Escalator Clause

A clause in a contract or license that raises the amount to be paid to one party, if certain conditions are met or come to exist, which make the contract or rights conveyed more valuable to the other. Thus, for example, merchandising rights associated with a book or novel might be set at one royalty rate, which would increase if a movie were made.

Escalator clauses are most appropriate where the recipient of payment is, to some degree, in control of the condition that would benefit the maker of the payment; they thus act as an incentive for that recipient to help cause the condition to occur. De-escalator clauses can also exist, especially where a contract is for a stream of payments (for example, royalties), if some specified event occurs (or fails to occur within a set period), making the contract less valuable to the paying party. See Kicker.

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