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Simple English definitions for legal terms
escalation clause
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A quick definition of escalation clause:
An escalation clause is a part of a contract that allows for the price to change based on certain conditions. For example, if taxes or operating costs increase, the contract price may also increase. It can also be used in divorce agreements to automatically increase alimony payments under certain circumstances. In the oil and gas industry, an escalation clause allows for the base price of gas to be adjusted as the market changes. This can be either an increase or a decrease in price.
A more thorough explanation:
An escalation clause is a provision in a contract that allows for the adjustment of the contract price based on changing market conditions. This can include factors such as taxes, operating costs, or changes in the cost of living.
- A construction contract may include an escalation clause that allows for the price to increase if the cost of materials or labor increases.
- A divorce agreement may include an escalation clause for alimony payments, which would increase if the obligor's salary increases.
- An oil and gas contract may include an escalation clause that allows for the base price of gas to be adjusted as the market changes.
These examples illustrate how an escalation clause can provide flexibility in contracts and allow for adjustments to be made based on changing circumstances.