An escalation clause is a provision in a contract that allows for one party to increase the contracted-for prices or wages under certain specified conditions. This clause is often found in labor contracts, which may include escalation clauses that tie such increases to the rate of inflation. Many different types of contracts contain multiple escalation clauses addressing different subjects, allowing the parties to accommodate shifts and changes in the market.
In construction contracts, an escalation clause may provide for increases in the contracted price for labor or materials based on a change in market price or the increase of an index, such as the consumer price index. In leases, this clause may allow for lease costs to rise if maintenance and operation expenses rise. In real estate sales, an escalation clause may provide for an increase the purchase price if higher bona fide offers are made on the property by third parties. In lending, an escalation clause may allow for the interest rate to rise under certain conditions.