Define: Escalation Clause

An escalation clause is a provision commonly included in contracts, particularly in lease agreements or purchase contracts for real estate, that allows for adjustments to certain terms or prices based on specified conditions. Typically, escalation clauses are used to account for changes in costs or market conditions that may occur over the duration of the contract. For example, in a lease agreement, an escalation clause might stipulate that the rent will increase annually based on the rate of inflation or changes in operating expenses. Similarly, in a purchase contract, an escalation clause might allow the buyer to increase their offer price if competing bids are received above a certain threshold. The purpose of escalation clauses is to provide flexibility and fairness to parties in long-term contracts by allowing adjustments to be made in response to changing circumstances. However, the specific terms and conditions of escalation clauses can vary widely depending on the nature of the contract and the preferences of the parties involved.

A provision of a contract which calls for an increase in price in the event of an increase in certain costs. For example, an escalation clause may specify that rent due will increase with inflation. opposite of de-escalation clause.

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This glossary post was last updated: 29th March 2024.