What is an MC Authority?
Well, MC stands for Motor Carrier. It is a type of authority required for interstate carriers to operate their motor vehicles in transport. Simply put, the MC authority is issued by the Federal Motor Carrier Safety Administration so that a business can operate as a commercial carrier across state lines. And, no, unfortunately, there is no Chromius bus lines or 262 chapter of the outlaws that MC authority members must belong to. There are actually 2 types of MC authority. There is common carrier authority and contract authority. Common carrier authority is required for carriers that provide transportation services to anyone who asks, without discrimination. An example is a taxi company. Contract authority is required for carriers who provide transportation services to a limited number of people that they enter into contracts with. An example is a shipping company that only transports shipments for freight brokers. And just to clarify , there is another type of authority issued by the FMCSA called Broker authority. Broker authority gives a company the right to arrange the transportation of property which is then actually carried out by licensed carriers. Now, there is also hazardous materials authority (or hazmat authority). However, that’s not really relevant to this post. The MC authority process isn’t too long, however, it is somewhat complicated and expensive. The application requires one to get a tax identification number (EIN), a US DOT number and a surety bond. Then the applicant must choose insurance amounts, which for new authority, the may be higher than the established carrier. Then there is the BOC-3 form, which is a third party notification of process. After that, the application almost always gets rejected at first, however, it takes a couple of months to get rejected. The initial rejection is fine, it just gives you time to correct the problems. Then the authority will be granted. So what do you do with it? You either operate under the authority yourself, or you lease it out to other carriers as a freight broker.
Lease Agreements are Crucial for MC Authority Holders
As an MC authority holder you may also be a trucking industry business owner. You may hold contracts with others who have also applied for MC authority. With your status as an owner-operator, you should also take the time to enter into lease agreements with others who you will allow to operate under your authority in order to establish the terms of partnership cooperation among contractors and other authority holders. A lease agreement outlines the rights, duties and responsibilities of the motor carrier or transportation business. Lease agreements are important for documenting who has responsibility for operating authorities and proving that each property is accounted for, financially, appropriately, and that it is used for its intended business purposes. The lease agreement also outlines the conditions under which the lessor agrees to allow the lessee to operate the equipment or authority. Rental rates, payment schedules, and other aspects of the relationships are relevant to the operations of your business, which is why the lease agreement is essential.
A lease agreement provides the basis for and details surrounding the relationship you have with those conducting business under your MC authority. Understanding the details of what you are agreeing to and entering into through your lease agreements helps to insure your authority and condition your business for enhanced security in your operations.
Key Elements of a Lease Agreement Template
The following are the basic terms that should be considered and rewritten by an Owner Operator or Motor Carrier to reflect his or her individual needs.
1. Parties
The first term is the identification of the parties to the Lease Agreement. The parties are usually qualified as the "Lessors" and the "Lessee." The Lessor may be identified as the Owner Operator, the party leasing his or her vehicle to the Motor Carrier, or the Owner of a Motor Carrier fleet leasing its vehicles to an independent driver. The Lessee is normally identified as the Motor Carrier or the company hiring the Owner Operator to drive for them.
2. Term
Any Lease Agreement should have a clearly defined term and date or schedule of dates when the Agreement shall start and end. It is best for the parties to specify a specific end date for the Lease Agreement rather than simply stating it shall be terminated at will.
3. Obligations of the Parties
There are several obligations that should be included in any Lease Agreement Template. These include provisions regarding drivers’ home time, routes driven, dispatch conditions, and injury and loss of load policies. The Owner Operator and Motor Carrier should rewrite and adjust these conditions to meet their needs, if necessary.
4. Compensation
Any Lease Agreement should address compensation to the Owner Operator including a base rate, any load security costs, uncontrollable delay costs, loading and unloading pay, and any other agreed upon expenses. The Owner Operator and Motor Carrier should rewrite and adjust these conditions to meet their needs, if necessary.
5. Termination
Any Lease Agreement should also address the conditions under which either party may terminate the Lease Agreement and obtain possession of the leased vehicle. The Owner Operator and Motor Carrier should rewrite and adjust these conditions to meet their needs, if necessary.
These are just a few of the terms and conditions that must be included in any MC Authority Lease Agreement Template. Any professional, impartial drafting process must also include the assistance of counsel for both the Motor Carrier and the Owner Operator. This insures that all parties understand the terms and conditions of the Lease Agreements.
Modifying Templates for Specific Requirements
While MC Authority Lease Agreement templates generally cover all the broad provisions needed in an MC lease, there may be some aspects that need to be tailored for a particular situation, such as an older truck or owner-operator being leased to the same company for years.
This flexibility is particularly beneficial should the DOT ever audit your documentation. Because the lease agreement will be compliant with DOT regulations, the DOT will not find any issues with the lease agreement itself. However, if your lease agreement varies from the MC Authority Lease Agreement Template in certain areas, and the DOT auditor finds those areas lacking, the auditor may view this as a potential problem.
As such, while any MC Authority Lease Agreement Template you may use will serve as a strong base for a compliant MC Authority Lease Agreement, it’s helpful to customize the template to reflect the specifics of your business arrangement.
Legal Issues with Lease Agreements
It is generally a good idea to have an attorney draft or review the MC authority lease agreement. An attorney will be able to analyze the terms of a lease and distribute the risk more equitably. Many templates for lease agreements will shift the maximum amount of risk onto to the driver , whereas an attorney can help the driver negotiate a more reasonable deal. There are a number of additional issues that will be presented due to the multiple jurisdictions that the MC authority driver and carrier may find themselves operating in. Florida has some of the strongest "hazardous cargo" transporting laws and regulations. Hazardous Cargo is not defined by their value, but by the fact that the cargo creates extreme danger. An attorney will be able to review the entire chain of custody and identify any legal implications that the driver may need to be aware of.
Advantages of Using a Template
Templates for MC Authority Lease Agreements offer significant benefits for trucking companies. Efficiency is chief among these advantages. These templates can be completed and signed in a matter of minutes. In fact, we have a working prototype of a different type of lease agreement that can be signed in seconds by filling in the blanks.
Using a template reduces legal risks. The template will have legal language that is protective of both the trucking company and its owner-operators. It is important to understand that an MC authority lease agreement is not just a contract between the parties. It has implications with respect to the agency between the owner-operator and the trucking company. This means that some terms and conditions are mandated not only by general state or federal contract law, but also by rules of agency. This is why it is so important that an MC authority lease agreement is drafted with great care, and why many trucking companies retain a lawyer to draft or review their lease agreements.
A well-drafted MC authority lease agreement ensures compliance with state and federal regulations, including hours of service, weight limitations, truck repair and maintenance as well as insurance requirements. These are the primary areas of regulation and oversight for government agencies like the Federal Motor Carrier Safety Administration (FMCSA).
Common Pitfalls
Many business owners assume that they can find the perfect, professional looking MC authority lease agreement template simply by googling "MC authority lease agreement draft," or some similar wording. They will even download an example that looks great because it has all the appropriate headings and deals with all the right issues, but as it turns out, it just might not be 100% rock solid and legally enforceable. That’s why it’s so important that you review these lease agreement templates carefully and change them to fit your specific needs. Generally speaking, there are three common mistakes that business owners make when it comes to MC authority lease agreements.
- Trying to save money. Again, I totally get it — most entrepreneurs are trying to save their hard earned dollars wherever and whenever possible, but I am here to tell you that this is never the right approach to take! It’s always cost effective to get a professional to do the work for you the first time so you don’t have to deal with the costly mess later on . Unfortunately when it comes to MC authority lease agreements, if yours isn’t done correctly the first time, you may never be able to get the needed MC authority reinstated.
- Neglecting specific tailored information. One of the biggest drafting mistakes I see with MC authority lease agreements is with the legal description of the leased equipment and the amounts/lengths applied to it. The legal description must match exactly the one provided to the Department of Transportation (DOT) — the DOT does not accept omissions or anything that is partially correct. Additionally, the equipment costs and lease payments must also match between those legal documents and the lease itself.
- Unclear terms. I recommend that MC authority lease agreements require landlords to immediately notify the owner-operator of any changes to the DOT records regarding the leased equipment. This is a way to ensure the business owner that they are being included in the discussion about their equipment’s status, and it’s a good way to prevent an awful surprise later.