In a lease contract, the asset is leased, by the public entity to the private partner. Lease contracts are usually of medium term length, and may involve capital investment by the private partner. Such arrangements are usually observed in water supply contracts where the collection risk is transferred to the private partner. Usually, the private partner in such cases would require an assurance in terms of tariff levels, increases over term of lease and compensation and review mechanism in case the tariff levels do not meet the estimates. Variants include BLT, BOLT, and BTL.
Lease and affermage arrangements have a subtle difference. In both lease and affermage arrangements, the private partner do not receive a fixed fee for his services from the public entity but charges a user fee to consumers. In case of a lease, a portion of the receipts goes to the public entity as the owner of the assets as a lease fee and the remainder is retained by the private partner. In the case of an affermage, the private partner retains the user fee out of the receipts and pays an additional surcharge (also referred to as the affermage fee) that is charged to customers to the public entity to go towards capital investments that the public entity makes/ has made in the infrastructure.