Escalator clause

An escalator clause (가격증감약관 價格增减約款) is referred to a special clause, which may be found in the employment agreement, lease agreement, construction agreement, etc.

Key words
escalator clause, employment, construction contract, lease protection

Application
This clause is to guarantee a change in the agreement price once a particular factor beyond control of either party affecting the value has been determined.

Escalator clauses are quite common in construction agreements to cover unexpected costs due to fluctuations in the prices for raw materials, fuel, labor, administrative costs, cost of living index, real estate tax, etc. during the course of the construction project.

Rationale
The escalator clause is inserted to ensure the other party to do best only to perform the contract regardless of the ever-changing prices of various costs.

So an escalator clause may be transformed to the clause that demand the payment of the capped price subject to price controling regulations. For example, when the maximum of lease increase ratio is regulated by law, the lessee is obliged to pay the the lease up to the ceiling. If the regulation is modified in the future, such escalator-like clause will demand the payment of the newly modified lease as from the effective date of the newly modified regulation.