Trailer Rental Lease Agreements: The Basics
A trailer rental lease agreement is a legal document that outlines the terms and conditions under which a person or a company (the lessee or tenant) agrees to rent a trailer box, chassis, or container from another person or company (the lessor or owner) for a specified period of time. In exchange for the use of the trailer for the duration of the rental term, the lessee agrees to pay the lessor an agreed upon sum of money at the end of the rental term. The rental agreement (or lease) also contains the responsibilities and obligations of the lessor to its lessee , and vice versa, for the duration of the rental agreement. As you can see, this is a fairly straight-forward business arrangement and is a necessary requirement for those in the trailer rental business. However, as with many written legal requirements (both for the lessor or lessee), a trailer rental lease agreement may contain significant rights and obligations to the parties involved. For this reason, it is very important for all lessors and lessees in the trailer rental business to understand the basic concepts and applicability of a rental agreement.
Elements of a Trailer Rental Lease Agreement
A comprehensive trailer rental lease agreement should include the following key elements:
(b) Party Information: Names and contact information for the lessor and lessee. The person or persons entering into the agreement should be given in full; abbreviations such as "LLC" should not be used.
(c) Description of the Premises: As all trailer rental agreements regarding mobile homes require, there should be a detailed description of the property that is being leased. The details must include the town and county as well as the zip code and number of Square Feet (sq. ft.)…
(d) Lease Duration: Tenants should be aware that it is common for the duration of mobile home leases to last anywhere from 30 days to 1 year. There also should be a clear explanation regarding whether or not any other time periods apply to the lease. The mobile home lease may run for 30 days, but the agreement may last for 12 months. Make sure everything is clearly explained so that there are no assumptions made that lasting consequences for your bottom line later on down the road.
(e) Payment Details: As in any other rental property leasing agreement, details must be included regarding when rent is due and the method of payment. Additionally, there should be information regarding rent increases, late fees, and permitted payment methods (i.e. automatic withdrawals, cash, check, etc.).
(f) Property Responsibilities: As with any other rental agreement, you should include responsibilities agreed to by both the tenant and landlord. In a mobile home rental agreement the property responsibilities may be a bit more complicated as there may be separate responsibilities for owners of the mobile home versus the lot. It is critical that the agreement clearly defines all roles and responsibilities and provides enough flexibility for future change.
(g) Conditions and Signatures: This is an essential part of any leasing agreement. All parties must agree to the conditions set forth in the trailer rental lease agreement by signing it directly after reading. Only when all parties have signed should the trailer rental agreement be considered legally valid. Unsigned trailer rental lease agreements do not hold up in a court of law.
Trailer Rental Lease Agreements: Legal Considerations
While the content of trailer rental lease agreements may differ somewhat between states, the underlying legal issues that courts consider tend to be fairly constant. After already addressing a few of the most important terms and conditions from the perspective of a lessor, we will now turn to issues that are common to both lessors and lessees.
Jurisdictional Laws
When entering into a trailer rental lease agreement across jurisdictional lines, it is important to understand whether the provisions of your contract will be enforced. Some states have outlawed certain provisions in regard to written disclosures and other terms because they seek to protect consumers. For instance, in Certain Underwriters at Lloyd’s London v. McCarthy Brothers Construction, Inc., 159 Idaho 60, 18, 355 P.3d 1120, 1124 (2015), the Supreme Court of Idaho enforced a statute that required that contracts valued at $50,000 or more with Idaho consumers contain the notice "This Agreement is governed by the laws of Idaho." More importantly for the purposes of this article, the court also had an opportunity to consider the difference between trailer rental lease agreements that are considered "consumer leases" under the Uniform Commercial Code ("UCC") and those that are not.
The UCC requires that the "lessor must deliver or make available to the lessee, at the start of the lease … [a] copy of the lease agreement." Idaho Code § 28-12-203(1)(c). If the lessor wishes to avoid the provisions of the UCC, it is important to ensure that the contract does not fall within its scope. The UCC exempts "a lease that is not a consumer lease as defined in section 28-12-103." Id. § 28-12-203(3).
Generally, truck trailer rental lease agreements that are executed between two businesses in the ordinary course of business would not be subject to the UCC. Additionally, states like Idaho have enacted statutes that specifically define the term "consumer lease." See IDAHO CODE § 28-12-102(12). However, when entering into the lease agreement, you should still consult with local counsel or an attorney familiar with the local laws and regulations to ensure that the terms of the contract are enforceable.
Liability Issues
Any time a lessor lends its equipment to others, it must consider the potential liability issues that could arise during the term of the lease. In order to protect itself and its employees, a lessor should consider including indemnity provisions in its trailer rental lease agreements. A well-drafted trailer rental lease agreement should include indemnity provisions that require the lessee to indemnify the lessor for any liability resulting from the use of the trailer. However, because you [update: 28-12-203(3)] should ensure that its contract is not subject to the UCC, you should be cautious in including these types of provisions. See generally Idaho Code § 28-12-109 (2015). While it is possible that courts would have no problem enforcing these types of leases against a fellow business, it is likely safer to alter your contract, or not enter into contract anywhere other than Idaho.
Additionally, while contracts that seek to provide indemnity for one’s own negligence are generally not enforceable, Idaho also provides that "[a] covenant, promise, agreement or understanding contained in a lease agreement purporting to diminish, waive or in any manner adversely affect the duty of good faith, diligence, fairness and reasonableness imposed by this chapter shall be unenforceable." IDAHO CODE § 28-12-121. As such, it is true that indemnity provisions will only be valid to the extent that they do not attempt to hold the lessor harmless for its own negligence. See, e.g., RSA Medical and Repir, Inc. v. Codman & Shurtleff, Inc., 2014 WL 6983421 (N.H. 2014). However, because the duty of good faith, diligence, fairness and reasonableness should not apply to businesses contracting with other businesses, your business at least has an argument that these provisions should be enforceable.
Insurance Requirements
Many times, trailer rental lease agreements will have specific provisions that require the lessee to obtain liability insurance that covers the agreed-upon minimum. Additionally, while Idaho does not seem to have a law requiring that commercial motor carriers obtain minimum levels of liability coverage, it does have an interstate commerce law that imposes these requirements on such commercial motor carriers. See IDAHO CODE § 49-220.
Common Provisions Found in a Trailer Rental Lease Agreement
Various clauses are included in a trailer rental agreement to help protect both parties. These clauses can vary from one lease agreement to another, but it is common for clauses to address all of the following: Maintenance Obligations: The trailer rental agreement should address how repairs and maintenance are divided between the two parties. In some cases, it will be incumbent on the lessee to make sure the trailer is properly maintained. The trailer rental agreement will most likely establish which party is responsible for specific maintenance tasks. Termination Conditions: A trailer rental agreement should include a termination condition. For example, if the lessor elects to terminate the lease agreement upon 30 days’ notice, this clause should be included in the trailer rental agreement. This clause helps to prevent any disagreements between the parties about the length of time that either party must provide advanced notice in the event of lease termination. Renewal Options: The trailer rental agreement should indicate whether a renewal option is available. If a renewal option is indicated, the trailer rental agreement should describe how the renewal option will work. Typically, a trailer rental agreement will allow both parties to agree or disagree to a lease renewal. However, it could also describe the conditions under which a renewal is "automatic," such as when neither party provides advanced notice of lease termination after the expiration of the lease term. Additionally, the trailer rental agreement can include a provision that the parties mutually decide on a future meeting date to discuss lease renewal.
Drafting a Trailer Rental Lease Agreement
It is imperative when going through the process of drafting an effective trailer lease agreement, that you obtain legal advice. The best course of action is to have your lawyer prepare the lease agreement, and provide you with a customized lease agreement template that is most suited to your needs. You will need this template so that you can use it for future leases as well.
A lawyer providing you with a trailer lease agreement template will take account of any applicable laws or restrictions related to the type of trailer being rented out. The relevant governing statute in Ontario is the Repair and Storage Liens Act, RSO 1990, c. R.25, which protects you as a trailer lessor among others, when leasing your trailer out to a lessee.
Some of the relevant provisions in the statute that you may rely on include provisions related to removal of property by a lien claimant from another’s premises (section 10), lien for storage of seized goods (section 13), as well as lien upon property for storage, repair or improvement, or for money paid for any charge or expense incurred under the authority of the owner or bailor of such property (section 2). These lien provisions are crucial in limiting your liability when the lessee of the trailer fails to return the trailer to you, or fails to pay you for the amount you are owed for the rental of the trailer .
In addition to the various legislative restrictions you must take into account, there are other important factors you must consider, including the need for clear parties’ names in the agreement, for example, whether the parties are individuals or corporations, require proper attachment of the trailer to the agreement, require clear indication of the purpose for leasing the trailer, include all information related to the rental fee, specify the type of trailer, and any other relevant restrictions or provisions.
The trailer lease agreement must be properly executed, which includes clear signatures from all parties involved and returned to you, the lessor. You must maintain a proper filing system for these trailer lease agreements, including all original copies signed by the parties, as well as electronic copies or scanned copies of the original agreements.
It is critical that you provide clear instructions to your customers when leasing out your trailer, and monitor the expiry of the term of the lease agreement. You must also be aware that if left unexamined, the lessee may continue to use the trailer without your prior written consent or knowledge.
Common Pitfalls in Trailer Rental Lease Agreements
There are a host of mistakes that a party should avoid when creating or signing a lease for the rental of a trailer. The first mistake is failing to read the terms of the trailer rental lease agreement before signing. As with any agreement, it is important to fully understand what rights and obligations you have under the trailer rental lease agreement so that you know what you are getting into. The second mistake is failing to negotiate key terms of the trailer rental lease agreement if they are the party that has the upper hand in the negotiations. A lease is typically a back-and-forth negotiation where some terms are given and taken from both parties. Failing to do so could result in some less-than-favorable terms remaining in the trailer rental lease unnecessarily. Another mistake that can be avoided is not taking advantage of available legal or other professional assistance when creating or negotiating a trailer rental lease agreement. Some parties that feel more comfortable working on their own can do themselves a disservice by failing to seek legal counsel and leaving terms that can be adjusted in the trailer rental agreement on the table.
Negotiate Trailer Rental Lease Agreements
Both lessors and lessees will benefit from knowing some tips for how to negotiate a favorable lease agreement for their situation. For all situations, a party should do their best to present a proposed lease agreement to the other party that is practically and commercially customized to the needs of both parties. A lessor should add the following provisions to their preferred boilerplate lease agreement:
- Add language allowing for a good faith determination of the fair market rental value every 12 months, and allow the lessee to accept the new rate or terminate the lease agreement.
- Add an equipment list to the lease agreement, and add wording to documents that might be unintentionally binding the parties to any elements of the equipment list for any period outside of the term of the lease agreement.
- Add a provision providing for a duty to mitigate in the event of a default by the lessee, with negotiation around the process for mitigation, such as the length of advertising terms and the pricing of advertisements for subletting of the equipment by the lessee.
- Carefully consider the right of first refusal. The right of first refusal should determine the amount of time that the lessor will take to accept or reject an offer and the notice requirements for any acceptance or rejection.
- Add protections for lessee against changes in law, and allow for termination of the lease agreement if applicable laws make it illegal to continue to perform under the lease agreement.
- Include terms for assignment or subletting of the equipment by the lessee, with negotiation over whether there will be any rights of first refusal with respect to any proposed assignments or sublet agreements.
- Consider provisions to address strategic discontinuance of the type of trailer that is being leased to minimize the possibility of any anchors or other encumbrances on the business of the lessee.
- If financing is involved, assess the extent to which the terms of the lease agreement will require corporate approvals of the financing.
Conclusion and Closing Remarks
Concluding Thoughts on Trailer Rental Agreements
By carefully setting out the terms of your obligations in writing, with the assistance of an experienced lawyer, you can avoid disputes with your trailer rental tenants over the terms of a lease. You will be in a position to enforce those terms when you have drafted a clear and specific trailer rental lease agreement that details all of the terms of the lease. Additionally, in the event that your trailer rental tenant does not comply with the written terms of the lease, you can enforce those specific conditions through the court system by way of a simple or summary non-payment of rent proceeding.
Even if you own a single trailer that you intend to rent out, it is always advisable to consider having a trailer rental lease drawn up in order to protect your rights as a property owner . In this way, you can ensure that you are able to have your trailer returned at the expiration of the term of the lease and in its proper condition. You will also be able to avoid disputes, future and otherwise, over the terms of your agreement with your trailer rental tenant.
If you are a trailer rental tenant, be sure to have a clear understanding of your rights and obligations expressly set out in your trailer rental lease agreement. You should discuss any concerns that you may have about the terms of the lease with the property owner to ensure that you are fully aware of your obligations to the property owner. This will help you to avoid any extra charges at the end of the term of the lease, as well as any misunderstanding or disputes with the property owner, as to your rights and obligations to deal with the trailer at the end of the term of the lease.