Escalator Clause Legal Meaning and Definition

Here is a simplified definition of the legal term Escalator Clause.

Escalator Clause (noun)

An Escalator Clause is a provision found in a contract, lease, or agreement that allows for an adjustment in the amount of payments, such as rent or alimony. These adjustments are typically based on factors such as the cost of living index or other economic indicators. As these factors increase, the payment amount also increases. However, these clauses generally have a "cap" or a highest possible limit to prevent excessive increases. It is rare for such a clause to allow decreases in payment amounts if the cost of living decreases or in the event of economic deflation.