What is a hire agreement for commercial vehicles?
A commercial vehicle rental agreement is a legal contract between a vehicle owner and a rental company or individual, allowing the rental company or individual to use the commercial vehicle for a specific duration of time and purpose. These agreements are designed specifically for the commercial sector and are often used for long-distance transportation, when individuals need extra space for cargo, or when there is a need for a special type of vehicle that is not part of a person’s standard fleet.
Commercial vehicle rental agreements typically include such aspects as the type of commercial vehicle that is being rented, how long the vehicle will be rented for, the rate charged during the time the vehicle is rented, who will be responsible for maintenance of the vehicle during the rental period, as well as what will happen if the vehicle is damaged or if the agreement is terminated early for any reason .
The first thing that a business should do when looking into implementing a commercial vehicle rental policy is draft an appropriate commercial vehicle rental agreement. Unlike a standard vehicle rental agreement, which can be very short and relatively informal, a commercial vehicle rental agreement is much longer and can seem very comprehensive.
This is due to the specific nature of commercial vehicle rentals. If a person is renting a personal vehicle, then the terms of the rental agreement are largely the same across the board – it deals with a standard-sized vehicle in most cases that is used on a general basis. This is not the case with commercial vehicle rentals.
For commercial vehicles, the deal may be different from transaction to transaction. A business may rent a flatbed truck for one contract, and a heavy-duty cab for another. There may be unique aspects to these vehicles that are not necessarily part of a traditional vehicle rental agreement, which could be reflected in the contract.
Key conditions in a hire agreement
A rental agreement for a commercial vehicle is a long document with numerous clauses that are important to the lessor and the entity renting the vehicle. Important sections include terms of use, maintenance requirements, insurance, liabilities and other areas.
The Florida Bar Journal has published an article titled "Transportation and Online Rental Agreements." It discusses some of the important provisions that should be considered to help all parties. The article states that the rental agreement should have a term that is no more than 90 days. Terms longer than 90 days could be construed as a leasing agreement governed by a different Florida law. A long term can cause problems for the parties if an issue arises as the second 90 day term would be automatically renewable regardless of whether the parties were intending to renew it or not. A short term agreement that is renewed often is much more likely to be governed by Florida law. The article also considers those areas that can create problems within rental situations. A common clause regarding maintenance duties is the requirement that the lessee bring the vehicle to the rental business for periodic maintenance checks. This is often required in the rental industry but not widely followed. If the rental company sells supplemental insurance coverage at the time of the rental, it must advise the customer that the completed rental agreement contains all the terms that go along with the rental. The keyword is ‘all’. If the rental company decides to place other information or clauses that differ from the rental agreement on a website, at the rental facility or elsewhere, then those are not part of the agreement.
An important clause is the description of the use of the vehicle. The owner can easily retain an expert in court to show that the vehicle was not used per the agreement and violated the restrictions. If there are restrictions, such as, use of the car only in Florida or only with commercial license drivers, and the restriction is violated, the rental company will likely not have to pay claims filed against it for injuries and damage that occur in the car. Other clauses of the agreement, such as limitations of any claims, should be carefully considered. Issues such as forum selection and attorneys fees should also be clearly considered so there are no surprises. Having attorneys on both sides who either write the clauses or review them before signing, should result in a document that is much more functional for the company renting a commercial vehicle.
Responsibilities of the hirer and the owner
Renters of commercial vehicles have an obligation to comply with the terms and conditions of their vehicle rental agreements, as well as statutory obligations mandated by state and federal agencies. Failure to do so can result in increased liability for vehicular harm caused during the period of rental. Under New York’s Vehicle and Traffic Law, for example, plaintiffs injured on a roadway may sue either the owner or renter of the vehicle that caused the accident. While the owner of a vehicle traditionally is vicariously liable for the negligence of its driver and is commonly understood to be the entity from whom the renter obtained the vehicle, the statute imposes liability directly on the vehicle rental entity without regard to the driver’s negligence. See N.Y. V.T.L. § 388. By its plain language, Section 388 applies to "the owner,[1] a fiduciary, any person renting the vehicle to others, and us," and not just to the owner, when viewed as the entity that possesses title to the vehicle. Id. Consequently, even if no fault is attributable to the driver, if the subject vehicle caused an accident while being operated by a permissive user, the renter can be held fully responsible. Whether or not a collision occurs, however, the contract negotiated between the owner and the renter may impose obligations on both regarding compliance with legal requirements. For example, such agreements may require that the renter comply with the New York City Administrative Code, which requires all commercial vehicles with three axles to record the number of units of traffic violations received. See NYC Administrative Code § 20-536(b)(2). Section 20-536 also directs the New York City Police Department to annually forward a list of violators to the Department of Motor Vehicles, which it is then required to pass along to the Department of Consumer Affairs (the "DCA"). See NYC Administrative Code § 20-536(d). Based on this information, the DCA may revoke the business license of any commercial vehicle that has received three or more traffic violations in a period of 180 days. In addition to the DCA regulations, the renter of the commercial vehicle also has obligations under the Federal Motor Carrier Safety Regulations. Under 49 C.F.R. § 373.5, motor carrier employers may not assign unsafe drivers to operate a vehicle, including commercial vehicles; each motor carrier is responsible for ensuring that no driver possessing a serious disqualifying offense is employed. The Department of Transportation requires that each rental company maintain records to demonstrate compliance with all applicable Federal Motor Carrier Safety Regulations, including proof that they have not assigned an unsafe driver to operate a commercial motor vehicle. See 49 C.F.R. § 373.5. The penalties for violating these provisions are steep and can be invoked for any period that an illegal driver operates a rented commercial vehicle. See N.Y. V.T.L. § 388(5) (authorizing a court to assess a minimum of $5,000 against an owner who knowingly rents a vehicle in violation of the statute); 49 C.F.R. § 382.501 ("A motor carrier that knowingly allows a driver who has been disqualified from driving a commercial motor vehicle to drive such a vehicle is subject to civil penalties as set forth in 49 U.S.C. 521(b)(3)(B)"). Failure to satisfy these obligations can substantially increase a defendant’s potential exposure in the event of litigation. Ultimately, whether operating a rental, lease or owned vehicle, those who rent commercial vehicles must comply with certain statutory requirements, which if breached could result in increased liability for any harm caused by its operation. It is in the best interest of both the owner and the renter to comply with these provisions to avoid potential increases in liability regardless of the cause of harm or accident.
_____________________________________
[1] The term "owner" means "a person, other than the lessee under a lease, having the property right to the vehicle or equity therein which entitles such person to the appointment of a custodian thereof upon default in the performance of the obligation for which such vehicle is security."
Insurance and liability issues
A vital aspect of any commercial vehicle rental agreement is the requirement for the renter to maintain insurance on the rented vehicle. The arrangement and coverage can be simple or complex based on the needs and agreement of the parties, but the inclusion of this provision is very important to both the renter and rental company.
Insurance for the renter is important in the event of an accident, as there is potential for liability to be imposed on the renter for injuries or damages to another vehicle or property. It generally takes the form of liability and indemnity for accidents that are caused by the renter. The goal is to place liability for any violation of law on the renter in order to avoid having liability fall on the rental company. As long as the renter abides by the terms of the rental agreement, they should be insured, which should cover the rental company’s potential loss. Further protection can be obtained when the contract contains indemnification language, as it allows the rental company to receive compensation directly from the renter for a loss that is imposed on the rental company.
Insurance for the rental company can take many forms, but coverage for damage to the vehicle is common because, in the rental business, the rental company does not want paid loss to exceed its gains. Comprehensive coverage is essential because it covers nearly all risks, with some exceptions: The common exclusions are damage arising from use in a race, criminal act, or intent to damage (be careful here-malicious destruction of property does not always void insurance, as our friends at Dworken & Bernstein demonstrated before the Ohio Supreme Court in Western Express vs. Dape.[1]) Otherwise, comprehensive coverage provides the widest protection and is preferable for a rental company.
The contract of hire should include comprehensive coverage so that the lessor does not lose on damages to the vehicle until the full value of the repairs and loss of use have been repaid by the insurance proceeds. At the same time, a deductable should be imposed, as the impetus behind protection for the rental company is to cover incidental losses, and the cost of frequent, small claims for damage to the vehicles will eat into the rental company’s profits. The contract can be drafted to allow for the option to waive the deductable, as a rental company can sell to the lessee a waiver of this deductable as a profit center, and the purchase is often economically sensible for a lessee willing to pay a bit more rather than risk sustaining damage and covering the cost of repairs out-of-pocket.
Other options for a fleet manager to keep in mind are: Certain other concerns may arise in the course of the relationship, depending on the specific needs of the contractor or the capabilities of the rental company. Determining the specific needs and risks of the parties in a contract of hire is the best way to make sure that appropriate protection is built into the rental company’s operations.
Tailoring your hire agreement
One of the main advantages of commercial vehicle rental agreements is the flexibility they offer businesses. These agreements can be tailored to fit a wide variety of company needs. When structuring the rental agreement, consider the length of time a rented vehicle is needed, the type of vehicle, and any special requirements or restrictions the vehicle must have. In general , leases are priced by the day, week, or month with discounts given for long-term leases. For example, a business may lease a truck by the month during a heavy period of demand but only by the day at other times. Or a business may lease a van during peak months in order to meet its staffing needs but lease the same van by the day when demand is lighter.
Common traps to avoid
Many businesses fail to draft or negotiate acceptable terms to protect their interests in situations where a business is renting or leasing commercial motor vehicles. The following specifics must be addressed and reviewed in every commercial motor vehicle rental agreement:
– Vicarious Liability – for personal injury claims arising from the operation of a rented or leased commercial motor vehicle by an employee or agent of a business entity, it is often a "big surprise" that the business is deemed to be vicariously liable for the acts, faults and negligence of its employees.
– Workers’ Compensation Issues – the law holds business entities responsible for the negligent driving of employees. A common liability management strategy is to avoid vicarious liability by holding an employee personally liable for any damage to the property of others or bodily injury that arises out of the operation of a rented or leased commercial motor vehicle. However, this approach is not a total answer to this potential liability problem because a business entity can face Workers’ Compensation claims from a negligent employee hurt in the same collision that caused damage or injury to a third party.
—Indemnity Clauses – are commonplace in commercial motor vehicle rental agreements. Commercial motor vehicle rental agreements often request the lessee/tenant to indemnify the lessor/landlord for personal injuries or property damage sustained by third parties. A counterargument strategy for the commercial motor vehicle renter/tenant is to argue that the conduct of the landlord lessor was so wrongful as to bar any claim for indemnity.
– Allocation of Fault – Commercial motor vehicle rental agreements often require the lessee/tenant to pay for the loss of use and value of a rented commercial motor vehicle. Rental agreements that allocate the costs of repair where the fault of the lessee/tenant is 50 percent or less should be avoided by the lessee/tenant.
Understanding rates and fees
Commercial vehicle rental agreements typically rent either by the day or by the mile. Under a daily rental, a flat rate is charged for each day that the commercial vehicle is rented. This rate usually varies based on the size of the vehicle. While this is the most common pricing model, some commercial vehicle rental agreements may also charge extra for mileage under certain circumstances. For example, a daily truck rental may come with 100 free miles per day and then charge a per-mile fee for any miles in excess of 100, such as $0.10 per additional mile. Under a mileage-based pricing structure, the cost is primarily based on the number of miles driven by the customer during the rental term. Additional fees and charges are not unusual to see in commercial vehicle rental agreements. These are typically charged in addition to the underlying per-day or per-mile rate for the commercial vehicle. The most common additional fees are cleaning and washing fees, late return fees, fuel refill charges, and taxes. Commercial vehicle rental companies can be very strict in enforcing these additional fees and charges, so it is important for customers to be aware of them going into the rental process. In addition to the additional fees discussed above, customers should keep in mind that some commercial vehicle rental agreements will set a maximum number of miles that the vehicle can be operated. These limits are generally set based on the geographic area in which the vehicle is operated as well as the length of time for which the vehicle is rented.
The role of legal advice
Despite how common and routine it may seem, entering into any sort of contract with a business partner or vendor carries risk. As such, it is important to consult with an attorney before signing a contract such as a commercial vehicle rental agreement. At the outset, it may seem like the rental agreement for a commercial vehicle is nothing more than boilerplate legal language. However, it is precisely this language that contains the loopholes that could end up costing money or even affecting the integrity of your business down the road. In fact, are some scenarios in which not hiring an attorney to review your commercial vehicle rental agreement can lead to devastating outcomes.
Hiring an attorney can help ensure that both the renter and rentee are still fairly represented, especially when it comes to liability coverage particularly so when your business involves transporting goods for clients . What this means is that your liability insurance company has discretion when it comes to issuing the actual checks to cover medical or property damage costs. Without provisions for liability coverage in the rental agreement, this could come back to haunt you later or could cost you tens of thousands of dollars.
Moreover, failing to consult an attorney could blur the lines crossing liability from one driver to another driving your commercial vehicle. This could set up the renters up for financial problems even if they have insurance. To be safe, you should be using a contract that makes the liability and responsibilities clear to all drivers and to any company that is renting the commercial vehicle to you. Otherwise, it is too easy for shoddy drivers to slip through the cracks with limited financial liability. If that happens, you can expect to have to pay a lot more money out of pocket for damages since you could be considered at fault for letting a poor driver behind the wheel.