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What Is an Escalator Clause?

An escalator clause is a contract for purchase between two parties, in which an agreement is made for the arranged price to go up in accordance to different factors, normally ones that are not in the direct control of the parties involved in the deal. For example, an escalator clause could be initiated between the buyer and seller of some property, where the buyer wants to guarantee they're going to get the deal in the end - after agreeing upon an initial price, the buyer agrees to raise the price by a given amount if the seller receives another offer which matches the buyer's.

Also, escalator clauses are used to cover costs with varying magnitudes where a good estimate cannot be produced before the start of the project. Construction work is a common example of this, where for example the cost of building materials can be subject to an escalator clause, as their prices tend to fluctuate on a near daily basis in some cases, and this allows both parties to be sufficiently flexible in their business model toward each other.

Usually, even escalator clauses will be subject to some limitations - in the example of a deal between a buyer and seller above, there'll usually be an upper cap to how much the price can be increased based on other offers. Normally, additional arrangements will be made between the two parties in case a situation arises which is not covered by even the escalator clause.

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