What is a Semi Trailer Lease Agreement?
A semi trailer lease agreement is a legal document outlining the terms and conditions under which the lessee obtains possession of a semi trailer or trailer, which can be used for transporting goods, equipment, or other assets . While the parties have sufficient flexibility in drafting the agreement, most semi trailer lease agreements will contain the following terms:
• Description of Trailer
• Term of Lease
• Payment of Rent
• Insurance
• Indemnification
• Permitted Use
• Alterations
• Maintenance, Repairs, and Improvements
• Default and Remedies
• Environmental Laws
• Return of Trailer
• Transfer of Lease
• Sale of Trailer
• Governing Law
• Notices
• Binding Effect
• Severability
• Waiver
• Entire Agreement
• No Broker
• Headings
• Acknowledgment of Inspection
• Time of Essence
• Construction
Important Terms and Conditions
When drafting, evaluating, or renewing a semi trailer lease, it is important to understand the key terms and conditions generally included in such contracts. The most common contractual terms include:
Lease duration. While leasing contracts can be short-term, they are more often long-term arrangements relative to other equipment leases. Leases can be written for a term of one year or longer and may contain options to renew the lease for additional terms. It is important to read the lease to determine how it may affect your company’s financial planning.
Payment and interest. Payment and interest terms were inherently diverse in the past because they varied by company, state and county. These days, however, standardized interest rates and payment structure are all the rage. You still should read the fine print to determine how the lease will affect your cash flow.
Maintenance obligations. The issue of responsibility for maintenance and repair should always be addressed in an equipment leasing contract. In many cases the lessor may rent or lease semi trailers to trucking companies for a flat rate that includes maintenance and repairs. If you do not have frequent service personnel available for maintenance and repairs within the contract term, this may be a sensible option. Alternatively, you may want to take on some repair obligations to reduce your monthly rate.
Types of Semi Trailer Leases
The most common form of trailer lease is the durable agreement. In this instance, the lessor will rent a specific trailer unit for a specific use, for a specific duration (ranging from days to months). The trailer must be returned to the lessor at the end of the term, or the agreement may be renewed as needed. These semi trailer leases tend to be less formal, and can range from a few pages long to even operating off a two-sided printable checklist. It’s especially important to remember that the lessor can be held liable for any damages if a borrower decides to leave behind a damaged trailer.
Another type of trailer lease is the lease-to-purchase agreement. This often happens when an individual does not have enough capital initially to buy a trailer outright. Most of these agreements tend to be shorter in duration (usually three years). At the end of the agreement, the borrower is allowed to purchase the trailer, and if he or she doesn’t purchase it, the trailer will just be returned to the lessor.
The most physical ownership-like agreement is the lease/purchase agreement. The borrower has just about all of the responsibilities associated with ownership (except for outright possession), which allows them to (almost literally) take a leased trailer off the shelf and operate it like it’s theirs.
Advantages of Leasing a Semi Trailer
A good reason for leasing a semi trailer rather than financing the purchase of a new or used tractor trailer is reduced cash flow. The cost of leasing a semi trailer is going to be less per month than the cost of financing a new tractor trailer. A lease can be structured so that you have a lower monthly payment and built into that decreased monthly payment is the leasing company charging you nothing during the first 10,000 miles for repairs, maintenance and tire changes.
Leasing also allows for contestable circumstances in case something goes wrong with the tractor trailer. If you buy a tractor trailer and it’s defective to the point it will wreck your business you own the problems with it. A leasing company has a vested interest in delivering to you a tractor trailer that works, that is line with applicable laws and with specifications. You are a customer. You receive the tractor trailer for a monthly payment and the leasing company will have the right to buy the tractor trailer and sell it at the end of the lease.
There are several tax benefits for leasing a semi trailer rather than buying one. You can depreciate the tractor trailer rather than purchasing it. The lease payments can be deducted. Deducting lease payments can be tricky. You cannot deduct the full amount of a monthly payment if the lease is financed and not paid for up front. You need to look at the rate, the cost of the tractor trailer and whether the lease is a true lease or a lease that is really a loan disguised as a lease.
The lower monthly payment, the opportunity to deduct the cost from your business taxes and avoiding hassles in case of a default are great advantages of leasing a tractor trailer over financing the tractor trailer.
Key Considerations for Leasing
When considering a lease agreement for a semi trailer, there are certain factors that need to be considered. For example, how much will they need to pay to secure the lease? What will the insurance cost be? Are there different types of lessors they can choose from? These are just some initial questions they need to ask themselves.
Upfront Costs
When it comes to leasing semi trailers, there are many costs involved of which one should be aware. The first up front cost is to sign the lease itself. There is no shortage of semi trailer lease forms online. The only problem is that many of them are very one-sided in favour of the lessor. Therefore, in order to balance the lease so that it benefits both parties equally, a binding legal lease agreement is necessary. This contract is best drafted by an experienced transport lawyer.
Insurance
It is best not to lease a semi trailer until one is certain that the price of the lease, combined with the price of insurance, will be within their budget. For instance, insurance for a rental vehicle can be much higher than it would be for an owned one. One thing to keep in mind is that the specifications of the trailer will greatly influence insurance costs. For example, semi trailers that are equipped with better safety features, like antilock brakes and electronic stability control will cost less to insure than those that do not have these features.
Lessor
A lessor may be a manufacturer or a distributor who is associated with the manufacturer. There may also be third party lessors who are in the used equipment business. The sales side of the leasing business takes place in three ways. The first is through the manufacture – your typical BMW or Lexus dealership. The second is through a leasing department, separate from the manufacturing facility. Finally, there are independent dealerships that distribute equipment from a range of manufacturers. These are typically where the best deals are found.
Negotiating a Lease Agreement
The negotiation of favourable lease terms begins well before you agree to a lease deal. You should begin your due diligence as soon as you are searching for equipment. A few examples of important considerations during the due diligence process are: These are just some of the many questions you should ask yourself when searching for equipment for your business. The next phase of your due diligence is asking your dealer about the lease agreement . Some people overlook asking their dealer important lease questions and they end up in a situation with a lease agreement that does not suit them, especially on an operating lease. Important questions to ask your dealer include: When reviewing your proposal, ask yourself the following questions: Thinking about these considerations may help increase your negotiating position when it comes time to discuss your lease agreement.
Common Pitfalls to Avoid
Many factors contribute to whether leasing semi trailers is a smart business move for your company. When approaching agreements, common mistakes include overestimating needs in terms of size and other capacities while underestimating the risk of equipment failures and accident liability. Leasing businesses should also avoid underestimating the potential impact such agreements can have on their operations. If your company has determined it is far more beneficial to lease than purchase semi trailers or trailer equipment, it is vital to understand the ins and outs of these leasing agreements. This includes knowing what to look for contract-wise before both signing an agreement and driving off into the sunset. From identifying your needs to fully understanding all the materials within your lease agreement, businesses can make much smarter leasing decisions and find a leasing agreement that works for them.
Navigating Lease Termination and Renewal
Many semi trailer lease agreements contain an express provision relating to termination. These provisions typically state that notice must be provided by one party to the other within a prescribed period prior to the expiration of the term of the lease and that, should no such notice be provided, the lease will be extended for a further period. It is reasonable that the parties wish to obtain an advance notice of whether the lease is being renewed or terminated – often, there are plans that must fit into that timeline.
A failure to provide notice to terminate a lease agreement may be deemed a "holdover" or "tenancy-at-sufferance" situation. This means that the lease is not over, but has this unsatisfactory term. For example, the latest renewal term may have expired; you have changed your plans; and you would like the tenant to vacate immediately. If the court determines that there has been a holdover, the tenant will be responsible for an additional rental price (penalty) per month for each month that it occupies the premises following the expiration of the lease.
The above situation is likely to involve an express provision in the lease concerning holdover tenancies and default. For example, many lease forms include a provision that the tenant will pay double the rent as a penalty if it continues to occupy the premises after the expiration of the term. If the company does not have such a provision in the lease, or the provision is not written as intended, it is possible that the court will not determine that there has been a holdover situation.
This could be the case if you send a letter intending to terminate the agreement, but the wording or timing of the notice is not found to be sufficient. If no penalties apply, then the landlord will not receive the benefit of the bargain. In these situations, the landlord will still likely be able to obtain possession of the property, but will not be able to claim back-rent at the holdover penalty amount.
A similar scenario may arise from a failure to renew a semi trailer lease agreement before the expiration of the term. Many leases qualify for another renewal term, but the tenant must provide notice to the landlord as a condition. If the tenant does not give sufficient notice, the court may hold that the tenant is heldover and must continue paying the higher monthly rent amount.
This portion of the agreement is often negotiated along the same lines as an automatic renewal clause in a real estate lease – there may be some negotiating to determine how much notice must be provided. However, if your semi trailer lease agreement contains such an automatic renewal provision, and you wish to avoid the higher payment amounts, one easy solution may be to simply send a notice to terminate two or more months before the end of the term.
Regulatory and Compliance Issues
Legal considerations for semi trailer lease agreements extend far beyond the fine print of the contract itself. For both parties, it is essential to be well versed in the legal standards that will apply to the lease agreement and to be able to advise on understanding the finer points of their obligations.
The Transport Operations (Road Use Management—Mass, Dimension and Weight) Regulation 2015 (Qld) (Qld Regulation) prescribes the maximum permissible mass for loaded buses, prime movers, trailers and long combination vehicles. Non compliance with mass and dimension restrictions will usually result in a fine, some infringement notices may be issued by the Queensland Police Service.
The Heavy Vehicle National Law (Qld) 2013 (HVNL) was enacted in recognition of the national nature of the industry and its contribution to the Australian economy. The HVNL requires drivers to take reasonable measures to ensure that their vehicles do not exceed mass limits. The HVNL also imposes speed, work and rest limits on heavy vehicle drivers and provides heavy vehicle licensing, registration and identification provisions. Importantly, there are heavy vehicle work diary requirements.
The Road Traffic (Vehicles) Act 2015 (Qld) excludes certain classes of trailers from registration under the act. Trailers which are eligible for exemption must be marked with the prescribed information and be covered by a current certificate of exemption in order to operate lawfully. Failure to comply with the certificate of exemption provisions of the act is an offence punishable by a maximum penalty of 40 penalty units . This exemption is only granted in limited circumstances and other registration requirements must be met.
The NT Work Health and Safety Act is intended to protect public health and safety in the workplace, without imposing unnecessary cost burdens on businesses. Shared responsibility between persons conducting a business or undertaking (PCBUs) and workers is purposefully enshrined in the NT Work Health and Safety Act.
Section 19(1) of the Work Health and Safety Act 2011 (Qld) requires PCBUs to ensure, so far as is reasonably practicable, the health and safety of workers the PCBU engages or causes to work. PCBUs must also ensure the health and safety of other persons is not put at risk from work carried out as part of the conduct of the business or undertaking. In Queensland, negligent breaches of work health and safety obligations carry a maximum penalty of 3,000 penalty units.
Importantly, the Contracts Review Act 1984 (Qld) permits the Court to review contracts judged to be oppressive or unconscionable at the time of formation or those which are determined to no longer represent the parties’ true commercial position. An example of an oppression clause would be a termination clause without provision for a grace period in the event that payment is late.
Directors and companies have a duty to act in good faith and in the best interests of the company. Directors should give due consideration to the terms and effect of semi trailer lease agreements, and receive regular updates as to the company’s obligations under those agreements.