Escalator Clause Definition
An escalator clause refers to a provision permitting a rise in prices or labor wages. This clause is also referred to as an escalation clause that can relate increase in wage rates to the rate of inflation.
A Little More on What is an Escalator Clause
Escalator clause can be available in different versions, and it safeguards the interests of parties in the long-run. For instance, it may be difficult for land owner to rent out his or her property to Mr. A in the long-run, provided the rent prices are steadily shooting up. However, the inclusion of escalator clause helps the land owner in increasing the amount of rent by a given amount at said intervals so as to be benefitted from rising real estate prices. Also, this gives the tenant a sense of confidence to be accommodating in there for a longer time. There can be times when escalator clauses consider a cap or limit on the allowed hikes. Escalator clauses may also be accompanied with de-escalation guidelines.
Escalator Clause in Real Estate
An escalator clause can be relevant to a home related offer in the real estate sector. It represents that the prospective buyer will be ready to hike his or her offer, provided others make higher bids. The clause involves a cap informing about the limit that the prospective buyer can manage to bid. For instance, if Mr. X bids on a house for $400,000, there could be an escalator clause saying that he will beat the higher bid by an amount of $3,000, but till a certain limit of $430,000. So, if there is a higher bid of $405,000, the buyer can place a bid of $408,000 as per the escalator clause. In case, there is another offer of $429,000, Mr. X cannot add another offer of $432,000 as the cap is of $430,000 only.