Monday, May 16, 2005

Escalation clauses

Cost increases prompted the National Association of Home Builders last year to recommend that its members include "escalation clauses" that allow contracts to be adjusted based on changes in material costs.

The association urges that contracts clearly spell out the building materials that are subject to fluctuation, require documentation of increases, and let the buyer get out of the contract if the price gets too high.

This is a very 'slippery slope'. For one, many of these clauses are open-ended and do not spell out the conditions. For another, because of the fast-growing market, some builders will be tempted to try and escalate the price based on current market prices - not on cost increases.

I would not sign a purchase contract which contains any escalation clause without contacting an attorney.

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