A trucking company could increase its transport strength by taking in owner-operator drivers. Compared to the giants in their industry, smaller businesses want to increase their fleet to increase business. They know that these owner-operator drivers are independent contractors, not employees. To ensure that all parties understand what’s expected of them, an official agreement must be in place. This is where owner-operator contracts come in. A well-made contract will provide a detailed list of requirements for both parties, the owner-operator and the truck company. With this agreement, you can eliminate questions and confusion.

Owner Operator Lease Agreements

What is an owner-operator lease agreement?

A company lease owner-operator agreement is a contract that outlines the specific terms when a trucking company leases services from an independent truck driver. This agreement is important because the owner-operators who will provide transport services to the trucking company aren’t considered employees. They are independent contractors who lease hauling services to a trucking company for specific jobs.

For these services, the company will pay an agreed-upon fee to the owner-operators. The comprehensive lease agreement between the two parties will also cover potential problems that might happen during the duration of the agreement. You can discuss the various elements in the contract too.

Truck Leasing Agreements

Who is the lessor in a lease agreement owner operator?

In truck leasing agreements that involve owner-operators, a lessor is the one who grants a lease to another person or entity. In this case, the lessor is the owner of an asset (a truck) that’s leased under an agreement to the lessee (the trucking company). In return, the lessee will provide a fee to the lessor to use the asset.

In an agreement, the lessor who will rent something out is usually the person who owns the asset too. Here, the owner-operator is the lessor. They must issue a lease agreement that would allow the lessee to use their asset, live in their property, or use their vehicle for a set period of time. Stipulated in the agreement will be payment details, which will depend on what both parties agreed upon.

The lessor can either be an entity or an individual and the lease agreement that they will enter into with the lessee is legally binding for both parties. The agreement will also list the obligations and rights of both parties along with the use of the property.

The lessor may even allow special privileges to the lessee like early termination or renewal without changing any of the terms. If you’re the lessor, you can decide these things. Your main advantage as the lessor is that you will retain ownership of your asset while earning a Return Of Investment (ROI) on your capital. For the lessee, regular payments are much easier to finance than if they would make a full purchase for the asset.

Why do you need this agreement?

You can use an owner-operator lease agreement in different ways, the most important of which is that it will serve as a mutual agreement between the owner of the truck and the party that wants to rent or hire it. Since the document contains all of the regulations and terms that both parties have agreed upon, it acts as a formal understanding between them.

As such, it will eliminate any issues or misunderstandings that might arise. The document will also serve as proof that you and the other party have agreed to all of the terms and conditions stated in it since you have both affixed your signatures on the document.

Things to look out for when creating this document

One of the best ways for companies to increase their fleet capacity is by hiring owner-operators. While this is more practical, entering into an owner-operator lease agreement can also come with some risks. To make sure that both parties feel satisfied with the arrangement, they must pay attention to the contents. Here are the points to focus on when creating or going through this document:

  • Carrier

This party must be very careful not to treat the other party the same way they treat their employees. This is the reason why most carriers don’t require the owner-operator to do anything beyond what’s specified in the agreement.

  • Owner-Operator

As the owner-operator, you should maintain certain standards. For instance, if you’re under a lease and you forget to complete a logbook or you make a traffic violation, this won’t reflect not just you, but on the safety data of the carrier too. Because of this, most carriers that hire owner-operators expect them to meet specific standards.

Owner Operator Contracts

Types of owner-operator lease agreements

There are different types of trucking company owner-operator lease agreements since independent truck drivers run their businesses in different ways. You might even have your own thoughts on how to make such an agreement. The common types are:

Lease Purchase Agreement

Also known as a lease-to-own agreement, it will allow you to pay a fee every month to the carrier to use a truck. When the contract expires, you have the choice to purchase the truck from the carrier. This is a great agreement if you’re an owner-operator who is just starting or you don’t have enough funds to purchase a truck.

Drivers with no credit or poor can also benefit from this agreement. This type of agreement can help drivers engage in the transport service while earning. But in most cases, you would have to take care of the repair and maintenance costs.

Lease Program

This agreement is similar to the first one, where the trucking company will lend you a vehicle for use on the job. At the end of the agreement, you aren’t required to purchase the truck. When the agreement expires, the trucking company will either renew your lease or give you a different truck to drive

This is similar to a car lease program. You will lease a car, make monthly payments, then return the car to the dealership when the lease expires. With a truck lease program, the monthly payments are significantly lower but you would have to pay a down payment before you can start driving it. Also, these programs may have specific credit requirements that will depend on the finance company that the carrier uses.

Lease-On Agreement

In this agreement, you own the truck and would lease it to a trucking company. The process will involve you giving permission to the trucking company to use the truck for specific services on behalf of the company. Leasing your truck to a trucking company is ideal if you’re an owner-operator since the trucking company will handle most of the paperwork and the fuel tax. The company will also find jobs and freight while providing dispatching services.

What to include in an owner-operator lease agreement?

In a owner-operator lease agreement, you as the owner-operator should follow a specific format. Make sure to include the following:

  • Parties involved 

Include the names of both the owner-operator and the trucking company. Also, include a space for the signatures of both parties too.

  • Duration 

This refers to the starting and ending dates of your agreement, along with any possible extensions that either party might deem necessary due to delays or any other reasons.

  • Equipment involved

This refers to the vehicle or equipment used during the transport. This may include the truck, liftgates, trailer, converter dollys, tiedown devices, and more. You may also specify which of the parties will provide or pay for the equipment specified.

  • Exclusive control and possession 

You need to specify that the trucking company will have control of the owner-operator vehicle and any other equipment used throughout the leasing period. As the owner-operator, you must comply with the specific rules of the trucking company throughout the term of your agreement.

  • Termination procedures

This includes the immediate removal of the trucking company’s name as soon as the agreement expires. You should also clearly outline the specific termination procedures in case any issues arise. This includes the circumstances by which the agreement might get terminated along with the process for removing the name of the trucking company upon termination.

  • Compensation method and payment details

You must clearly state the payment method in the lease based on trips, tons, percentage of revenue, or mileage. You shouldn’t allow payment periods over 15 days from submitting the proof of delivery. Include a “right to inspect” the carrier billing if you will base the payment on the percentage of revenue. Specify that the carrier will pay chargebacks initially, then charge against you. Also, include any other payment details you have agreed upon.

  • Legal obligation of the carrier to possess and maintain cargo insurance and public liability

Specify any liability and cargo insurance offered by the trucking company and which party will take care of the type of insurance, paperwork, permits, and similar issues. For instance, if the trucking company purchases insurance, you have to receive a copy of the information that includes the policies. This may also include:

  • Details about arbitration or mediation, if necessary.

The party responsible for other types of insurance like bobtail coverage.

  • Deductions 

Include details about deductions from your settlement. Also, outline the provisions you will make in cases where the cargo gets damaged en route or at the point of origin or destination.

What kind of lease agreement between owner-operator and trucking company?

An owner-operator owns and operates the vehicle he drives. In a lease agreement for trucking, the vehicle is a truck. As the owner-operator, you’re responsible for all of the expenses incurred while you operate your vehicle, including fuel, insurance, maintenance, and more. While the driving skill set may be the same between owner-operators and company drivers, there are significant differences between occupations, the most notable of which is the difference in pay.

Some owner-operators prefer to have their own authority over their vehicle rather than offering their services to leasing firms. In the trucking world, the “authority” refers to the permission granted by the Federal Motor Carrier Safety Administration (FMCSA) to transport goods for profit. Within this authority, you have two types:

  • Common carriers hire themselves out to any entity that offers payment for the transport of legal goods.
  • Contract carriers haul freight exclusively for companies they have signed an agreement with.
  • The agreements between trucking companies and owner-operators should also comply with the established rules and regulations of the FMCSA.

Lease Agreements For Trucking Company

Is it better to own or lease a truck?

Often, small business owners don’t consider the tax implications of leasing or purchasing equipment. Instead, they recognize the need to purchase equipment from an operational perspective. For a small business owner, cash isn’t usually far from the forefront.

An operating lease will provide small business owners with the right to use an asset (in this case, a truck) for a specified lease term. In such a case, the business owner will assume no benefits or risks that come with the ownership of an asset beyond its use. When the lease term ends, the small business owner must surrender the truck to the leaseholder.

In some cases, there may be a purchase option with a price that’s near or at the fair market value of the truck. In such a case, business owners may deduct operating lease payments as expenses. But if business owners want to purchase a truck, they need to do the following:

  • They must place this purchase on their balance sheet as an asset, while any loans they take for the purchase of the truck would be considered liabilities. In this case, the owner will have all of the benefits and risks of ownership along with the truck’s purchase.
  • They can estimate the vehicle’s depreciation by subtracting the estimated salvage value from the purchase price. Then they would divide the value by the vehicle’s useful tax life, with is usually five years.
  • They should also deduct any interest they paid on acquisition loans.

For those who already own a truck, how they would determine to lease their vehicle or purchase another one would depend on their business and their current year-to-date profitability and cash balance. If their business has high profitability, they could purchase another vehicle and use section 179 as a deduction. But if their business has low profitability, they can use an operating lease to deduct expenditures every month and avoid the potential risks that come with ownership.