What is an 'Escalator Clause'

An escalator clause is a contract provision allowing for an increase in wages or prices. In a labor contract, this clause may tie wage increases to the inflation rate. Also known as an "escalation clause."

BREAKING DOWN 'Escalator Clause'

Escalator clauses take a variety of forms and allow people to enter large or long-term contracts by accommodating changes in the market. For example, if rents are increasing rapidly, a landlord may be hesitant to sign a long-term rental agreement or lease, since he or she could lose out on higher rents and property appreciation. By including an escalator clause, whereby rent can increase by a specified amount each period, the landlord can benefit from current market conditions, while the renter can secure a long-term living arrangement. Sometimes escalator clauses include a cap on the allowed increases. Escalator clauses may also include de-escalation provisions.

Escalator Clause in Real Estate

In real estate, an escalator clause may be attached to an offer on a home, indicating that the potential buyer is willing to increase the offer should other higher offers be received. The escalator clause typically includes a cap indicating how high the potential buyer is willing to go. For example, if a buyer makes an offer of $400,000, an escalator clause could specify that if a higher offer comes in, the buyer will beat it by $3,000 but only up to a $430,000. If an offer of $405,000 is received, the escalator clause would allow a new offer of $408,000. On the other hand, if the competing offer comes in at $429,000, the escalator clause would not allow for a new offer adding $3,000 since the clause specifies a cap of $430,000.

  1. Market Value Clause

    A market value clause is an insurance policy clause assigning ...
  2. Contingency Clause

    A contingency clause is a contract provision that requires a ...
  3. Hedge Clause

    A hedge clause is a clause in a research report that attempts ...
  4. Distribution Clause

    A distribution clause is a type an insurance policy provision ...
  5. Severability

    A severability clause states that the terms of a contract are ...
  6. Negative Pledge Clause

    A negative pledge clause disallows a corporation from pledging ...
Related Articles
  1. Personal Finance

    Why Your Will Needs a 'Titanic Clause'

    If you don't have a Titanic clause in your will and disaster strikes, there's no guarantee that your intended beneficiaries will inherit your assets.
  2. Insurance

    Life Insurance Clauses Determine Your Coverage

    Understanding these key parts of your policy will help you to ensure that your family will be covered.
  3. Investing

    Contingency Clauses In Home Purchase Contracts

    Here, we introduce widely used contingency clauses in home purchase contracts and how they can benefit both Buyers and Sellers.
  4. Investing

    Amazon Cloud Service Drops Controversial Clause

    AWS got rid of a controversial clause that prevented customers from suing over patent infringement.
  5. Financial Advisor

    Should You Poach Clients From Other Advisors?

    Make sure you know the laws before you seek out clients from other advisors. You could end up in hot water.
  6. Managing Wealth

    Getting Started On Your Estate Plan

    With some preparation, you can save your heirs from paying a hefty estate tax. Here are some tips.
  7. Managing Wealth

    Protect Your Company From Employee Lawsuits

    Understanding employment practices liability insurance is easy, once you know the basics.
  8. Insurance

    What To Do If Your Insurance Won't Pay

    Before paying for coverage, find out what you need to do to ensure you get paid.
  1. How is the consumer price index (CPI) used in market escalation contracts?

    Understand the purpose of market escalation contracts and learn how the consumer price index (CPI) is often used to make ... Read Answer >>
Trading Center