The Essentials of Trailer Lease Agreements: What You Need to Know and Best Practices

What is a Trailer Lease Agreement?

A trailer lease agreement, as in our example above, is a commercially negotiated contract between a truck trailer fleet operator and a carrier under which the carrier may rent or lease a trailer on a short to mid-term basis. It does not cover semi-truck tractors or other equipment. There are two basic types of trailer lease agreements: (1) a "wet" lease, in which the lessor maintains control over and responsibility for the trailer and pays the driver directly, and (2) a "dry" lease, in which the carrier leases the trailer along with the duty to pay the driver . Generally speaking, a wet lease will have a higher per diem rate than a dry lease, given the lessor’s increased level of service. Industry practice indicates that a wet lease is generally only used when a carrier has a specific, short term need for a trailer. Examples include, but are not limited to: (1) when a carrier needs to avoid laying off drivers during a slow business season, or to provide an incentive so that a driver will not leave the carrier’s employ, (2) when a carrier needs a trailer for a temporary contracted service, or (3) when a carrier needs to replace a trailer that is broken down or inoperable.

Key Features of a Trailer Lease Agreement

• Terms and Conditions: A trailer lease agreement should clearly state the terms and conditions for the use and return of the trailer. The agreement should state how long the trailer can be used, and whether that timeline is flexible. It should also address situations where the trailer is damaged, or where it becomes unusable for other reasons.
• Lease Duration: The trailer lease agreement should identify the start date and ending date for the term of the lease. If the lease is automatically renewed at the end of its term, that should be stated as well. The agreement should specify the duration of any renewal terms, and how long either party must provide notice of termination of the lease if it is not automatically renewed.
• Payment Obligations: The trailer lease agreement should identify the total rental for the term of the lease, and when the payments are due. Ideally, the trailer lease agreement will create a schedule for monthly, weekly or bi-weekly payments of the rent, or other payments due during the term of the lease, as well as a penalty for late payments, if any. How payments are to be made should likewise be addressed. Can the lessee pay the rent online, over the phone, in person, or only by mail? If only by mail, how long does that process take, and can the lessee be assessed a penalty for a payment taking too long to arrive?
• Maintenance Requirements: Maintenance requirements can include routine maintenance – oil changes – and major maintenance – transmission repair – and how those maintenance responsibilities are divided between the parties. If the lessee is required to handle routine maintenance, but the lessor is responsible for more costly repairs, or vice versa, the trailer lease agreement should clearly state who has control and who is responsible for each function. If the lessee is responsible for repairs, the trailer lease agreement should help ensure the lessor benefits from competitively priced services, and negotiate with potentially biased technicians on such issues as the cost of parts or the scope of required repairs.

Advantages of a Trailer Lease Agreement

When the alliance between a distribution center operator and an owner/operator is newly established, there may be little to no cash flow to purchase a trailer. Trailer leasing solves this problem. For a distributor with cash on hand, however, purchasing a trailer may have advantages — trade in the down payment and depreciation. Before deciding between leasing and purchasing, consider that leasing minimizes your initial outlay; either storage space can be rented to a third party to maximize your investment or the trailer can be paid off slowly in manageable increments, rather than all at once. Leasing is also cheaper than buying. One reason for this is that specialized leasing companies do the paperwork for you, while truck dealers handle their own orders and sales. Because they can divide their administrative costs over more trailers, leasing companies charge 1% to 3% of the value of the equipment per month — at least half the 4% charged by truck dealers. A third reason is that you are not paying for a trailer until you use it. In essence, you are paying for it while it earns its keep. This is very important to the business that must invest precious capital into several warehouses. Finally, leasing a trailer adds considerable flexibility. A contract can last as short as one month, a refreshing alternative to leasing a truck for three or five years. Some insiders also believe that leasing is better than buying because leasing a trailer often leads to enhanced service from the trailer dealer.

Typical Provisions of a Trailer Lease Agreement

When leasing a trailer through an independent company, there are several commonly found terms in the lease that you should know about so that you are fully informed. Cancellation policies, security deposits, mileage limitations and insurance requirements are common items in the agreements that you should be aware of.
The cancellation policy may include a cancellation fee. If your plans change unexpectedly and you need to cancel your reservation, the cancellation policy is something you will want to know about. Fees and deadlines for cancellations vary from one company to another. It is a good idea to find out what the policy is so that you are not unpleasantly surprised if you need to change or cancel your plans. Many companies allow you to change your reservation without charge, but this may only apply to certain circumstances such as inclement weather or a family emergency. Be sure to also check the details regarding rescheduling for late arrivals and early departures.
Depending on the company, a security deposit may be required to hold the reservation. Similarly, an upfront rental payment may be required. The deposit may be used as part of the rental price as a way to protect the company against damages or losses. Companies often state that this is fully refundable in good faith if there are no problems when the trailer is returned. A deposit may be fully non-refundable if the reservation is canceled without the proper notice. To avoid confusion, read the policies in the rental agreement to know if and under what circumstances the security deposit will be refunded.
All motor vehicles are subject to mileage allowances. It is no different with trailer rentals. Companies will often set mileage allowances in their agreements. If the trailer is returned with a mileage amount exceeding the agreed mileage, an extra mileage charge will usually apply. The cost per additional mile will be included in the agreement. It is not likely that the company will allow for unlimited miles on a rental, as this would be very costly so it is best to check for the limitation then plan accordingly to avoid unnecessary expense.
Unless you have your own liability and damage insurance, the company will require separate insurance. There are four common types of insurance that trailer rental companies offer. The first is Liability Insurance which provides that following an accident, the insurer will pay for property damage and medical expenses for injury to everyone involved. The second is Damage Insurance which provides that after an accident the insurer will provide compensation to you for the damage to your vehicle. Third is Supplemental Liability Insurance which provides compensation to third parties in certain circumstances. It will not provide payment to you for damage to the rental or your personal property after an accident. The fourth type is Personal Effects Protection which gives you limited coverage for some valuables that you may be transporting. All of the limitations of the insurance policies should be clearly outlined in the agreement.

Negotiation Points for a Trailer Lease Agreement

The negotiation of the trailer lease agreement can go a long way towards helping to ensure that you are both obtaining the very best deal available and also protecting your rights. In the process of negotiating the trailer lease agreement, be certain to ask questions of the broker or carrier and, if those questions are not answered to your reasonable satisfaction, consider making contact with another brokerage or carrier for purposes of being provided with either a more favorable offer or an offer which is more complete in terms of its content. While the negotiation may at times be difficult, there are a number of ways in which you can approach the process of negotiating the terms of the lease agreement in an attempt to ensure that you are reaching the very best deal for yourself. For instance, price can be utilized as a go-to point in terms of negotiating the most favorable deal for your company. If you are agreeing to lease a trailer that is otherwise sitting idle and would not otherwise be generating revenue for the brokerage or carrier, you can often negotiate a lower price than you otherwise could . Most parties to a trailer lease will also negotiate with regard to the length of the lease agreement. If you know that you are going to require the trailer for a 12-month period of time, there is nothing wrong with negotiating for this extended term. Keep in mind, however, that these negotiations may result in a trailer lease which is slightly longer than the length of time which you wish to utilize the subject trailer. The reason for this is that a longer lease term will provide the negotiating party with additional "leverage" in the negotiations. When presented with a longer term, the negotiating party may be more likely to consider a higher price. Additional services are also common points of negotiation. For example, you may be able to negotiate for the availability of services such as drop-off, pick-up and maintenance with regard to the subject trailer. If these services will certainly be helpful in regards to the way in which your company does business, add them to your list of items to be negotiated.

Legal Issues in Trailer Leasing

When it comes to leasing a trailer, both lessors and lessees should be wary of the legal aspects involved in signing a lease agreement. Both parties can benefit from fully understanding the laws that govern trailer lease agreements, regardless of whether they are the party leasing the trailer or the party who stands to profit from the lease. Having a strong understanding of these laws will allow each party to better approach the lease agreement and prepare themselves for any unexpected regulations or legal hurdles that could arise.
Both federal and state regulatory requirements apply to trailer lease agreements, so it is important that businesses work with qualified attorneys to understand how these laws will apply in their specific cases. When it comes to interstate leasing, both the Federal Motor Carrier Safety Administration (FMCSA) and the licencing agency of each particular state are responsible for regulating the lease agreement. The FMCSA is responsible for outlining the acceptable terms of lease agreements, while state agencies handle which companies or individuals can enter into a lease agreement and whether an interstate lease agreement is the appropriate type of leasing mechanism to use in the case of each specific transaction.
The enforceability of trailer lease agreements is largely dependent on whether the lessor and lessee have successfully adhered to all applicable laws. Failure to meet the regulatory requirements necessary for entering into a valid contract for a lease agreement will result in the un-enforceability of the contract and lead to negative consequences for both parties. In most cases, this will cause the FMCSA to prohibit the lease agreement between the lessor and lessee and prohibit the business activities of the business that is not authorizes to enter into the agreement.
There are many potential issues that could arise from a dispute between the lessor and lessee over the terms of their trailer lease agreement. It is imperative that both parties research the most efficient method of dispute resolution prior to signing a lease agreement to avoid costly litigation costs in the future. This can typically be done by reducing the terms of the agreement prior to signing. Arbitration is often the most common form of alternative dispute resolution used in the trailer leasing industry, but businesses should explore the various options available to ensure they are fully equipped to handle any disputes that may arise.

Common Questions on Trailer Leases

The most common questions asked by businesses and individuals leasing trailers include:
What is a trailer lease?
A lease for a trailer is a legally binding contract between a trailer owner or vendor and a party that leases the trailer to another. The lease assigns responsibilities between the two parties. It may be referred to as an equipment lease, dry van lease, or container lease.
What do trailer leases cost?
The costs of locking in a trailer lease come down to negotiating your needs for maintenance, responsibility for damage, payment options and fees for early termination. Cost depends on a variety of factors that may include the type of trailer (dry van, container, etc.) , length of the lease and whether you are a new business or are a new customer for an established trailer leasing company.
Can I sub-lease a trailer?
You may be able to sub-lease a trailer to another business as long as permission is granted in writing from the trailer owner or vendor. Conditions may be outlined in the lease stated in writing. You can list the contact information for a sub-lease agreement as part of the contract between you and the trailer leasing company.
How can a trailer lease be cancelled?
Cancellation may include a written agreement to terminate the lease early if the terms of the lease allow for it. To cancel the trailer lease, you may need to return the trailer to its owner and send written notice stating the request to cancel the lease. Contact a lawyer to help draft the cancellation of the trailer lease.