Escalator Clause

Tax Glossary Definition

Escalator Clause

An escalator clause is a contractual provision that allows for the automatic adjustment of prices, wages, rents, or other financial terms in response to specified economic indicators such as inflation, changes in cost of living, or variations in material costs. This clause helps safeguard the interests of contracting parties by ensuring that financial terms remain equitable and reflective of current market conditions over time.

Example: A long-term lease agreement may include an escalator clause linking annual rent increases to the consumer price index (CPI) to account for inflation.

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