As a matter of fairness, both the owner and the builder should have a right of termination if increases in materials costs become exorbitant and threaten to make the house unaffordable or too expensive to build.
NAHB’s sample escalation clause provides for termination in the event that increases in materials prices cause the total contract price to increase by more than a certain percent, although this can also be stated as a certain dollar amount. Both the owner and the builder should mutually agree on the percentage or the amount. This may be pegged to the lending limits on the construction loan or another figure that the parties find acceptable.
Because the builder must take affirmative steps to claim the increase, it is possible for him to waive or ignore increases considered to be minor. However, including the clause in the contract is insurance against suffering the effects of crippling builder material cost hikes.
To download the escalation clause, NAHB members can click here.
For further information, e-mail David Crump, NAHB’s director of legal research, or call him at 800-368-5242 x8491; or e-mail David Jaffe, NAHB’s staff vice president for construction liability and legal research, or call him at x8317.
Register for NAHB’s Spring Construction Forecast Conference
See what's on the horizon for the housing industry at the semi-annual gathering of the country's premier economists and finance experts. Get the latest forecasts on housing starts, project budgets and other economic bellwethers at the Spring Construction Forecast Conference on Wednesday, April 21, at the National Housing Center in Washington, D.C. Visit the Web site for more information.