The years remaining on a Bali lease are the whole asset

Indonesian law sets no maximum term for a lease. That single omission is why the most important number in a Bali listing is the one that never appears in it.

Bali’s leasehold market is a second-hand market. Most of what changes hands is not a new 30-year lease from a landowner; it is the remainder of one somebody else signed in 2009. And because Indonesian law sets no term for a lease at all, the remainder is whatever is left — and the remainder is the entire asset.

This is the largest unpriced variable in the market. We looked at the Bali cost calculators that rank for this and every one of them takes a purchase price and an ownership structure and returns acquisition duty, notary fees and due diligence costs. Not one of them asks how many years are left. A tool that treats a lease with 18 years to run and a hak pakai with 80 as the same asset at the same price is not making a small approximation.

Why there is no maximum term

People assume a leasehold cap exists because leaseholds are capped in most jurisdictions they have met. Here, they are not. The Basic Agrarian Law defines hak sewa in two articles and neither says anything about duration:

Seseorang atau suatu badan hukum mempunyai hak sewa atas tanah, apabila ia berhak mempergunakan tanah-milik orang lain untuk keperluan bangunan, dengan membayar kepada pemiliknya sejumlah uang sebagai sewa.

A person or legal entity holds a right of lease over land where they are entitled to use land belonging to another for the purposes of a building, by paying the owner a sum of money as rent.

UUPA (Law 5/1960) art. 44(1)

That is the whole definition. Article 45 then lists who may hold it — Indonesian citizens, foreigners resident in Indonesia, Indonesian legal entities and foreign entities with a representative here — and stops. There is no article 46 setting a maximum, because a lease is a contract rather than a grant from the State.

Contrast that with the two registered rights, both of which are capped to the exact same ladder: 30 years, extendable by up to 20, renewable by up to 30, at articles 52(1) and 37(1) of PP 18/2021. Those numbers are in the regulation. A lease term is in a negotiation.

What the right is in full — how rent may be paid, the one limit on the terms, and why a lease has no certificate of its own but can be recorded on the owner’s — is on leasehold explained. This page is about the years.

The arithmetic the listings hide

Two villas, both advertised at the same price, both renting for the same amount, in the same village, photographed by the same agency. One has 45 years left on its lease. The other has 19. They are not comparable assets and the price does not say so.

What the curve shows is that the cost of a year of use is not a gentle function of the remaining term — it is hyperbolic. Halving the remaining years doubles the annual cost of the asset. Below about fifteen years the line goes almost vertical, which is the region where a property is sometimes being marketed hardest, because the seller can also see the curve.

There is a second effect underneath the first, and it is worse. The term keeps shortening while you own it. If you buy 19 years and hold for 8, you are trying to sell 11 — into a market that applies the same curve to you that you applied to the seller. A registered right with 60 years on it does not have this problem in anything like the same degree.

The calculator does this properly: it takes the price, the structure, the remaining years, your expected rent and how long you intend to hold, and returns the cost per year of use and how much of your capital is still recoverable at the end.

The extension clause, and what it is usually worth

Nearly every Bali lease listing mentions an extension. “25 + 25”, or “30 years with option to extend”. It is doing an enormous amount of work in the price and it is almost never examined. There are three grades of it and they look identical in an advertisement.

An enforceable option. The landowner is obliged to grant a further term, the price or the mechanism for setting it is fixed now, the obligation binds whoever owns the land later, and it is recorded in a way that survives a sale of the land. This is worth roughly what the extra years are worth.

A pre-emption. The landowner is not obliged to extend, but if they extend to anybody they must offer it to you first, on the same terms. Worth something. Worth much less than the first.

An agreement to agree. The parties will discuss an extension at the market rate prevailing at the time. This is the most common form and it is worth close to nothing as a right. The whole of your negotiating position in year 29 is that the landowner would prefer a paying tenant to an empty plot, and by year 29 they will have noticed that you built a villa on it and cannot take it with you.

What buying a remainder actually involves

Most Bali lease purchases are one of two things, and buyers routinely do not know which they are being offered.

An assignment transfers the existing lease to you. You step into the original tenant’s shoes, with their rights and their obligations, and your relationship is with the landowner. This normally requires that the lease permits assignment and that the landowner consents in the form the lease specifies.

A sub-lease leaves the original tenant in place and makes you their tenant. Your relationship is with them, not with the landowner. If the head lease ends early — for breach, for non-payment, for any reason — your sub-lease can go with it, and your remedy is against a person rather than against the land.

These are sold at similar prices and described with the same word. The document says which one it is, in Indonesian, and that is a large part of why reading the document before paying a deposit is the single highest-value hour in the whole transaction.

Five questions that cost nothing to ask

1. How many years and months are left, from what date, evidenced by which document? Not “about twenty-five”. A date.
2. Is this an assignment or a sub-lease? If nobody can answer immediately, that is the answer.
3. Does the lease permit assignment, and has the landowner consented in writing in the form the lease requires?
4. If the landowner sells the land tomorrow, what happens to this lease?
5. If the extension is refused in the final year, what is the remedy and against whom?

None of these is an aggressive question and all five are normal. An agency that finds them awkward has told you something useful for free.

Questions on this specifically