escalation clause

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Escalation Clause

A clause in a contract stating that the price of a good or service will increase if a cost increases correspondingly. For example, a supermarket may enter a contract with an apple distributor to buy apples at a certain price. However, an escalation clause may cause that price to increase if the cost of transporting the apples to the store goes up by a certain amount.

escalation clause

A clause in any of a wide variety of contractual or real property arrangements that allows one party to increase the price upon the happening of certain specified events. Longterm leases often have rent increases at 3- to 5-year intervals, with the adjustment being a certain stated amount,a percentage of then-current market rents,or an increase based on some index with the first year of the lease representing the benchmark and against which the index is measured.

Example: The parties agree that rent will increase in 5 years in the same proportion as the consumer price index (CPI) in 5 years bears to the current consumer price index. If the rent today is $4,000 per month and the CPI is 179, and in 5 years the CPI is 192, then the new rent is calculated at follows:

192 179 1.0726%

$4,000 1.0726% $4,290.40 per month

Other escalation clauses are used to increase the interest rate in a loan when there has been a default and to increase rent when a tenant remains in possession after expiration of its term.

References in periodicals archive ?
Escalation clauses, which were intended to keep a rental rate current with inflation and market increases, were a significant cause of the most current trend of having no CPI escalation.
Hall - the Court allowed a landlord to recover attorneys' fees incurred in defending (and prevailing) in an action by a tenant for a declaration of its rights under an escalation clause.
The lease contained a tax escalation clause which stated that the tenant (Bryant Imports Inc.
The proposal may include escalation clauses for inflation tied to the Consumer Price Index (CPI).
CRISIL believes that TR Trehan will maintain its credit risk profile over the medium-term, supported by its low gearing, expected stable operating margin because of inclusion of price escalation clauses in its customer contracts, and its promoters' experience in executing road construction and earthwork projects in Madhya Pradesh.
Nadler also has extensive experience in the real estate sector where her expertise encompasses such areas as acquisition due diligence, financing agreements, and rent escalation clauses of leases.
price fixing 3 years optional one year extension with cost escalation clauses.