Owner Operator Lease Agreements: Everything You Need to Know
One great way for trucking companies to increase their transport strength is by retaining owner-operator drivers to expand their fleets. But because these drivers are independent contractors rather than employees, a formal agreement must be in place to ensure everyone understands what’s expected of them.
This is where owner-operator lease agreements come in.
A properly prepared motor carrier lease agreement provides a detailed list of requirements for the trucking company and the owner-operator. This, in turn, eliminates confusion or questions.
But preparing these agreements doesn’t just happen. It requires knowing what to put into the agreements and how to implement them. Up-front preparation to ensure everything is included can avoid trouble down the road.
Read on to learn more about this topic.
What is an owner-operator lease agreement?
Before going into detail about what should be included in owner-operator lease agreements, it’s important to understand what they are.
An owner-operator lease agreement is a contract. This contract outlines specific terms when a trucking company leases services from independent truck drivers. Such an agreement is necessary because the owner-operators who provide service to a trucking company isn’t an employee. Rather, the driver is an independent contractor who leases hauling services to the company for a specific job. In return, the company pays an agreed-upon fee to the driver.
A detailed lease agreement between the trucking company and owner-operator also covers potential issues that might come up during the temporary relationship between these two parties. We’ll explain the different agreement elements in more detail below.
Types of owner-operator lease agreements
First, it’s important to know that there is more than one type of trucking company owner-operator lease agreement. This is because independent truck drivers operate their businesses differently. Three common agreements are the lease-purchase agreement, lease program, and lease-on agreement.
Let’s take a closer look.
Sometimes known as a lease-to-own agreement, this program allows an owner-operator to pay a set monthly fee to the carrier for use of the truck. At the end of the contract, the driver has the option to buy the vehicle.
The lease-purchase agreement can be ideal for owner-operators who are just starting and/or don’t have enough money to invest in a truck. Drivers with poor or no credit could also benefit from this setup. Lease-purchase agreements help get drivers behind the wheel and earn money (and a reputation) by taking on jobs. One issue to watch for: Drivers can be responsible for maintenance costs and repairs.
Other factors that should be in a lease-purchase agreement are how long the lease is (common time frames are between one and three years) and the truck’s age. An older truck will cost more to keep it running.
Similar to the lease-purchase agreement, a lease program means a trucking company “lends” a vehicle to an independent driver for use on the job. But the owner-operator isn’t required to buy the truck at the end of the lease. Once the contract ends, the trucking company can either renew the lease to the driver or lease him/her a different truck.
This arrangement isn’t much different from leasing a car, making payments for a set period of time, then returning the car at the end of the lease. While monthly payments can be lower with truck lease programs, the driver might need to put a down payment on the vehicle before driving it. In addition, these agreements sometimes have certain credit requirements depending on the finance company the carrier uses to structure the lease.
The lease-on agreement is different. With lease-to-own and lease program structures, owner-operators “rent” trucks from carriers. In this situation, the driver already owns the truck and leases his or her rig and other appropriate equipment to the trucking company. Through this process, the owner-operator allows the trucking company to use its truck to haul freight on behalf of the company.
Leasing onto a trucking company can be ideal for the driver because the trucking company handles most of the paperwork and fuel tax. The company also finds the freight and jobs while providing dispatching services.
Key components of owner-operator agreements
Regardless of the type of agreement, the contracts should include specific, key items. The Federal Motor Carrier Safety Administration (FMCSA) offers “truth in leasing” regulations, found in Part 36, sections 376.11 and 376.12. These guidelines provide certain specifications when it comes to developing agreements between carriers and owner-operators.
Some of these must-have lease arrangement details are listed below.
Who is involved with the agreement? This basic information includes the names of both the driver and the trucking company (such as DBAs) and requires the signature of all parties involved.
Duration of the agreement. The requirement here involves the start and end dates of the contract and any potential extensions that might be necessary due to weather-related issues or delays in loading or unloading.
The equipment to be used. Equipment used during transport can include the truck itself, the trailer/trailers, liftgates, tiedown devices, and converter dollys. This requirement would also include which party is responsible for providing or paying for the specified equipment.
Possession and control during the lease term. This states that the trucking company has control of the owner-operator driver (and any equipment used) during the leasing period. The owner-operator is responsible for following the trucking company’s specific rules during the term.
Compensation and pay rate for the owner-operator. There are many ways a trucking company might compensate a driver for hauling specific cargo. This needs to be specified in the agreement. Here are some rules:
- The payment method must be clearly stated, such as per mile or percentage of revenue.
- The payment period from proof of delivery submission must be reasonable (no longer than 15 days).
- Payments based on a revenue percentage should include a “right to inspect” carrier billing in the lease.
- Any charge-backs initially paid by the trucking company are typically charged to the owner-operator.
Carrier and owner-operator legal obligation (such as insurance). The lease must specify any liability and cargo insurance offered by the trucking company and which party has responsibility for type of insurance, permits, paperwork, or similar issues. For example, if the company purchases insurance, the driver needs information on the policies. This might also include information about mediation or arbitration, if necessary.
Contract termination procedures. The lease agreement must clearly outline specific termination procedures if problems come up. This includes the circumstances in which the arrangement might be ended and the process for removing the trucking company’s name on lease termination.
Deductions to be made in case of property damage. The lease needs to outline provisions to be made by the owner-operator should the cargo be damaged at the point of origin, destination, or en route.
Receipt of equipment process
Once both parties have agreed to the lease terms and signed the document, the trucking company and driver complete a “receipt of equipment” statement. This puts the truck under the company’s control and gives it the right to inspect the owner-operator’s equipment to ensure it meets specific standards.
This is important, as the trucking company is now responsible for the driver’s compliance and their vehicle, according to the FMCSA. Basically, once that lease is signed, the FMSCA regards both driver and truck as “belonging” to the company for the duration. For example, if the owner-operator doesn’t maintain a logbook or is ticketed for safety violations, that information becomes part of the company’s safety data.
Finally, the proof of lease must be in the vehicle and the power unit marked with the trucking company’s name and Department of Transportation information.
Find more high-paying loads.
With the paperwork out of the way and owner-operators on board, the next step is to find and book high-paying loads. Using the Truckstop Load Board, trucking companies and owner-operator drivers can search high-quality loads with trusted brokers. More features include rate estimates, load comparisons, and a best-paying load search.
For more information, visit Truckstop to schedule your free demo.