The definition of a lease according to the Merriam-Webster Dictionary is a “contract by which one conveys real estate, equipment, or facilities for a specified term and for a specified rent.” In the trucking industry we are going to focus on the equipment side of that and the different avenues an Owner Operator can take when leasing his equipment to a motor carrier (or from) and some of the advantages and disadvantages this opportunity can bring.
What is an Owner Operator Lease Agreement?
An Owner Operator Lease Agreement is a signed contract between the Owner Operator and an FMCSA registered motor carrier that allows the driver to run his equipment under the motor carrier’s authority. Since Owner Operators are not regular employees the contract serves as a written agreement between the driver (independent contractor) and the motor carrier to protect and inform both sides of all details in the contract. The goal is to eliminate any questions or confusion in case any issues are to arise.
What are Lease-Purchase Agreements?
Lease-Purchase Agreements are a bit different than a regular lease agreement by giving the Owner Operator a chance to buy the vehicle after the initial contract ends. These sometimes have higher monthly payments, but can also be an ideal match for someone who has some credit issues or is just getting started in the trucking business and is unable to purchase a truck from a traditional dealer. By making your lease-purchase payments on time you are not only building credit, but you are putting yourself in a good position at the end of the contract to purchase your vehicle by proving to the owners that you are reliable.
What is a Lease Program?
A Lease Program offered by a motor carrier is another option to help new truckers get started in the industry by allowing them to “lend” their vehicles to an independent driver to complete work for the motor carrier. This option does not allow the driver to purchase the vehicle at the end of the lease contract but does allow for them to renew it at the end of the stated period or they could have the opportunity to begin a lease on a different unit if one is available. This option may require a better credit score and the payments could also be higher than some of the lease options available.
What Does an Owner Operator Lease Agreement Contain?
Now that we have gone over some of the basics of what lease agreements you can enter into, let’s see what all of them contain as far as basic keywords and terminology that they all have in common.
- Parties Involved in Lease: This one is pretty simple and straightforward, but any lease must contain all legal names of parties that are involved and must also be signed by all parties listed.
- Length of the Contract/Lease: Again, simple but important. The lease must contain the exact start and end dates in order to be valid. This is vital because once a lease is started the motor carrier is now responsible for all equipment listed during the time period. Any accidents or violations in the lease time period will go against the motor carrier that the Owner Operator is leased to and the carrier is also responsible for all driver and vehicle compliance documents.
- Equipment Specified Within Contract: This would include the tractor, trailer, and any permanently-attached equipment that will be leased to the motor carrier.
- Possession and Control During the Lease Term: It needs to be in writing the details of this part of the contract. This is one of the parts that separate a leased driver from a regular company driver.
- Compensation/Pay Rate: Sitting down with the motor carrier and determining if you are going to be paid by the mile, by the percentage of load, or hourly all need to be specified in the contract so there is no confusion going forward. Once the Owner Operator provides proof of delivery, FMCSA states that they should be paid in no more than 15 days. Any payments that are based on revenue should also include a “right to inspect” listed in the lease.
- Carrier/Owner Operator Legal Obligations: It is required to have specific limits of insurance carried on your tractor while it is under the motor carrier’s authority. Typically as soon as the contract starts the motor carrier will cover your tractor for Liability and Cargo insurance coverages. You will need to determine who is responsible for other coverages such as Bobtail insurance. If they offer it by deducting from your check, or if you are required to find and cover it yourself all need to be written out.
- Termination of Contract Procedures: Sometimes a motor carrier and Owner Operator are just not a good fit. Having the writing in place of what happens if you need to terminate the lease/contract will save a lot of frustration if this were to occur.
- Deductions Incurred Due to Damages to Equipment or Cargo: In the trucking industry, there are always opportunities for things to go wrong. Knowing who is responsible for what damages will help these incidents move more smoothly.
Lease Agreements are a vital part of the trucking industry. They provide truckers the opportunity to get started in the business and they allow motor carriers to invest in drivers that are more likely to take care of their equipment because they have a financial and personal interest in the contract. This is important as any violations or accidents that happen during this lease will go against the motor carrier’s CSA score which affects their insurance premiums for 3-5 years.
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