Bali leasehold extensions: what happens when the lease runs out

A leasehold (Hak Sewa) is a contract to use someone else's land and building for a set period. It isn't a registered land right. It lasts exactly as long as the contract says, on the terms the contract sets.

When the term ends, the plot and everything built on it go back to the landowner. There's no buyout by default, no automatic renewal and no statutory compensation for the villa you paid for. Anything you want at that point, from a right to extend to payment for the building, has to be in the agreement already.

Two Civil Code rules help you in the meantime. A lease isn't ended by the death of either party (Article 1575), and a sale of the land doesn't cancel an existing lease unless the contract allows it (Article 1576). Both protect the remaining years. Neither creates new ones.

The contract you sign today picks one of these for you. The law in force at expiry won't.

We check this list in every leasehold before a client pays a deposit. A missing clause isn't always a reason to walk away. It's a reason to negotiate the price.

1. 01
   Start date

   Does the term run from signing, from notarization or from handover? On an off-plan villa, the gap can easily be a year or more of your lease.

2. 02
   Right to extend

   The contract should say the lessee has the right to extend. "The parties may discuss" is not a right.

3. 03
   Extension price

   A fixed amount, an amount indexed to inflation, or a percentage of the original price. The worst version is "market value at the time of extension".

4. 04
   Notice period

   Usually one to two years before expiry. A missed notice deadline is the most common way owners lose an extension they'd paid for.

5. 05
   Assignment and inheritance

   Check that the extension right travels with the villa when you sell, and passes to your heirs. Without it, buyers in the second half of the term shrink to a handful.

6. 06
   The building at the end

   Compensation, the right to remove furniture and equipment, or transfer to the landowner. Silence means transfer.

In three years of practice we haven't seen a landowner extend on the old terms out of goodwill. Extensions happen where they're written down. Everywhere else it's a new negotiation, and the buyer's position is weak: the villa already stands on someone else's land.

Rise Real Bali, contract review practice

A shorter lease costs less and shows a higher annual yield on the same rent. That makes short leases look better than they are. Compare them on total income over the years you'll actually hold.

Take one villa netting Rp 360,000,000 a year after costs, sold once on a 20-year lease for Rp 3,200,000,000 and once on a 30-year lease for Rp 4,400,000,000. Both prices are our illustration.

• Model income over the remaining term, not as a perpetual yield
• Compare leases of different lengths on income minus price
• Add the extension price to the model if the contract fixes it
• Under 20 years left, ask whether a refit still pays back before the end

Source: Rise Real Bali illustration: fixed net income, no rent growth, no value at expiry

It isn't hopeless, but timing matters more than anything else in the contract you don't have.

First, find out who owns the land now. Over 10 or 15 years it may have passed to heirs, been sold, or be held by a family group or a customary village (desa adat), each with its own way of deciding.

Second, open talks five to seven years before expiry, not in the final year. The further you are from the deadline, the calmer the conversation and the lower the price. Third, sign any agreement before a notary (PPAT). A verbal promise to extend has no legal force and doesn't bind the owner's heirs.

Remember the tax as well. The landowner owes a 10% final income tax on the extension payment, the same as on the original lease (PP 34/2017). Settle in writing who carries it.

Source: Rise Real Bali deal practice, 2023–2026; PP 34/2017

Look at the extension terms before the yield. Our property listings show the base term and any extension the developer quotes, and the area pages show how rents hold up by location. For the bigger choice between a lease and a registered title, read leasehold vs freehold in Bali.

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