Lease Agreement: Operating Under Another Authority

You will likely hear the term lease agreement in a couple different contexts in the trucking industry. In one context, the term "Lease Agreement" may refer to a lease-purchase program. In such programs, a truck driver makes regular payments to lease a truck from a trucking company with the option to eventually own it outright. The other context - the one we will be covering in this post - refers to a legal contract where an individual (typically a truck driver or owner-operator) agrees to operate a vehicle using another company's trucking authority, meaning they will haul freight under the company's motor carrier number and insurance, in exchange for a set payment structure outlined in the agreement; essentially "leasing" the right to operate under the company's established authority instead of obtaining their own.

Benefits of Operating Under Another Authority

A lease agreement gives the lessee the right to operate a vehicle under the lessor's motor carrier number, allowing the lessee to haul freight legally without needing their own authority. This allows the lessee to leverage the reputation and contracts that the lessor has established. Some of the benefits of operating under a well-established authority include:

1. Faster entry into the industry: Obtaining your own operating authority can be time-consuming, while leasing allows you to start working sooner.
2. Lower startup costs: No need to invest in obtaining your own authority and associated paperwork.
3. Potential for established freight networks: Access to the lessor's existing customer base and freight lanes.

Important Elements of a Lease Agreement

Before entering into a legal agreement, it is important to thoroughly consider all aspects of working arrangement that is being executed. A lease agreement is no different. Some of the key aspects to consider, discuss, and agree upon between parties include:

1. Payment structure: How the lessee will be compensated, usually based on mileage or percentage of revenue.
2. Insurance requirements: The lessee must maintain specific insurance coverage as outlined in the agreement. This typically means adding the lessee's trucks onto the lessor's insurance policy.
3. Dispatching: Whether the lessee will be dispatched by the lessor or have the ability to self-dispatch.
4. Maintenance responsibilities: Who is responsible for vehicle maintenance and repairs.
5. Compliance with regulations: The lessee must comply with all DOT regulations and safety standards.
6. Termination clause: Conditions under which either party can end the agreement.

Things to Consider Before Entering into a Lease Agreement

Before entering into a lease agreement, it is absolutely critical to properly vet the company and authority that you will be leased on to. Here are some key aspects to consider when evaluating an authority to lease on to. This includes checking the lessor's reputation with how they have treated other lessee's in the past. It is not uncommon for lessor's to withhold payments or misrepresent the actual revenue earned by the lessee.

1. Company reputation with past lessee's:  It is not uncommon for lessors to withhold payments or misrepresent the actual revenue earned by the lessee. Do some digging on social media and try to get feedback from others that have worked with the company.
2. Company safety record: This can be found using FMCSA's online databases such as Safer.
3. Insurance coverage: Understand the types of insurance coverage the lessor's company has as well as the insurance company's financial rating.
4. Load availability and pay: Make sure to understand the volume of loads that the lessor can provide for your trucks. Understand where these loads originate, where they deliver, how much they pay, and pick up and delivery terms.

The Drawback of Lease Agreements

A key drawback of entering into a lease agreement as opposed to establishing your own Motor Carrier operating authority is that you can end up remaining dependent on other companies for the direction and potential of your company. This may not necessarily be a bad thing depending on which company you are leased on to. However, there are plenty of nightmare stories of working with terrible companies. Be very careful when entering into a lease agreement and do your due diligence!

Lease Agreement Template

We've used this template ourselves to enter into lease agreements. We hope you find it useful as well! We've highlighted the parts that you should customize based on your own terms.

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Disclaimer: This post nor the provided template constitutes any legal advice. Here, we are simply sharing knowledge and tools that have worked for us. However, your situation may differ and required a more tailored approach that an attorney can help with developing.