Owner Operator Lease Agreement

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Owner Operator Lease Agreement

A Brief Introduction About the Owner Operator Lease Agreement

An owner operator lease agreement is an agreement through which an owner operator leases his equipment or his motor vehicles to a particular company or a particular customer. The definition of an owner operator is a person who owns a small business and also takes care of all the operations of such business. In most cases, the term “owner operator” is used to refer to independent contractors who rent out and drive their own trucks. They own and operate their own trucking business. Such owner operators operate their trucks to transport goods over highways for their customers. They may lease their vehicles to a carrier, or they may operate under their own authority.

An owner operator lease agreement is usually entered into between a motor carrier company and the owner operator wherein the motor carrier engages the services of the owner operator to provide transportation services for the purposes of its business. The owner operator leases his motor vehicles to the motor carrier company for a particular compensation. It is a mutually beneficial arrangement.

Who Take the Owner Operator Lease Agreement – People Involved

The people involved in an owner operator lease agreement are the motor carrier company that has a business of providing transportation services (known as the lessee) and the owner operator who owns a truck or a trailer that he leases to the motor carrier (known as the lessor).

Purpose of the Owner Operator Lease Agreement – Why Do You Need It?

The purpose of an owner operator lease agreement is to lay down in writing the terms and conditions under which the equipment will be leased to the lessee. Whenever a heavy vehicle company or any individual person who owns a heavy vehicle wants to hire a heavy vehicle to another person, this agreement is very necessary to record the details agreed to by the two parties. This contract serves as a mutual understanding between the owner of the truck / heavy vehicle and the person who wants to hire or rent it to use it for his own purposes. This way, there is no room for any misunderstanding and any conflict that might possibly arise amongst the parties at a later stage. The agreement takes into account all the rights and obligations of both parties and makes sure that the interests of both parties are protected under the agreement. These agreements are proof that once the parties have signed the agreement, they have agreed to all the terms and conditions mentioned in the contract.

Contents of the Owner Operator Lease Agreement

An owner operator lease agreement must contain all the important points that are necessary to provide evidence of the entire transaction. These include important clauses, such as the following:

  • Lease: Through this clause, the owner operator leases his truck or other equipment to the motor carrier company.
  • Term of the agreement: This clause shall mention the term for the lease shall operate and shall provide for renewal of the term of such lease if both parties agree.
  • Payment for service rendered: The compensation that is payable to the owner operator must be clearly mentioned. Such payment is usually a percentage of the revenue that the company earns for each trip that the owner operator completes.
  • Relationship of the parties: Under this clause, it is agreed by the parties that they shall have the relationship of a carrier and a contractor and not that of an employer and employee.
  • Maintenance: The owner operator has the responsibility of maintaining his vehicles or equipment in a good and safe condition to make sure they are fit for carrying out the services for which they have been hired.
  • Insurance: The owner operator has to maintain insurance for his equipment and any workers’ compensation insurance for his employees if any.
  • Liability: This clause mentions that the owner operator shall be liable for any damage caused by his equipment, and the motor carrier shall not be held responsible for the same.
  • Termination of the lease agreement: The agreement may be terminated when a party to the agreement causes a material breach of the terms of the contract, or it may also be terminated by mutual agreement by the parties.

How to Draft the Owner Operator Lease Agreement

Below are the steps to follow while drafting an owner operator lease agreement:

  • The parties should decide the terms that are important to the lease such as the term of the lease, the payment that will be made to the owner operator, how the transportation services shall be carried out, etc.
  • These terms shall be laid down in the owner operator lease agreement so as to make sure that both parties have reached consensus on these various terms and there is no room for any conflict in the future.
  • Care must be taken to ensure that the agreement provides an adequate remedy for all the events that will amount to a breach of the clauses of the contract.
  • The agreement must be thoroughly reviewed by both parties to ensure that their rights and interests are adequately protected under the agreement.
  • The agreement must be signed by both parties. This will ensure that the agreement is binding in nature.

Negotiation Strategy

The basic negotiation strategy is to assure that the agreement is fair to both parties and that their rights and interests are preserved.

It must be negotiated such that the agreement is fair and balanced and benefits both parties.

Benefits and Drawbacks of the Owner Operator Lease Agreement

Here are the benefits and drawbacks of having an owner operator lease agreement:

  • A major benefit of the agreement is that it provides solid evidence of the existence of the owner operator lease agreement between the motor carrier company and the owner operator.
  • The agreement serves as the proof of the terms and conditions under which the arrangement has been agreed to by the parties. The details such as the manner in which the transportation services shall be carried out and the amount of compensation that is payable to the owner operator are also laid out in the contract. This can prevent any miscommunication or conflict between the parties as to the agreed terms.
  • By entering into such an agreement with multiple owner operators, the motor carrier company can increase its fleet by a huge number.
  • The agreement helps to secure the rights and interests of both parties. The agreement will make the entire arrangement fair and balanced between both parties.
  • If such an agreement is not in place, there will be limited remedies available to the parties in case of a breach of the clauses of the agreement by one of the parties.

What Happens in Case of Violation?

Most owner operator lease agreements have a clause that talks about how any violation of the terms of the agreement will be dealt with. If one party breaches any term, the other party will have the right to terminate the agreement.

There will also be certain circumstances under which the owner operator shall be discharged from his duty with immediate effect. These circumstances include any immoral conduct by the owner operator while on duty, possession of or being under the influence of any illegal substance, possession of or being under the influence of alcohol, dishonesty, fighting, failure to immediately report any accident, failure to carry out instructions or direct orders of a supervisor, theft, leading or participating in any activities that are deemed detrimental to the motor carrier company. If the owner operator is found guilty of any of these acts, the motor carrier company can immediately terminate the lease agreement.

The agreement can also mention that all conflicts  arising out of the agreement will be subject to the exclusive jurisdiction of a specified court.

In conclusion, this owner operator lease agreement is needed when an owner operator wishes to lease his motor vehicle or lease his equipment to a motor carrier company. The motor carrier company will use such vehicles or equipment for the purpose of providing transportation services to its customers. The owner operator lease agreement is used to evidence the terms and conditions under which such lease shall operate and shall provide for all the details of the transaction. If such an agreement is in place, it is very useful to provide proof of the lease and of the various terms that have been agreed to by the parties. This agreement is mutually beneficial as the owner operator will have a good opportunity to increase his earnings, and the motor carrier company will have a big fleet of vehicles without actually employing any drivers.