Leasehold Agreements in Bali: What Every Foreign Buyer Needs to Know

Last updated: February 2026 · By Bali Property Rules Research Desk

Table of Contents

1. What Is a Leasehold (Hak Sewa) in Bali?
2. How Long Can a Bali Leasehold Last?
3. What Should a Bali Lease Agreement Include?
4. How Do Lease Extensions Work in Bali?
5. What Happens When Your Bali Lease Expires?
6. How Does Leasehold Compare to Hak Pakai for Foreigners?
7. What Are the Biggest Risks of Leasehold in Bali?
8. FAQ — Frequently Asked Questions
9. Sources and References

What Is a Leasehold (Hak Sewa) in Bali?

Hak Sewa — literally “Right to Lease” — is a contractual right that allows a foreigner to use privately owned Indonesian land (Hak Milik) for a fixed period in exchange for rent payments. It is not a registered land title but a private agreement between the lessee and the freehold landowner, making the notarized contract your sole legal protection.

The legal foundation for Hak Sewa is found in UUPA No. 5/1960, Articles 44–45. Article 44 defines Hak Sewa as the right to use another person’s land for building purposes by paying rent to the landowner. Article 45 specifies who may hold Hak Sewa: Indonesian citizens, foreigners domiciled in Indonesia, Indonesian legal entities, and foreign legal entities with representation in Indonesia.

PP 44/1994 further regulates Hak Sewa for buildings, establishing the framework for lease agreements on privately held land.

Under the UUPA’s classification system, Hak Sewa is a “secondary right” — it derives from a private agreement between parties, not from a direct grant by the state. This distinguishes it from primary rights like Hak Milik (freehold) or Hak Pakai (right to use), which are issued and registered by the National Land Agency (BPN).

A fundamental concept in Indonesian property law is horizontal separation (pemisahan horizontal): land ownership and building ownership are legally separate. When you sign a Hak Sewa agreement, the landowner retains the Hak Milik certificate over the land. You, as the lessee, own the buildings and structures you construct during the lease period. The freehold status of the land does not change — it remains registered under the Indonesian landowner’s name at BPN.

Because Hak Sewa is not registered at BPN, it does not appear on any land certificate or government registry. Your protection is entirely in the notarized contract executed by a PPAT (Pejabat Pembuat Akta Tanah — the authorized land deed officer). This makes the quality and completeness of the lease agreement critically important.

For most foreigners in Bali, Hak Sewa is the most practical and accessible way to control property. Unlike Hak Pakai, which requires a valid KITAS or KITAP residency permit, Hak Sewa requires nothing more than a valid passport. No visa, no residency permit, no Indonesian company — just a well-drafted contract with a willing landowner.

How Long Can a Bali Leasehold Last?

Typical Hak Sewa agreements in Bali run for 25–30 years as an initial term, with extension options potentially bringing the total to 70–80 years. There is no statutory maximum lease duration in the UUPA or PP 44/1994 — terms are negotiated freely between the parties.

While Indonesian law does not impose a ceiling on lease duration, the practical reality is more nuanced. Many Bali notaries (PPAT) decline to draft single-term agreements exceeding 30 years, citing the general spirit of Indonesian land law that restricts foreign control over land. To practitioners’ knowledge, no Indonesian court has invalidated a lease term exceeding 30 years, but the notary resistance is real and shapes how agreements are structured in practice.

The standard approach is to structure leases with an initial term plus one or two extension options:

Common lease structures in Bali:

Structure	Initial Term	Extension(s)	Maximum Total	Notes
Short-term	25 years	None	25 years	Lower upfront cost; limited resale window
Standard	30 years	None	30 years	Most common single-term structure
Extended	25 years	+25 years	50 years	Good balance of cost and security
Maximum	30 years	+20 +30 years	80 years	Strongest long-term protection

Extensions are never automatic. They must be explicitly written into the original lease agreement with clear terms covering the extension duration, the pricing mechanism, and the notice period for exercising the option. Without an explicit extension clause, you must renegotiate from scratch when the initial term ends — with no guarantee of success.

It is also important to understand that a leasehold is a depreciating asset. Unlike freehold land, which can appreciate indefinitely, the value of a lease decreases as the remaining term shortens. Properties with fewer than 20 years remaining on their lease become significantly harder to sell and typically require steep discounts. Timing your entry — and your exit — is critical with any Hak Sewa investment.

What Should a Bali Lease Agreement Include?

Every clause in a Hak Sewa agreement matters because the contract is your only legal protection. Unlike Hak Pakai, which is registered at BPN and backed by a land certificate, Hak Sewa exists only in the notarized document. A missing or poorly drafted clause can leave you without recourse if a dispute arises.

Essential clauses for every Bali lease agreement:

#	Clause	What to Include
1	Parties and identification	Full legal names, passport numbers (lessee) and KTP numbers (lessor), current addresses of both parties
2	Land description	Hak Milik certificate number (SHM), exact location, village (desa/kelurahan), sub-district (kecamatan), boundaries, and total area in square meters
3	Lease duration	Specific start date and end date, total initial term in years
4	Extension clause	“Guarantee for extension” with: extension duration, pricing mechanism, notice period for exercising the option, and conditions
5	Payment terms	Total lease amount, currency (USD or IDR), payment schedule, method of payment, and any deposit or installment terms
6	Usage rights	Explicit rights to build, renovate, modify structures, and operate commercially (if intended)
7	Sublease and transfer rights	Right to assign the lease or sublease to third parties — ideally without requiring landowner consent, or with prior written notice only
8	Building ownership	Confirmation that the lessee owns all structures, improvements, and fixtures built during the lease period (horizontal separation principle)
9	Landowner obligations	Duty to cooperate with permit applications (PBG, Pondok Wisata), sign necessary documents, and maintain the freehold certificate
10	Succession clause	If the landowner dies or sells the freehold, successors and heirs must honor all lease terms. New freehold owners are bound by the existing lease
11	Termination provisions	Grounds for early termination, required notice periods, and compensation payable to the lessee for unused lease term and improvements
12	Improvements at expiry	What happens to buildings when the lease ends — compensation for structures, right to remove fixtures, or agreed transfer to landowner
13	Governing law and disputes	Indonesian law governs. Specify court jurisdiction (typically the local district court) or arbitration mechanism
14	Notarization	Must be executed by a PPAT authorized to operate in the specific kecamatan where the property is located

Before signing any lease, conduct thorough due diligence on the underlying freehold land. Verify that the SHM certificate is authentic, that the person signing as landowner is the actual registered owner, and that the land is free of encumbrances, disputes, or overlapping claims.

How Do Lease Extensions Work in Bali?

Extension terms are only enforceable if they are written into the original lease agreement. Without an explicit extension clause, you must renegotiate from scratch at expiry — and the landowner has no obligation to agree to new terms or to extend at all.

When drafting the extension clause, one of the most important decisions is the pricing mechanism. There are three common approaches:

Lease extension pricing mechanisms compared:

Pricing Mechanism	How It Works	Pros	Cons
Fixed price	Extension amount agreed and locked in at original contract signing	Maximum certainty for lessee; no room for dispute	Hardest to negotiate; landowner bears all inflation risk
Market-rate valuation	Price determined by independent appraisers at time of extension	Fair to both parties; reflects actual conditions	Appraisal costs; potential disagreement on valuations
Formula-based	Linked to an index such as NJOP (land tax value), inflation rate, or other benchmark	Transparent and predictable calculation	Index may not reflect actual market; mixed results in practice

Some older lease agreements in Bali linked extension prices to the gold price. While creative, these arrangements often resulted in disputes when gold prices moved dramatically in one direction.

Beyond the legal terms, the practical reality is that the landowner relationship matters enormously. Regardless of what the contract says, enforcing a lease extension against an unwilling landowner through Indonesian courts is costly, time-consuming, and uncertain. Practitioners consistently report that maintaining a positive, respectful relationship with the landowner is often stronger protection than any contract clause alone.

This does not mean the contract is unimportant — quite the opposite. A well-drafted extension clause provides the legal foundation for the relationship. But it works best when combined with good faith between the parties.

What Happens When Your Bali Lease Expires?

When a leasehold (Hak Sewa) reaches its end date, your rights to the property terminate. There is no automatic renewal under Indonesian law — what happens next depends entirely on what your contract says and what you negotiate with the landowner.

If the lease expires with no extension agreed, the land and any permanent structures on it — villas, pools, landscaping — revert to the landowner. Unless your contract includes a compensation clause for improvements, you walk away with nothing. This is not a theoretical risk: it is the default legal position under Indonesian civil law. The landowner is under no obligation to pay you for buildings you constructed on their land once the lease term ends.

If your contract includes an extension clause, you can renew the lease for an additional period, typically 20–30 years. Extension terms should specify the renewal price or a clear pricing mechanism (fixed price, inflation-adjusted, or market rate with an independent valuation). Vague language like “to be agreed at a later date” gives you almost no protection — if you cannot agree on a price, the lease simply ends.

Extensions must be formalised through a new notarial deed. Unlike Hak Pakai or HGB, which are registered at BPN (the National Land Agency), Hak Sewa remains a private contractual arrangement — your extension agreement is only as strong as the notary deed and the willingness of both parties to honour it.

This is the fundamental trade-off of leasehold ownership in Bali: lower entry cost and simpler legal structure, but a fixed time horizon. Every year that passes, your remaining lease — and its resale value — depreciates. A 25-year lease with 8 years remaining is worth significantly less than the same property with 22 years left, regardless of what the villa itself is worth.

How Does Leasehold Compare to Hak Pakai for Foreigners?

Hak Sewa and Hak Pakai serve fundamentally different purposes. Hak Sewa is a contract-based arrangement open to any foreigner with a passport. Hak Pakai is a BPN-registered land title available only to foreigners who hold a valid KITAS or KITAP residency permit. The right choice depends on your residency status, investment goals, and intended use of the property.

Detailed comparison:

Feature	Hak Sewa (Leasehold)	Hak Pakai (Right to Use)
Legal basis	UUPA Art. 44–45, PP 44/1994	UUPA Art. 41–43, PP 103/2015
Registered at BPN?	No — contract-based only	Yes — registered land title
Visa/residency required?	No — passport only	Yes — KITAS or KITAP required
Duration	Negotiated (typically 25–30 yrs + extensions)	30 years initial + 20 + 30 = up to 80 years
Can be used as collateral?	No	Yes (in theory, rarely accepted in practice)
Commercial rental allowed?	Yes (with proper permits)	No — personal residential use only
Number of properties	Unlimited	One residential property per foreigner
Minimum value requirement	None	Varies by region (typically IDR 2–5 billion in Bali)
Company needed?	No	No (individual)
Transferable?	Yes (per contract terms)	Yes (with restrictions)

When Hak Sewa is the better choice: For investors planning to operate rental villas, buyers without Indonesian residency, those who want to hold multiple properties, or anyone who wants to avoid the bureaucratic requirements of BPN registration and residency permits.

When Hak Pakai is the better choice: For long-term residents who already hold a KITAS or KITAP, want BPN-registered title security for their personal home, and do not intend to use the property commercially.

Many foreign buyers in Bali ultimately choose Hak Sewa because it requires no residency permit, imposes no minimum property value, allows commercial use with appropriate licensing (such as a Pondok Wisata permit), and places no limit on the number of properties you can lease. The trade-off is that you receive no BPN registration — your protection depends entirely on the contract.

For a detailed explanation of how visa status affects property rights, including what happens to Hak Pakai if your residency permit expires, see our dedicated guide. For recent regulatory changes affecting both Hak Pakai and foreign investment structures, see our PP 28/2025 explainer.

What Are the Biggest Risks of Leasehold in Bali?

The biggest risk with Hak Sewa is that it is not registered at BPN. Your entire legal protection depends on the quality of the contract and the authority of the notary who executes it. A poorly drafted agreement or an unauthorized notary can leave you with little practical recourse if problems arise.

The key risks to understand before entering any Hak Sewa agreement:

1. No BPN registration. Your rights exist only in the notarized contract. If the document is poorly drafted, contains ambiguous terms, or was executed by an unauthorized notary, enforcement through Indonesian courts becomes difficult and uncertain.

2. Extension uncertainty. Even a “guarantee for extension” clause can be challenging to enforce against an unwilling landowner in practice. Indonesian court proceedings are lengthy, conducted in Bahasa Indonesia, and outcomes can be unpredictable. The contract provides legal standing, but practical enforcement is never guaranteed.

3. Landowner risk. If the freehold landowner dies, heirs may dispute the lease — even though the contract legally binds them. If the landowner sells the freehold to a new owner, that owner is legally bound by the existing lease, but may not cooperate willingly with permit renewals or extension negotiations.

4. Depreciating asset. Unlike freehold land, which can appreciate indefinitely, a leasehold loses value as the remaining term shortens. Poor timing on acquisition or resale can result in significant financial losses. Properties with fewer than 20 years remaining require steep discounts to attract buyers.

5. No mortgage security. Hak Sewa cannot be used as collateral for bank loans in Indonesia. All leasehold purchases must be financed with cash or private funding arrangements. This limits your leverage and exit options.

6. Unauthorized notary risk. A PPAT must be authorized to operate in the specific kecamatan (sub-district) where the property is located. An agreement drafted and notarized by a PPAT who is not authorized for that area may be unenforceable — regardless of how well the contract is written.

7. Permit dependency. Commercial permits such as Pondok Wisata (tourist accommodation license) and PBG (building approval) typically require the freehold landowner’s signature and active cooperation. If the landlord-lessee relationship deteriorates, permit renewals and new applications become difficult or impossible.

None of these risks make Hak Sewa inherently unsafe — many foreigners hold successful leasehold arrangements across Bali. But they do make the quality of your contract, the competence of your notary, and the strength of your landowner relationship critically important. Using a nominee arrangement to try to circumvent these limitations is not a legal alternative and creates far greater risks.

For a comprehensive pre-purchase verification process, see our due diligence checklist.

FAQ — Frequently Asked Questions

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