Leasing

Scope

With few exceptions, the FMCSA regulates the use of equipment by a carrier that does not own the vehicle. The rules also contain protections for leased drivers. 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).

Regulatory citations

• 49 CFR 376.12 — Lease requirements
• 49 CFR Part 376 — Lease and interchange of vehicles
• 49 CFR 390.21 — Marking of self-propelled CMVs and intermodal equipment

Key definitions

• Lease: An agreement that creates a contractual relationship in which the use of equipment is granted for compensation by the owner to an authorized carrier.
• Lessee: Usually the carrier, the lessee is the party acquiring the use of the equipment, with or without a driver, from another.
• Lessor: Is the party granting the use of equipment, with or without a driver, to another.

Summary of requirements

The regulations require that a lease between a carrier (lessee) and lessor be in writing. A copy of the lease must be carried in the vehicle during the term of the lease.

Disputes between a lessor and a carrier must be resolved in a court of law or through a private dispute resolution procedure.

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).

A lease agreement must:

• Be in writing, clearly identify the parties involved, and signed by the equipment owner and the authorized carrier;
• Identify all equipment involved in the lease, including vehicle identification numbers;
• State that the carrier has exclusive possession and control of the leased vehicle, and assumes responsibility for the operation of the equipment during the term of the lease;
• Specify the carrier’s legal obligation to have and maintain public liability insurance pursuant to current state and federal regulations;
• Specify the method of compensation and rate of payment to the lessor; the regulations do not prescribe the method of compensation, but require that the method is clearly stated in the lease;
• Describe terms under which loading and unloading will be performed;
• Contain terms and conditions under which operations will be performed, such as permit costs, base plates, licenses, fuel costs, fuel tax reporting, empty mileage, tolls, detention, accessorial services, and any unused value of licenses and permits;
• Define who is responsible for repairing, maintaining the equipment;
• Explain any expenses or insurance costs charged back to the lessor;
• Prohibit any requirement for the lessor to purchase or rent equipment or services from the lessee as a condition of the agreement;
• Confirm the status of the lessor as an independent contractor, not an employee.

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. And the lease must 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.

Independent contractor status. To satisfy IRS law, it is important to determine whether a worker is an independent contractor or an employee. This determination is complex but is essentially made by examining the right to control how, when, and where the person performs services. It is not based on how the person is paid, how often the person is paid, or whether the person works part-time or full-time. The general rule is that an individual is an independent contractor if the person for whom the services are performed (lessee) has the right to control or direct only the result of the work, and not what will be done and how it will be done or the method of accomplishing the result.

The courts have considered many facts in deciding whether a worker is an independent contractor or an employee. These facts fall into three main categories:

1. Behavioral control. Facts that show whether the business has a right to direct and control how the work is done through instructions, training, or other means.
2. Financial control. Facts that show whether the business has a right to control the financial and business aspects of the worker’s job.
3. Type of Relationship.

• Topic 762: Independent Contractor vs. Employee
• IRS Tax Publications: Independent Contractor or Employee
• Publication 15-A Employer’s Supplemental Tax Guide

• A standard trip lease agreement is used for a single trip or a lease of short duration. This agreement is a preprinted form on which the required information is entered; it also has provisions for designating the exact time the lessee took possession of the equipment, and the exact time the lessee released the equipment. Standard terms and conditions are printed on the back of the form, and, with the information on the face of the trip lease contract, meet the leasing requirements in Part 376.
• A master lease agreement may be used for on-going, intermittent trip leases with the same lessor/owner. The Master Lease consists of two documents: The Master Lease Agreement, and the Master Lease Supplement and Equipment Receipt. Used together, the leasing requirements in Part 376 are satisfied. The master lease is drawn up to detail the overall terms of the agreement and lists the equipment that may be used for a trip lease between the same lessee and lessor. This allows an individual trip lease to take place without drawing an entirely new agreement for each trip. When a trip actually takes place, a Master Lease Supplement and Equipment Receipt must be executed setting forth the actual time and date of the beginning and end of the trip.
  
  In both a standard trip lease and master lease situation, the lease begins when the lessee takes possession of the vehicle to be leased, and issues a receipt to the lessor. The lease terminates when the lessee returns possession of the vehicle to the lessor and the lessor issues a return receipt to the lessee. When the lease is in effect, the lessee has exclusive possession and use of the leased equipment, and assumes complete responsibility for the operation of the equipment
• A time-specific lease is a contract of longer duration, usually 12 months. This lease usually automatically renews, unless either party notifies the other prior to the specified termination date. The lessee/carrier is the authorized carrier and is responsible for legal operation of the vehicle for the duration of the lease. A time-specific (or long-term) lease agreement is generally a detailed contract, drawn according to individual company requirements and policies (while meeting the requirements for written lease agreements in Part 376). Neither the Standard Trip Lease nor the Master Lease Agreement is suitable for a lease agreement of this type.

Lease agreements vary — they do not all say the same thing, even though they may appear to be similar. Therefore, it is important to read and understand all provisions of a lease before signing. Consulting an attorney to assist in drafting or reviewing the lease will help to ensure a legal and fair contract.

Lease and rental vehicles and DOT numbers. The vehicle must have the required information on both sides of the power unit identifying the carrier under whose authority the equipment is being operated. Leased vehicles must display the authorized carrier/lessee’s name and US DOT number before the using the vehicle on public roadways. All rented and leased vehicles operated by a carrier are required to comply with the DOT marking rules in 49 CFR 390.21.

Short term rental: Sometimes a vehicle is rented for a short period of time – 30 days or less. These vehicles, too, must be properly identified before operation. However, there are some regulatory options for legal identification of these short-term rental vehicles:

• The vehicle may display the carrier’s legal name (or tradename if included in the carrier’s MCS-150) and USDOT number; or
• The vehicle may display the legal trade name (or tradename if included in the carrier’s MCS-150) and USDOT number of the owner/lessor of the vehicle and carry in the vehicle the rental agreement between the renting carrier and the lessor/owner. The rental agreement must be prepared in compliance with the requirements in 49 CFR 390.21(e).

This marking exemption applies to the exterior identification display only. If you, as the leasing carrier, opt to display the owner/lessor’s name and USDOT number on the short-term rental, this does not eliminate your responsibility as the leasing carrier for all vehicle and driver compliance with the FMCSRs. Any safety events are attributed to the leasing carriers USDOT number, not the owner/lessor’s DOT number shown on the vehicle.