Escalator Clause

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".

BREAKING DOWN '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. Inflation

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

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

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

    An arrangement where an individual enters into a lease agreement ...
  5. Appreciation

    An increase in the value of an asset over time. The increase ...
  6. Rent To Own

    An arrangement between a consumer and a seller that allows the ...
Related Articles
  1. 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.
  2. Home & Auto

    Tips For The Prospective Landlord

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

    Understanding Cost-Volume Profit Analysis

    Business managers use cost-volume profit analysis to gauge the profitability of their company’s products or services.
  7. Fundamental Analysis

    5 Must-Have Metrics For Value Investors

    Focusing on certain fundamental metrics is the best way for value investors to cash in gains. Here are the most important metrics to know.
  8. Investing Basics

    How to Analyze a Company's Inventory

    Discover how to analyze a company's inventory by understanding different types of inventory and doing a quantitative and qualitative assessment of inventory.
  9. Professionals

    A Day In The Life Of A Public Accountant

    Here's an inside look at the workdays of two experienced CPAs, to give you an idea of what it might be like to pursue a career as a public accountant.
  10. Professionals

    A Day in the Life of a Public Accountant

    There’s no typical day in the life of a public accountant, but one accountant’s experience may shed some light on what the career entails.
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. Can working capital be depreciated?

    Working capital as current assets cannot be depreciated the way long-term, fixed assets are. In accounting, depreciation ... Read Full Answer >>
  4. Do working capital funds expire?

    While working capital funds do not expire, the working capital figure does change over time. This is because it is calculated ... Read Full Answer >>
  5. How much working capital does a small business need?

    The amount of working capital a small business needs to run smoothly depends largely on the type of business, its operating ... Read Full Answer >>
  6. What does high working capital say about a company's financial prospects?

    If a company has high working capital, it has more than enough liquid funds to meet its short-term obligations. Working capital, ... Read Full Answer >>
Hot Definitions
  1. Liquidation Margin

    Liquidation margin refers to the value of all of the equity positions in a margin account. If an investor or trader holds ...
  2. Black Swan

    An event or occurrence that deviates beyond what is normally expected of a situation and that would be extremely difficult ...
  3. Inverted Yield Curve

    An interest rate environment in which long-term debt instruments have a lower yield than short-term debt instruments of the ...
  4. Socially Responsible Investment - SRI

    An investment that is considered socially responsible because of the nature of the business the company conducts. Common ...
  5. Presidential Election Cycle (Theory)

    A theory developed by Yale Hirsch that states that U.S. stock markets are weakest in the year following the election of a ...
Trading Center