What is an Agreement to Terminate a Truck Lease?
An integral part of the contractual relationship between a motor carrier and its drivers that are leased to its fleet, a lease termination agreement is a document showing that the driver/employee and the carrier are terminating their relationship. However, although relatively simple in its form and purpose, it is one of the most important documents in any trucking company.
A trucking company’s lease or owner operator agreement is a very involved document that covers all aspects of the relationship between the independent contractor and the motor carrier, but as with any written agreement, this relationship is made much more clear and legal when the document is signed by both parties. With that , it is critical that both parties understand the vital importance of signing a lease termination agreement when severing the relationship.
Here are some of the most common points to consider:
The nature of the lease termination agreement is such that it serves as a record of any potential liability on either party. If there are damages, they must be dealt with after it is signed, as this document resigns any liability either party has for damages.
A contract showing that the working relationship is over will also show the transition between the employment of the driver and the unemployment of the driver. It is extremely common for motor carriers to "string along" independent contractors, which can result in investigations. Lease agreements signed at the same date as the termination agreement can help prevent investigations and other legal issues by offering a written termination date that matches the date on the lease or owner operator agreement.
Provisions of an Agreement to Terminate a Truck Lease
Much like a lease agreement, the termination provisions for the lease agreement are a critical and necessary component of the agreement. First and foremost, termination of the lease agreement as well as the process to terminate the agreement must be made crystal clear so that little dispute is made with respect to whether an agreement has been properly terminated. This provision should address the process to terminate the lease, including any written notification provisions. In other words, the lease should address whether a written notice to terminate is required, the timing of any such notice, and how the notice must be provided.
In addition to the timing and form of a notice to terminate, the termination provisions in a lease should address any notice provisions if the trucking company terminates the lease. Notice provisions in the event a trucking company terminates the lease are required under the federal regulations. 49 CFR 376.12(e). These provisions provide, in relevant part, that: "The motor carrier which leases or rents equipment to a qualifying carrier shall give the qualifying carrier at least 6-months’ advance notice prior to terminating the lease or rental agreement. The exception to the notice period is if the lease is terminated for cause in which case no advance notice would be required. A lease agreement can be terminated for cause if it is found that either party engaged in misrepresentation in connection with the execution of the agreement or if the qualifying carrier fails to comply with the terms of the lease.
Legal Obligations and Rights
As with all contracts, each party to a trucking lease termination agreement is bound by their legal rights and obligations under the agreement. Provided that the termination agreement is sufficiently clear, these rights and obligations should be self-evident. However, it is important to address two key points.
First, most trucking lease termination agreements do not go into detail as to the exact circumstances under which the lease agreement was terminated. Typically, only a general statement of mutual termination is made in the agreement, without regard to the reasons for the termination.
Second, lease termination agreements will almost always include a mutual release of legal claims between the parties. The release clause will often state that each party agrees to waive the right to file suit against the other party for any injuries suffered up to the date of the termination agreement. Thus, the lease termination agreement not only takes care of the business issues between the two parties but also their rights and obligations in the event that either party subsequently suffers an injury for any reason related to the lease agreement or termination of the lease agreement.
How to Terminate a Truck Lease
The termination process begins with your notification to the leasing company of your intent to terminate the lease. Once we are notified to represent you, we will request that you forward us a copy of each lease and any other relevant documents, such as extensions or modifications.
Then we follow this 6-step process:
- Review all documents and find lease for the specific vehicle to be repossessed.
- Ensure notice of default letter was timely sent to you.
- In these cases, a notice of default letter is usually sent 5-10 days before the scheduled pick-up. We are able to stop the pick-up of the vehicle if we send a letter disputing the default within 10 days of the notice of default letter.
- Research the origination of the lease to determine who owns the lease and then contact them to determine your options.
- Negotiate on your behalf with the leasing company.
- We like to think we’re good negotiators, and we want to help you get the best deal possible to keep you in business.
Several Problems with Agreeing to Terms to Terminate a Truck Lease
Given the complexity of the trucking business, it is not unusual for companies to find themselves having to terminate a motor carrier’s lease with them. Of course, terminating the lease of an independent contractor is not as simple as it may sound.
It is important that you follow the termination procedure outlined in the lease agreement and/or in accordance with applicable federal law, including any required notice and deduction of any amounts owed (and no more). Failing to do so can result in the carrier claiming that the lease has not been terminated, or worse, that the carrier is actually an employee, thereby subjecting the company to the full range of employment claims a former employee could bring against the company, including but not limited to claims for overtime and reimbursement of business expenses, etc. Many carriers who have had their lease terminated for whatever reason will claim that the termination violated the terms and conditions of the leasing contract, including timing of payment and the imposition of improper liabilities. It is not uncommon for such disputes to wind up in both federal and state court.
If you elect to terminate the term of the lease with the independent contractor, you will want to ensure that you are in compliance with both the terms of the lease agreement as well as the law put into place under the Federal Leasing Regulations . You must provide the independent contractor with notice of termination within the time period as the parties agreed to under the terms of the lease. You cannot, however, simply notify the independent contractor without actually acting on that notice. To that end, it may be a good idea to continue to advance payments to the independent contractor, even if you intend to offset the amounts against the prior funds advanced to the independent contractor. In addition to complying with the terms of the lease, it is also important to comply with the time frames set out in the federal regulations. If you decide to terminate the term of the lease agreement, you must give the independent contractor at least 10 days written notice. With respect to the transfer and termination of equipment, you must give the independent contractor at least 10 days notice and 7 days notice of any anticipated transfer of the contractor’s portion of transportation revenue. If the company intends to reduce the revenue the independent contractor is receiving for the work performed under the agreement, you must notify the independent contractor at least 15 days in advance of the change.
How to Negotiate on Terms to Terminate a Truck Lease
One of the most important aspects of a lease termination occurs prior to the execution of the lease termination agreement when the terms of the parties’ relinquishment of rights and obligations are negotiated. The following are tips for negotiating favorable terms:
- Provide for liability protection: Often, either upon execution of a lease extension or during the pendency of a lease dispute, a lessor will offer an early termination. Generally, an early termination is offered to limit a lessor’s or lessee’s liability by limiting the amount of time for which claims can arise. In order for this protection to be effective, a release must include an unambiguous release of known and unknown claims, including those that could arise out of the termination itself. In such cases, it is important to be certain that this language is utilized. In a recent failure to mitigate case, a lessor was found to have waived his later claim for the full amount of damages due to a subsequent lease because he had prior to the subsequent lease signed a mutual release that purportedly released "any and all claims and demands of every kind, nature, character, and description whatsoever . . .now existing or which may hereafter arise . . . from any or all claims that either party" might have against the other. Importantly, these waiver clauses, mutatis mutandis, are common.
- Agree on the return of physical possessions: Often, lessees will seek a pre-termination inspection of the equipment and move the equipment (especially trailer) to a lessor’s facility without adequate assurance that the equipment and its condition is covered by the lessor’s insurance. In many of these circumstances, the trailer is then damaged – sometimes literally to the point of being a total loss – while in non-representative hands. These circumstances can be avoided by requiring a lessor to perform a single trip inspection, or otherwise pay for the costs of the later repair or replacement of damaged items.
- Allow for the correction of prior defaults: Often, fairly large sums of money are involved in the restoration of items to their prior condition or a settlement of issues between the parties. Forming an agreement to restore equipment to its same quality or then proceed through a settlement avoids the need to re-negotiate matters that should have already been addressed before the lease termination agreement is executed.
- Release known claims: Likewise, it is important to release known claims. Additional damages may arise if a party later sues on a known claim rather than releasing them.
Legal Help
Due to the complexity of these agreements, as well as the potential for legal implications that may carry over after the agreement is terminated, it’s always a good idea to seek assistance from an attorney who is familiar with the trucking industry . Such professionals are available through the Owner-Operator Independent Drivers Association (OOIDA), or you can search for attorneys through the American Bar Association.
