What is an escalator clause

An escalator clause in a contract can be used to:

  1.  turn a joint tenancy into a tenancy in common
  2.  add improvements to a property by a tenant
  3.  create a freehold estate
  4.  adjust the rental rate based on an index

The answer is D.  An escalator clause in a contract can be used to adjust the rental rate based on an index.  This index can be tied to the rate of inflation – landlords may do this to protect themselves in the event that their own costs go up.

Escalator clauses are also common in construction contracts to cover unexpected costs due to fluctuations in the prices for raw materials, fuel, and labor during the course of the construction project.