Key Features of Leases and Affermage Contracts

  • Medium length – typically between 8 and 15 years;
  • Collection risk passed to operator in lease;
  • Lease operator will require assurances as to tariff levels and increases over term of lease, and compensation/ review mechanism if tariff levels do not meet projections;
  • Cost of maintenance and some replacement passed to operator (operator takes some degree of asset risk in terms of the performance of the assets);
  • Operator may be put in charge of overseeing capital investment program/ specific capital works;
  • Employer is paid a fixed lease fee (lease)/ receives net receipts from customers (less affermage fee) (affermage);
  • Review process every 4 or 5 years to review performance, costs, tariff levels, etc.;
  • Employees seconded or transferred to the operator;
  • Operator to maintain asset register and operation and maintenance manuals/ records, etc.;
  • Typical to include minimum maintenance or replacement provisions towards the end of the contract, so that facilities are handed back in an operational state.
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