The municipal governing body may enter into a contract or lease program as a governmental function for the purpose of buying, selling, or distributing water with any nonprofit organization, person, or water development or distribution corporation inside or outside of the municipal limits in areas that the municipality is not supplying or servicing with a source of water at the time that the contract and lease arrangement is made. The annual contracts for sale and purchase of water may be extended from year to year at the option of the contracting parties. All said facilities, contracts, leases, activities, programs, and performance thereof, on behalf of the municipality, shall be governmental in nature.