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. Real Estate

    Land plus anything on it, including buildings and natural resources.
  2. De-Escalation Clause

    An article in a contract that calls for a price decrease if there ...
  3. Lease To Own

    An arrangement where an individual enters into a lease agreement ...
  4. Inflation

    The rate at which the general level of prices for goods and services ...
  5. Rent To Own

    An arrangement between a consumer and a seller that allows the ...
  6. Appreciation

    An increase in the value of an asset over time. The increase ...
RELATED FAQS
  1. Will the consumer price index (CPI) be updated or revised in the future?

    The consumer price index (CPI) is an economic indicator intended to provide a gauge of inflation, as well as an assessment ... Read Full Answer >>
  2. How is the consumer price index (CPI) used in market escalation contracts?

    Escalation clauses are often used to facilitate the creation of long-term contracts, and the consumer price index (CPI) is ... Read Full Answer >>
  3. How are contingent liabilities reflected on a balance sheet

    Contingent liabilities need to pass two thresholds before they can be reported in the financial statements. First, it must ... Read Full Answer >>
  4. How do businesses determine if an asset may be impaired?

    In the United States, assets are considered impaired when net carrying value (book value) exceeds expected future cash flows. ... Read Full Answer >>
  5. How can I set up an accrual accounting system for a small business?

    First, determine whether accrual accounting makes the most sense practically and financially. If the small business is also ... Read Full Answer >>
  6. Why is work in progress (WIP) considered a current asset in accounting?

    Accountants consider work in progress (WIP) to be a current asset because it is a type of inventory asset. Accountants consider ... Read Full Answer >>
Related Articles
  1. Home & Auto

    Tips For The Prospective Landlord

    Investing in rental property can generate serious income, but there's more to it than collecting rent.
  2. Home & Auto

    Simple Ways To Invest In Real Estate

    Owning property isn't always easy, but there are plenty of perks. Find out how to buy in.
  3. Retirement

    Are You Ready to Rent?

    If you think it's time to test your wings and leave your parents' nest, read on.
  4. Investing Basics

    Subprime Lending: Helping Hand Or Underhanded?

    These loans can spell disaster for borrowers, but that doesn't mean they should be condemned.
  5. Options & Futures

    Subprime Is Often Subpar

    Proceed with caution when considering these short-term, high-interest mortgages.
  6. Fundamental Analysis

    What is Quantitative Analysis?

    Quantitative analysis refers to the use of mathematical computations to analyze markets and investments.
  7. Economics

    Explaining Residual Value

    Residual value is a measurement of how much a fixed asset is worth at the end of its lease, or at the end of its useful life.
  8. Fundamental Analysis

    Why Last In First Out Is Banned Under IFRS

    We explain why Last-In-First-Out is banned under IFRS
  9. Economics

    Understanding Carrying Value

    Carrying value is the value of an asset as listed on a company’s balance sheet. Carrying value is the same as book value.
  10. Economics

    International Financial Reporting Standards (IFRS)

    International Financial Reporting Standards are accounting rules and guidelines governing the reporting of different types of accounting transactions.

You May Also Like

Hot Definitions
  1. Fisher Effect

    An economic theory proposed by economist Irving Fisher that describes the relationship between inflation and both real and ...
  2. Fiduciary

    1. A person legally appointed and authorized to hold assets in trust for another person. The fiduciary manages the assets ...
  3. Expected Return

    The amount one would anticipate receiving on an investment that has various known or expected rates of return. For example, ...
  4. Carrying Value

    An accounting measure of value, where the value of an asset or a company is based on the figures in the company's balance ...
  5. Capital Account

    A national account that shows the net change in asset ownership for a nation. The capital account is the net result of public ...
  6. Brand Equity

    The value premium that a company realizes from a product with a recognizable name as compared to its generic equivalent. ...
Trading Center