Definition
An escalation clause allows the buyer to remain competitive without unnecessarily overpaying. Example wording:
'Buyer offers $600,000. If seller receives another bona fide offer exceeding $600,000, buyer commits to outbid that offer by $5,000, up to a maximum of $640,000.'
Advantages: - Buyer doesn't overpay if competition is light - Remains automatically competitive in a bidding war
Disadvantages and risks: - Seller may use the escalation clause to get the first buyer's maximum ceiling, then negotiate with another buyer - Some sellers refuse offers with escalation clauses (administrative complication) - If the ceiling is reached, the buyer may find themselves having paid the maximum even if competition was only marginal
In Quebec, these clauses are legal but must be clearly drafted to be enforceable.