Under a lease contract, the private partner is responsible not only for the government service in its entirety but also undertakes obligations relating to quality and service standards. The private partner provides the service at its expense and risk. The duration of the leasing contract is typically for 3 to 5 years and may be renewed for up to 20 years. Responsibility for service provision is transferred from the government partner to the private partner, while the financial risk for operation and maintenance may be shared between the public and private partners.
Under lease contracts, the private partner's profits are dependent on the sales volume and cost performance. Therefore, there is strong incentive for the private partner to achieve higher levels of efficiency and sales, unlike in the service contracts, which are usually very limited in duration. The principal risk of lease contracts is the possibility that the private partner may not deliver the required services and/or at the required quality. Therefore, the contract should contain appropriate grievance, appeal, and termination provisions. In this setup, the government partner focuses on regulatory issues while the private partner takes on the service delivery issues.