code with a neutral third party (the escrow agent)
- You, the developer, and the escrow company sign an agreement defining when you can access the code
- If something goes wrong (developer goes bankrupt, stops supporting the software, etc.), the escrow agent releases the code to you
- You can then use that code to maintain the software yourself or hire someone else to do it
The idea: business continuity insurance. You’re protected even if your vendor disappears.
Sounds great, right?
Here’s why most small businesses don’t actually need it.
The Reality: Most Small Businesses Don’t Need Escrow
Scenario 1: You’re building a custom website or web app
You hired a developer or agency to build your website, web app, or custom software.
Do you need escrow? No. You need direct code ownership.
Why: With custom development, you should own the code repository from day one. Create a GitHub/GitLab account in your business name, hire the developer as a collaborator. You have the code. Right now. No escrow needed.
Cost: Free (GitHub is free for private repositories)
If something happens to your developer: You already have the code. Hire someone else to maintain it.
Scenario 2: You’re using commercial off-the-shelf software (like Shopify, WordPress plugins, etc.)
Do you need escrow? No. You’re not dependent on one vendor for the source code.
Why: Commercial software either has:
- Multiple vendors/developers (WordPress has thousands of developers)
- Source code already available (open source)
- Switching costs that are acceptable (you can migrate to competitors)
If the vendor disappears: Use an alternative plugin, theme, or platform.
Scenario 3: You’re licensing proprietary software from a small vendor
You’re paying a small company for specialized software—like a custom ERP system, specialized manufacturing software, or industry-specific tool.
Do you need escrow? Maybe. This is the one scenario where escrow actually makes sense.
Why:
- The software is mission-critical (losing it costs millions)
- The vendor is small (higher bankruptcy risk)
- There’s no good alternative (switching would take years)
- You’re paying €50,000+ annually in licensing fees
Example: A manufacturing company uses specialized production management software from a 10-person vendor. If that vendor goes bankrupt, the company can’t run production lines. This is when escrow makes sense.
Cost justification: €2,000/year escrow fee vs. €10 million revenue impact if vendor fails.
When Escrow Actually Makes Sense
Use this decision tree:
Is this commercial software you’re licensing (not building)?
- No → You don’t need escrow, you need code ownership
- Yes → Continue
Is the vendor small or risky (startup, <20 employees, financially unstable)?
- No → You probably don’t need escrow (IBM/Microsoft aren’t going bankrupt)
- Yes → Continue
Would losing access to this software cost you €500K+ in business impact?
- No → Escrow cost isn’t justified
- Yes → Continue
Is there a viable alternative you could switch to in <6 months?
- Yes → Switching is cheaper than escrow
- No → You might need escrow
Would you actually be able to maintain the code yourself if you got it?
- No → Escrow won’t help you (you can’t maintain code you don’t understand)
- Yes → You probably need escrow
If you answered “yes” to all the final questions, talk to an escrow provider.
For everyone else: direct repository ownership is simpler, cheaper, and more effective.
The Better Alternative: Direct Repository Ownership
Instead of paying €2,000/year for someone to hold your code “just in case,” set this up:
Step 1: Create Organization Account
- GitHub, GitLab, or Bitbucket
- In your business name (not developer’s personal account)
- You are the owner
Step 2: Hire Developer as Collaborator
- Give them admin/write access
- Not organization owner access
- They can work normally, push code, manage projects
Step 3: Verify Access Quarterly
- Log in every 3 months
- Confirm you can see the code
- Confirm you can clone/download it
Cost: €0 (GitHub free tier handles this)
Access time: Immediate (no waiting for escrow release conditions)
Control: Complete (you own it, not a third party)
Risk: Minimal (code is in your account, backed up by GitHub/GitLab)
What you get:
- ✅ Immediate code access any time
- ✅ Full version history
- ✅ Can hire new developer tomorrow if needed
- ✅ No annual escrow fees
- ✅ No complicated release conditions
- ✅ No third-party dependency
This solves the same business continuity problem escrow solves, for free, with better access.
What About Intellectual Property Rights?
Here’s the trap most people miss:
Just because your code is in escrow doesn’t mean you own it.
Default copyright: Code belongs to whoever wrote it, unless your contract says otherwise.
If your contract says “Developer retains ownership,” then:
- Escrow gives you access to code you don’t own
- You still can’t legally modify it or hire someone else to maintain it
- You’re stuck with the original developer anyway
The fix: Your contract needs to say:
“Client owns all intellectual property rights to custom code developed under this agreement. Developer assigns all rights, title, and interest in the code to Client upon payment.”
Then you own it. Repository access gives you the code you own. No escrow needed.
Check your contract right now. Does it say you own the code? If not, escrow won’t save you.
Real-World Case: The Disappeared Developer
A developer named “John” stopped responding to emails and calls—for months. Multiple clients had projects on his development server, and no one had access. The company investigated whether he was still alive and eventually worked with the hosting provider to recover access. (Source: LinkedIn)
Would escrow have helped? Only if:
- They had set up escrow beforehand (they didn’t)
- “Developer non-responsiveness” was a release condition (usually isn’t)
- They could maintain the code themselves (unclear)
What would have helped: Direct repository access. If clients owned the GitHub repos, John’s disappearance would have been inconvenient, not catastrophic.
If You Actually Need Escrow, Here’s What to Look For
For the 1% who legitimately need escrow (licensing mission-critical software from small vendors):
Escrow Provider Selection
Look for:
- Established company (Iron Mountain, Codekeeper, Escrow London)
- Technology-specific (software escrow, not just general escrow)
- Clear release procedures
- Good reputation in your industry
Ask about:
- Annual fees (typically €800-€3,000)
- Setup fees (typically €500-€1,500)
- What triggers release (be specific)
- How long release takes (days? weeks?)
- Update frequency (code should be deposited quarterly)
- Verification services (do they test that deposited code actually works?)
Release Conditions to Include
Your agreement should release code if:
- Vendor files for bankruptcy
- Vendor stops providing support/updates for 90+ days
- Vendor breaches contract and doesn’t cure within 30 days
- Vendor goes out of business
- Vendor is acquired and new owner refuses to honor agreement
Be specific. “Developer unresponsive” is too vague. “Developer fails to respond to support requests for 60 consecutive days” is specific.
What Gets Deposited
Not just the code. You need:
- Complete source code
- Build scripts and documentation
- Database schemas
- API documentation
- Deployment instructions
- Third-party dependencies list
- Anything needed to actually run the software
Verify deposits: Pay for verification services. The escrow company should test that the deposited materials actually work. Otherwise you might get code that doesn’t compile.
Update Schedule
Software changes. Your escrow should too.
Typical schedule:
- Major releases: within 30 days
- Minor updates: quarterly
- Emergency patches: within 15 days
Make sure your agreement requires regular updates. Escrowed code from 2 years ago doesn’t help you.
The Simpler Checklist for Everyone Else
If you’re building custom software (not licensing it), forget escrow. Use this instead:
Code Ownership Checklist:
Contract says you own the code
- Explicit intellectual property assignment clause
- “Work for hire” language (in countries where this applies)
- No developer ownership retention
Repository in your account
- GitHub/GitLab organization in your business name
- You are the owner, developer is collaborator
- Verify you can access it right now
Regular backups
- Clone repository locally every quarter
- Store backup on separate system (not just GitHub)
- Test that backup actually works
Documentation exists
- README with setup instructions
- Architecture overview
- Deployment process documented
- Third-party services list
Quarterly verification
- Log into repository
- Clone code locally
- Confirm developer hasn’t moved it to personal account
- Run vendor dependency assessment
Cost: €0
Time: 30 minutes quarterly
Protection level: Better than escrow for custom development
When Your Developer Offers Escrow
Sometimes developers or agencies offer source code escrow as a selling point.
Red flag. Here’s why:
If they’re offering to put code in escrow, they’re planning to retain ownership. Otherwise they’d just give you direct repository access.
What to say:
“I appreciate the escrow offer, but I’d prefer to own the code repository directly. Can we set up a GitHub organization in my business name and you work from that?”
If they refuse: They want to retain code ownership. This is a contract negotiation issue, not an escrow issue.
Appropriate developer response: “Sure, that works. I’ll need admin access to the repository to work effectively.”
The Real Horror Stories (And What Would Have Prevented Them)
The Google Analytics Hostage
An agency claimed they owned the client’s Google Analytics account—even after the client had paid all bills and fulfilled the contract. The client lost years of traffic data. (Source: IMPACT)
Would escrow have helped? No. Analytics data isn’t code.
What would have helped: Client owning the Google Analytics account from day one.
The Domain Ransom
Developers demanded $5,000+ to transfer domains back to clients who paid for them. The agencies had registered domains “for convenience” in their own names. (Source: Yemba Digital)
Would escrow have helped? No. Escrow doesn’t cover domains.
What would have helped: Client registering domain in their own name, giving developer DNS access.
The AWS Account Lockout
An IT professional left a company with root AWS account access. The MFA was tied to his corporate phone. Company was completely locked out when their server failed. (Source: AWS)
Would escrow have helped? No. Escrow doesn’t cover infrastructure access.
What would have helped: Company owning AWS account, giving developer IAM user access.
See the pattern? Ownership solves these problems. Escrow doesn’t.
The Bottom Line
Most small businesses don’t need source code escrow.
What you need is:
- Code ownership in your contract
- Repository access in your name
- Quarterly verification you can access it
- Documentation so someone else can maintain it
This solves 99% of business continuity concerns for custom development, costs nothing, and gives you immediate access instead of waiting for escrow release conditions.
The 1% who need escrow: Licensing mission-critical proprietary software from small vendors where switching is impossible and business impact is measured in millions.
For everyone else: Stop paying for insurance you don’t need. Set up proper code ownership instead.
Start here: Run the 5-minute vendor dependency assessment to see exactly what you don’t control. It covers code access, domain ownership, hosting control, and all the things that actually matter for business continuity.
Because the goal isn’t escrow. The goal is ensuring your business survives regardless of what happens to your developer.
Direct ownership achieves that. For free. Starting today.