Escalator Clause

AAA

DEFINITION of 'Escalator Clause'

A contract provision allowing for one to pass an increase in costs to another party. Escalator clauses are usually related to influences beyond both parties control, such as inflation.

Also known as an "escalation clause".

INVESTOPEDIA EXPLAINS 'Escalator Clause'

Escalation clauses allow people to enter large or long-term contracts, while accounting for changes in the market or economy. For example, let's examine a possible arrangement for someone to rent an apartment. If housing prices are increasing rapidly, a landlord may be hesitant to sign a longer term rental agreement or lease, since he or she could lose out on the property's appreciation. By including an escalator clause, where rent can increase by a specified amount each period, the landlord can still benefit from current market conditions, while the renter can secure a long-term living arrangement.

RELATED TERMS
  1. De-Escalation Clause

    An article in a contract that calls for a price decrease if there ...
  2. Appreciation

    An increase in the value of an asset over time. The increase ...
  3. Inflation

    The rate at which the general level of prices for goods and services ...
  4. Real Estate

    Land plus anything permanently fixed to it, including buildings, ...
  5. Rent To Own

    An arrangement between a consumer and a seller that allows the ...
  6. Lease To Own

    An arrangement where an individual enters into a lease agreement ...
Related Articles
  1. Tips For The Prospective Landlord
    Home & Auto

    Tips For The Prospective Landlord

  2. Simple Ways To Invest In Real Estate
    Home & Auto

    Simple Ways To Invest In Real Estate

  3. Are You Ready to Rent?
    Retirement

    Are You Ready to Rent?

  4. Subprime Lending: Helping Hand Or Underhanded?
    Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

Hot Definitions
  1. Gross Rate Of Return

    The total rate of return on an investment before the deduction of any fees or expenses. The gross rate of return is quoted ...
  2. Debit Spread

    Two options with different market prices that an investor trades on the same underlying security. The higher priced option ...
  3. Leading Indicator

    A measurable economic factor that changes before the economy starts to follow a particular pattern or trend. Leading indicators ...
  4. Wage-Price Spiral

    A macroeconomic theory to explain the cause-and-effect relationship between rising wages and rising prices, or inflation. ...
  5. Accelerated Depreciation

    Any method of depreciation used for accounting or income tax purposes that allows greater deductions in the earlier years ...
  6. Call Risk

    The risk, faced by a holder of a callable bond, that a bond issuer will take advantage of the callable bond feature and redeem ...
Trading Center