DOT Lease Agreement Form: What Is It?
A DOT lease agreement form is a legally binding document that truck lessors and truck lessees use to outline the terms of a lease agreement. The lease agreement grants the right to use a commercial motor vehicle (CMV) for business purposes, such as transporting goods, to the lessee while allowing the lessor to retain ownership of the vehicle. Although the leasing company may own the equipment, the DOT still considers the leased equipment as being under the control of the business that leases it. In the eyes of the DOT, this means that there is no separation of liability in cases of safety violations or accidents.
The Federal Motor Carrier Safety Administration (FMCSA) defines leasing as: …an arrangement in which a lessor grants the right to use motor vehicles owned by the lessor for compensation, not amounting to a sale, for a fixed or ascertainable period of time . The period of time is typically stated in terms of days, weeks, months, or years and generally is based on the time needed to transport a specific load or commodity. A written lease agreement is required and generally contains a description of the equipment, identification of the lessor and lessee, specifications on the sharing of responsibilities for maintenance, repairs and inspection, payment schedules, and identification by name or number of the driver(s) who will operate the vehicle(s). The lease becomes executory upon execution of the agreement and delivery of the vehicle(s). The lessor’s responsibility ceases, and the lessee’s responsibility attaches, when the vehicle is accepted by the lessee.
Essential Components of a DOT Lease Agreement
The quintessential elements of a DOT lease typically include the parties to the agreement, identification of the property subject to the lease, including a legal description, and the construction requirements for the improvement to be placed on the property.
In addition to the preceding items, specific clauses and legal terminology are commonplace in these lease agreements. In particular:
• Use of the subject property is carefully defined. Specifically, the lease grants the right to use the leased property for the installation, construction, operation and maintenance of the improvement. The lease should also contain a specific reference to the term "telecommunications facility," which is often defined in the lease agreement.
• The authority of the carrier to access the leased property in order to construct, maintain and use the network facility is essential, requiring the landlord’s consent. The access rights described in the lease typically include ingress and egress to and from the property but may also include use of staging areas for the construction process.
• The agreement should set forth the identity of the parties. In particular, the entity executing the agreement on behalf of the owner of the underlying property must be legally suited to enter into and bind the owner to the agreement.
• The agreement should also establish the term of the agreement, specifying the rights of the carrier to renew the term of the lease as well as the disposition of the property at the end of the term of the lease.
• Consistent rent payments are essential to the profitability of any ground lease. Typically, the rent will be tied to a defined benchmark, including the Consumer Price Index, recording of a leasehold mortgage, etc.
How to Complete a DOT Lease Agreement Form
Now that we have discussed what goes on the lease agreement form, and where it fits into the bigger picture, let’s dive into the filling out a standard DOT lease form step by step.
The DOT lease agreement form starts with a Last Name, First Name section at the top where you will write in the carrier’s (tenant’s) name. The next line of the DOT Lease form is the Carriers Address. This is also an important line that identifies the carrier by their business address, which could be verified by the authorities looking at the lease, such as the IRS.
Next comes a section labeled:
CARRIER’S PHYSICAL ADDRESS This is standard question required by the DOT FMCSA lease form. Although this does not appear in the Michigan Lease, a good insurance broker and rental company will still require it, as most of them do. The point of this section is to identify the new lessee, the person to whom the leased vehicle is surrendering possession. Generally, the owner carrier’s name and address should be written in this section.
Next there is the Contracting Date, which is actually just a description of the day that the form was filled out. This in itself is not an issue.
The next line of the DOT Lease form is the Carrier’s Signature. Obviously, a ‘signature’ is an important part of any lease agreement so we won’t elaborate on it. However, be sure to remember that the lease must be signed by the owner company, by the individual or officer of the company and not just any miscellaneous employee that happens to be the closest one when the time to sign the document comes.
Afterwards you will come across the Motor Carrier number. It will be appearing as a field for you to fill in the six digit number all carriers have. The first issue I want to point your attention to is that it has to be a six digit number. I have seen many cases where it was an eight digit number or even a five digit number, thus those people had their authority held up.
Then there is the FMCA identification number, also a six digit number. A lot of small carriers don’t have one of those yet. There is no problem with that, but it needs to be left empty. Also, be sure that the name on the carrier number needs to exactly match the one that is written below it and is assigned to it. The error that I see often is swapping the last name and the first name in the Carrier’s name. A name that reads LAST NAME FIRST NAME OYEN MINNINGSRUD as the name on the carrier number may cause some problems.
The next item in the lease agreement form is a twenty-four digit DOT number, but this DOT number has to belong to the owner carrier. There is no reason for us to explain the relationship between the sublessor and sublessee here again, but only the owner carrier can apply for the DOT number, the lessee subcarrier will not be able to do it, because DOT number is reserved for the owner and not for the lessee. That being said, the next number is the one belonging to the lessee subcarrier. It is a six digit MC number.
There is a requirement for the leasing company to present title to the lessee. The leasing company needs to provide lease obligations, and a written title. Both the written title and lease obligation need to be provided, or this lease form can be rejected. To prevent miscues and confusion between these two, the DOT lease form has a place to enter the lease obligation and a place to enter a written title.
The agreement will ask for the vehicle identification number followed by the beginning date of the lease, which will be the day the lease agreement form is signed, followed by the termination date. The termination date must be the latest date possible. The law has no termination date requirement, but the longer the carrier is on the lease, the better. There is nothing wrong with a DOT lease agreement that lasts for months. That will save money for both sides of the agreement.
By the time you finish filling out the DOT lease form, you will be required to put the names of the two sides of the lease. The owner-operator must submit a certificate of authority from the secretary of state, listing the principals, with the lease agreement form because the FMCSA will not accept sole proprietorship or single member LLCs as an owner operator – this is something the recipient of the lease agreement form should never forget.
The Legal Aspects of DOT Lease Agreements
In the eyes of the Department of Transportation (DOT), a leasing company is considered to be trucking company that has a lease agreement with a motor carrier. Leased owner-operators may be required to comply with DOT regulations, just as if the motor carrier owned the vehicle.
Lessor Liability
While a DOT lease agreement may seem like an ideal solution for lessors when it comes to protecting their business, they are subject to the same liabilities faced by the DOT. If the DOT finds the lessee in violation of the hours of service regulations, for example, the DOT may hold the lessor partially responsible. Even if the company is not found to directly violate the HOS rules, the DOT may hold the lessor financially liable.
Lessee Liability
Leasing companies are potentially liable for any judgment awarded to third parties in personal injury cases. Even if the lessor was not involved in the accident, a DOT lease agreement may provide them head to toe financial coverage.
Lessee Protection
Under a DOT lease agreement, the trucking company has certain federal protections that may not be otherwise available. In the event that the carrier goes bankrupt, for example, the lessor may not be held liable for judgments against the motor carrier. A properly structured agreement will provide the lessor with additional legal protections and, consequently, financial protections.
Use Cases for DOT Lease Agreements
The circumstances under which a DOT lease agreement is typically used vary widely based on state laws, business needs, and the types of companies involved. However, certain generalities can be made about where and how these types of agreements are used most often. For instance, they are most common in rigging, moving, transportation, trucking, and freight businesses. This is in part because of the special equipment that those types of businesses lease out so frequently.
This is not to say that other businesses cannot or do not work with DOT lease agreements, just that they are more commonly found in those industries. Beyond this, most states have specific state level regulations that may impact the DOT lease agreement itself or the relationship between any driver or another individual who will use the vehicle and the DOT.
A good example of the use of DOT lease agreements is in the crane business. Companies that receive equipment from a third party must have a DOT lease agreement in place , and it is advisable that they use the form DOT lease agreement from the Department of Transportation. While some states may have slightly different laws regarding DOT lease agreements, the majority will follow the DOT model for crane businesses. Having a DOT lease agreement in place, in conjunction with having a well-constructed crane lease agreement, can help to mitigate the legal risks of doing business this way.
Common Industries for DOT Lease Agreements
In addition to crane businesses, many other industries make common use of DOT lease agreements. Some examples include:
Transportation Services
Moving Companies
Freight Trucking
Other Loading, Moving, Transport, and Freight Moving Services
Other Industries
Rigging
Events Planning
Concerts and other events where transportation of special equipment is needed.
Rental
Heavy Machinery Rental
How to Tailor a DOT Lease Agreement
"Standard form rental and lease agreements must be used as issued." If you are involved in the trucking industry you have more than likely seen this statement. However, the Federal Leasing Regulations (49 CFR § 376.11) do not prohibit customizing the form to meet the specific needs of the parties. So how can the parties modify the DOT Lease Agreement form, and what limitations exist?
The parties are free to incorporate their own language and delete or substitute language in the standard form, with two notable exceptions. First, the parties cannot delete the following provision from the standard form or replace it with another form: "It is agreed that this lease shall become effective on ____ and shall continue in effect thereafter until the equipment provided for herein is disposed of in accordance with provisions of this lease, except as provided below . . . ." The carrier must maintain possession and control of the equipment for a continuous 30 day period for the lease to take effect. In other words, the "Agreement Effective Date" in Section 3 of the DOT Lease Agreement form cannot be modified. The creation of an "Effective Date" as a method for terminating the lease is also a violation of the Federal Leasing Regulations. Second, the parties cannot supplement Section 2, "Lessor’s Responsibilities," under the standard DOT Lease Agreement form. This Section lists seven responsibilities of the lessor. While these responsibilities can be expanded upon, the parties cannot modify the duties of the lessor under Section 2 of the DOT Lease Agreement form. What then is the standard form agreement for? The standard DOT Lease Agreement form is designed to be a "floor" not a "ceiling." It identifies the minimum requirements to satisfy the Federal Leasing Regulations. Under the Federal Leasing Regulations, the parties may include additional requirements beyond the standard form (i.e., advertising and trailer usage restrictions) provided the requirements do not contradict the Federal Leasing Regulations. The parties must be careful, however, not to contract around the Federal Leasing Regulations. For example, a lessor may not contractually terminate the lease based on termination of the lease agreement between the lessor and the motor carrier. Likewise, the parties may not circumvent the 30 day requirement by including an "Effective Date" termination provision.
Questions and Answers About DOT Lease Agreement Forms
Common questions and concerns regarding the government form lease agreement are provided below with answers to hopefully provide greater understanding as to how the document is drafted and the permitted practices in the industry.
1. If I don’t have a copy of the government form lease agreement, do I have to have my attorney draft one for me?
The DOT does permit the use of a variation of the form lease agreement. However, the minimum protections for the lessor that are contained in the form lease agreement generally must be included. If you do not have a copy of the government form lease agreement, there are many off-the-shelf lease forms available for purchase that do incorporate the provisions of the government form lease agreement.
2. I have no idea how the lessor in the form lease agreement came up with the provision that provides for lessor’s taxes to be paid directly to the DOT. Couldn’t I have the right to collect lessor’s taxes directly?
No. Under Form DOT-5190-111, the DOT will not permit a lessee to pay lessor’s taxes directly. This provision is not negotiable. Since the DOT is the lessee and the DOT is a tax-exempt entity, the government form lease agreement states that the DOT will not pay lessor’s taxes, which is assessed on the rental streams the lessee is required to pay the lessor. The DOT offsets this tax by paying the lessor on a net basis. If the lessee were to pay the lessor’s taxes directly, the Government would be in the difficult position of having to audit the lessor to determine whether the lessor is making the proper payments. The taxpayers’ goal is to always avoid government paying more than a dollar to anyone. The form lease agreement avoids problems that would result if the Government made payments to the lessor’s taxing jurisdictions directly. Additionally , if the lessor were to make those payments directly to the taxing jurisdictions, it may turn out that a portion of those taxes were in excess of the rental stream. The only way the government has to recover overpaying those taxes would be to recover from the lessor. But even if the government were able to recover from the lessor, they would have the practical problem of having to recoup the funds from a lessee who was not given the benefit of the income flowing from the property. Form DOT-5190-111 solves this problem.
3. My attorney drafted a lease agreement that contains minimum annual rents in the context of a multiple year term. I have been directed by legal counsel that such a lease agreement may be viewed as a non-lease agreement subject to the provisions of federal law regarding improper sales. The problem with the assertion that a lease containing guaranteed minimum annual rents in the context of a lease that is not coterminous with the useful life of the improvements is that the DOT has specifically approved of a Paragraph 5 in the form lease agreement that contains minimum annual rents. Therefore, if the DOT has approved the form lease agreement which contains minimum annual rents and expressly approves the insertion of that provision into Paragraph 5 by the parties, the argument that the DOT accepted a non-lease agreement in the context of a transaction involving a DOT property under Paragraph 5 does not seem to be based on solid ground. Rather, the question that must be answered is whether the property remains a DOT property with respect to the entire value of the lease agreement, including the minimum annual rents.