Escalator Clause

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Escalator Clause

A stipulation contained in a union contract stating that wages will be raised or lowered, based upon an external standard such as the cost of living index. A term, ordinarily in a contract or lease, that provides for an increase in the money to be paid under certain conditions.

Escalator clauses frequently appear in business contracts to raise prices if the individual providing a particular service or type of merchandise is forced to pay more for labor or materials.

Such clauses are also often part of contracts or leases executed subject to price-control regulations. When this type of provision is in a lease, a landlord has the power to collect the maximum amount of rent allowed under rent regulations that are in effect at the time of the lease. The escalator clause provides that if the rent regulations are altered during the time of the lease, the tenant must pay the new rental fee computed pursuant to the revised regulations.

escalator clause

n. a provision in a lease or other agreement in which rent, installment payments or alimony, for example, will increase from time to time when the cost of living index (or a similar gauge) goes up. Often there is a maximum amount of increase ("cap") and seldom is there a provision for reduction if the cost of living goes down or for deflation instead of inflation. (See: cap)

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Outside of the base rental rate itself, the stickiest part of a lease is the escalation clause.
But, an escalation clause which grants the lender an unbridled right to adjust the interest independently and upwardly, completely depriving the borrower of the right to assent to an important modification in the agreement, is void.
This evolution of the CPI escalation clause resulted in the following 2 examples which were widely used: (Illustration of standard CPI clause with two choices of limiting clauses.
Approximately 85 percent of the in-place leases in the acquired portfolio have annual escalation clauses - one third of which have at least 4 percent annual escalations.
Porter wages are the subject of many lease escalation clauses, with tenants paying "penny for penny" or "wage plus fringe" or other variations as increases in rent.
Questions arise however in interpreting these tax escalation clauses when circumstances change.
More than just the monthly rent payment, net effective rental includes all of the quasi-business points that are a material part of a lease, from rent concessions to landlord's work contribution, to escalation clauses, electric formulas and the rest.