What is a Grandfather Clause?

A grandfather clause is a clause that is included as part of a new law that exempts specific parties from the law due to practices that were in place prior to the law's implementation.

How Does a Grandfather Clause Work?

For example, consider a law that is passed stating that all buildings with three or more stories must be equipped with two elevators. There may be buildings that were built before the passing of that law that are structurally unable to accommodate this law. Consequently, the law's grandfather clause might state that all such buildings completed before a certain year are exempt and require no alterations.

Why Does a Grandfather Clause Matter?

When planning a new law, lawmakers often find that it is generally beneficial for certain entities and individuals to be exempt from the new law. This is often due to the fact that such parties have pre-existing conditions or practices concerning which the new law would prove to be unfair or cumbersome. A grandfather clause is therefore a way to minimize the harmful effects of a new law by limiting its application in cases where it would do more harm than good.

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Paul Tracy
Paul Tracy

Paul has been a respected figure in the financial markets for more than two decades. Prior to starting InvestingAnswers, Paul founded and managed one of the most influential investment research firms in America, with more than 3 million monthly readers.