Legal Term

Automatic Price Escalation in Long-Term Vendor Contracts for Restaurants

Legal Definition

A contractual mechanism that allows a vendor to increase the price of goods or services at predetermined intervals without requiring a new agreement, typically tied to an external index like the Consumer Price Index (CPI) or a fixed percentage. The adjustment is automatic and binding once the contract is signed, shifting the risk of inflation or cost increases from the vendor to the restaurant.

In Plain English

It's like your Netflix subscription auto-renewing at a higher price next year, but for your restaurant's coffee beans or cleaning supplies. The contract says the price will go up on a set schedule, and you're locked in.

Example in a Contract
SECTION 4. PRICE ADJUSTMENT. The prices set forth in Exhibit A shall be subject to annual escalation on each anniversary of the Effective Date. Such escalation shall be calculated as the percentage increase, if any, in the Consumer Price Index for All Urban Consumers (CPI-U), U.S. City Average, for the immediately preceding twelve (12) month period, as published by the U.S. Bureau of Labor Statistics. Vendor shall provide written notice of any adjusted price no less than sixty (60) days prior to the effective date of such adjustment.

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