What is California AB5 and how does it impact carriers?
What is required to be in a lease?
- There are numerous components that are required to be included in a lease.
- Leasing parties may negotiate certain items such as who will bear the expenses of fuel, fuel taxes, empty mileage, and other operating costs.
- Some requirements of the leasing rules are not open to negotiation.
The contractual relationship between the lessee and the lessor is governed by 49 CFR 376, Lease and Interchange of Vehicles, and enforced by the Federal Motor Carrier Safety Administration (FMCSA).
There are specific requirements that must be part of the agreement, while other terms can be negotiated.
The following is a high level plain English list of the requirements.
- Receipts that identify:
- The equipment to be leased
- The date and time of day that possession begins and ends
- Identification of equipment:
- Equipment to be properly marked with the operating carrier’s name and U.S. Department of Transportation (USDOT) number (there are exceptions to this requirement for short term rentals and for related carriers)
- Copy of the lease carried on the equipment
- Records of equipment – documenting each trip
- Parties - agreement to show:
- Lessor (who is making equipment available) and lessee (renter of the equipment)
- Signature of both
- Specific duration – Indicating the time and date or the circumstances of when the lease begins and ends (this needs to match the receipt times above)
- Exclusive possession and responsibilities – Renting carrier has:
- Exclusive possession, control, and use of the equipment
- Complete responsibility for the operation of the equipment
- Compensation must be specified
- Other required Items of the agreement:
- Who’s responsible for removing vehicle markings
- How the equipment receipt will be given
- Who’s responsible for the cost of:
- Fuel taxes
- Empty mileage
- Tolls and ferries
- Detention and accessorial services
- Plates and licenses or refunds
- Loading and unloading
- Renting carrier responsible for overweight citations
- Payment period
- Within 15 days after submission of delivery documents
- Payment documentation limited to log and documents necessary for the carrier to receive payment from the shipper
- The carrier can require additional documents but not as a condition of payment
- Copies of the freight bill or other form of freight documentation if the equipment provider’s revenue is based on a percentage of the gross revenue
- Applicable rate or tariff documents must be provided
- Agreement must include any charge-back items
- Products, equipment, or services from the carrier
- The equipment provider is not required to purchase or rent any products, equipment, or services from the carrier
- The agreement must specify when and how deductions for purchase or rental payments are made
- The renting carrier must maintain the required levels of bodily injury and property damage insurance.
- The agreement needs to specify who’s responsible for providing any other insurance coverage, such as bobtail insurance
- The conditions of any escrow funds
The parties may negotiate certain items such as who will bear the expenses of fuel, fuel taxes, empty mileage, and other operating costs. The lease must also state who is responsible for deductions. This information must be clearly spelled out in the lease.
Some requirements of the leasing rules are not open to negotiation. The requirement of a 15-day settlement period is not negotiable. Nor is the lessor’s right to a copy of the rated freight bill when compensation is based on a percentage of the revenue. The lease must also specify the carrier’s (lessee’s) obligation to maintain insurance coverage for the protection of the public.
The lease may provide that, upon termination of the lease, the lessor must remove and return all identification to the lessee as a condition of payment.
The lessee/authorized carrier must furnish a written receipt recording the date and time it takes possession of the equipment from the owner. Upon termination of the lease, the lessee must provide a "release of equipment" stating the date when the lease agreement ends, and possession and control is transferred back to the lessor.