Escalator clause

An escalation clause is a clause in a contract in which the seller reserves the right to adjust the price of the goods at increasing its production costs. Such is often then agreed if the contract period extends over a longer period and it is expected that the cost of producing the product can vary greatly.

Frequently between contracting parties, the possible price increase is determined by means of a price escalation.

The general price escalation formula is:

Legend:

: Price on the delivery date: Price at date of contract: Material costs on the delivery date: Material costs on the date of contract / a fixed price basis day: Wage costs on the delivery date: Wage costs at the date of contract / a fixed price basis day a: percentage of the price which remains unchanged b: percentage of the price attributable to material c: a percentage of the price attributable to wage costs

The material cost item may be here quite split on several positions as different commodities to different extents included in the product and may be affected in varying degrees of price increases.

Since escalation clauses can act inflationary, the use of escalation clauses in Germany is generally prohibited ( § 1 of the Act on the Prohibition of the use of price clauses in the determination of monetary obligations, so-called price clause Act). Of these, however, the law provides certain exceptions in § § 2 et seq PRKG that can be regulated differently. Frequently find escalator clauses in commercial leases application.