Escalator Clause

Definition - What does Escalator Clause mean?

An escalator clause is a clause in a contract that lets one party increase prices to account for external factors as time goes on. External factors that may prompt an increase in price could be a rising cost of living, higher rent prices, etc. Escalator clauses essentially allow a selling party in a contract to make sure that it is receiving a fair price for its goods or services in the future.

Justipedia explains Escalator Clause

An example of an escalator clause would be a landscaping company that includes a contract provision saying that prices will go up if the market so dictates in a contract with one of its customers. There are many outside factors that could dictate a price increase in the landscaping market. For example, if the price of oil suddenly goes way up, then it will be much more expensive for the landscaping company to run all of its lawn mowers, leaf blowers, etc. So, the escalator clause would ensure that the landscaping company would receive a fair price in the future if things change.

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