An escalation clause is a clause in a

lease A lease is a contractual arrangement calling for the user (referred to as the ''lessee'') to pay the owner (referred to as the ''lessor'') for the use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial ...

contract A contract is a legally enforceable agreement between two or more parties that creates, defines, and governs mutual rights and obligations between them. A contract typically involves the transfer of goods, services, money, or a promise to tr ...

that allows for a change in the agreed-upon price in response to a specific factor that is outside of the control of either party. This type of clause is used to protect against potential changes in the value of the goods or services being exchanged, such as in cases of

inflation In economics, inflation is an increase in the general price level of goods and services in an economy. When the general price level rises, each unit of currency buys fewer goods and services; consequently, inflation corresponds to a reduct ...

or other market fluctuations. Escalation clauses are common in

construction contract A construction contract is a mutual or legally binding agreement between two parties based on policies and conditions recorded in document form. The two parties involved are one or more property owners and one or more contractors. The owner, often ...

s. The clause may specify that the agreed-upon price for the project will be adjusted to reflect changes in the cost of raw materials, fuel, and labor during the course of the construction. Escalation clauses may also be used in other types of contracts, such as leases for commercial or residential properties. In these cases, the clause may specify that the rent will be adjusted based on changes in the market value of the property, or on changes in the cost of utilities or other expenses. When drafting a contract or lease that includes an escalation clause, it is important to carefully specify the factors that will trigger the adjustment, as well as the method for determining the new price. This will help to ensure that the clause is fair and reasonable for both parties, and that it is enforceable in the event of a dispute.

References

Contract law Contract clauses {{contract-law-stub

See also

References