Bali continues to attract foreign buyers looking for villas, holiday homes, and property investment opportunities. One of the most common structures offered to foreigners is a leasehold property, often marketed as a way to secure a villa or land for a fixed period without acquiring freehold ownership.
However, buying leasehold property in Bali is legally very different from buying freehold property in many other countries.
Under Indonesian law, foreigners generally cannot own land under Hak Milik, Indonesia’s strongest form of individual land ownership. Article 21 of Law No. 5 of 1960 concerning the Basic Agrarian Principles (Undang-Undang Pokok Agraria or UUPA) reserves Hak Milik for Indonesian citizens. Indonesian law nevertheless recognizes other rights and arrangements, including Hak Sewa untuk Bangunan (Right of Lease for Buildings) and, subject to applicable requirements, Hak Pakai (Right of Use).
This distinction matters. When a foreigner “buys a leasehold villa” in Bali, the foreigner is generally not buying the underlying freehold land. Instead, their rights depend heavily on the legal structure and the terms of the lease agreement.
Before transferring a substantial deposit or signing a long-term lease, foreign buyers should understand the following five legal risks.
Can Foreigners Legally Hold Leasehold Property in Bali?
Indonesian agrarian law expressly recognizes a Right of Lease for Buildings. Article 44 of the UUPA describes the right to use land owned by another person for building purposes in return for rental payment. Article 45 identifies the parties who may hold such a right, including foreigners domiciled in Indonesia and certain foreign legal entities with a presence in Indonesia.
Separately, Indonesia recognizes Hak Pakai, which should not be confused with an ordinary contractual lease. Government Regulation No. 18 of 2021 provides that fixed-term Hak Pakai may, among others, be granted to foreigners and foreign legal entities that have a representative office in Indonesia, subject to the applicable requirements.
The correct legal structure therefore depends on factors such as your immigration status, whether the property is for personal use or commercial operation, the underlying land title, and what you intend to do with the property.
That brings us to the first major risk.
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1. Mistaking Leasehold Rights for Land Ownership
Perhaps the most important issue for foreign buyers is understanding exactly what they are acquiring.
A leasehold agreement does not automatically give the lessee ownership of the underlying land.
Article 21 of the UUPA provides that only Indonesian citizens may generally hold Hak Milik. More importantly, Article 26(2) provides that transactions or other acts intended to directly or indirectly transfer Hak Milik to a foreigner are void by law, subject to the terms of that provision.
This creates a significant risk where a foreign buyer is offered arrangements such as:
- putting freehold land in the name of an Indonesian friend or partner;
- using an Indonesian “nominee” who supposedly holds the property on behalf of the foreigner;
- signing side agreements intended to give the foreigner effective ownership of Hak Milik land;
- assuming that a private contract can override statutory restrictions on foreign land ownership.
A nominee arrangement may appear to give the foreign investor economic control over the property, but a contractual arrangement cannot simply convert a foreigner into the lawful holder of Hak Milik.
Article 26(2) is particularly important because it covers transactions intended to transfer Hak Milik to foreigners directly or indirectly. The consequences expressly stated in the provision can be severe.
2. Failing to Verify the Land Title and the Landlord’s Legal Authority
A beautifully designed villa, a signed booking form, or a payment receipt does not prove that the person offering the property has the legal authority to lease it to you.
Before buying leasehold property in Bali, legal due diligence should verify the underlying land and the person granting the lease.
Indonesia’s land registration framework is governed by the UUPA and, among other regulations, Government Regulation No. 18 of 2021 concerning Management Rights, Land Rights, Apartment Units, and Land Registration. PP No. 18/2021 remains an important part of the current land-rights framework.
Among other matters, buyers should investigate:
- whether the land certificate is genuine;
- whether the person signing the lease is the registered rights holder or otherwise legally authorized;
- whether there are mortgages, security interests, disputes, seizures, or other encumbrances;
- whether ownership arose through inheritance and whether succession issues remain unresolved;
- whether other parties must consent to the transaction;
- whether the physical boundaries correspond with the land documents;
- whether there are competing agreements affecting the same property.
This becomes especially important with long-term leaseholds. A foreign investor may pay decades of rent in advance. If the person granting the lease does not actually have the necessary legal authority, recovering the investment may require negotiation, civil proceedings, or other legal action.
3. The Landowner Sells the Property—or a New Owner Challenges Your Lease
This is one of the most commercially significant risks in Bali leasehold transactions.
Imagine this scenario:
You sign a 25-year lease, pay most or all of the rent in advance, and invest additional money renovating or constructing a villa.
Five years later, the landowner sells the land.
The new owner then says:
“I did not sign your agreement. You have to leave.”
Does the sale automatically terminate your lease?
Not necessarily.
Article 1576 of the Indonesian Civil Code (Kitab Undang-Undang Hukum Perdata or KUHPerdata) establishes the principle that the sale of leased property does not terminate a lease that already existed, unless otherwise agreed when the lease was created. Article 1575 also provides that a lease does not terminate merely because the landlord or tenant dies.
That legal protection is important, but it does not mean a foreign lessee can safely rely on a short or poorly drafted agreement.
Disputes may still arise over matters such as:
- whether the lease was validly executed;
- whether the seller disclosed the lease to the new owner;
- whether the agreement contains a termination-upon-sale provision;
- whether the lease can be assigned;
- whether successors and heirs are addressed;
- what remedies apply if possession is disturbed;
- whether the foreign lessee can claim compensation;
- how and where a dispute must be resolved.
Indonesian contract law also matters here. Article 1320 of the Civil Code sets out the general requirements for a valid agreement, while Article 1338 provides, in substance, that valid agreements bind the parties who entered into them. Indonesian Supreme Court materials continue to refer to these provisions as fundamental principles of contract law.
Clauses worth addressing
A professionally drafted Bali leasehold agreement should consider provisions dealing with:
- sale or transfer of the land;
- obligations of successors;
- inheritance;
- assignment;
- early termination;
- notice obligations;
- compensation;
- peaceful possession;
- breach of contract;
- dispute resolution.
These provisions become especially important if the property changes hands during a long lease period.
4. Signing a Weak Lease Agreement—Especially an English-Only Contract
Many foreign property disputes are ultimately contract disputes.
A foreign buyer may focus heavily on the lease price and duration while paying insufficient attention to the provisions that determine what happens when something goes wrong.
For example, a lease may state:
“The tenant has the option to extend the lease.”
That sounds reassuring.
But it raises several questions.
At what price?
For how many years?
When must the option be exercised?
Can the owner refuse?
How is the future price calculated?
What happens if the parties cannot agree?
An “extension option” with no clear mechanism may create significant uncertainty precisely when the property has become more valuable.
Indonesian language requirements also matter
Article 31 of Law No. 24 of 2009 requires Bahasa Indonesia to be used in agreements involving Indonesian state institutions, government agencies, Indonesian private institutions, or Indonesian individuals. Where a foreign party is involved, the agreement is also written in the foreign party’s national language and/or English.
Presidential Regulation No. 63 of 2019 further regulates this requirement. Article 26 confirms the use of Bahasa Indonesia and, where a foreign party is involved, a corresponding foreign-language and/or English version. It also allows the agreement to specify which language prevails if differences of interpretation arise.
Foreign investors should therefore be cautious about relying solely on an English-language template prepared by a property agent.
5. Ignoring Zoning, Building Permits and Business Licensing
A valid lease does not necessarily mean the property can legally be used for whatever purpose the foreign investor wants.
This distinction is particularly important in Bali, where buyers often intend to turn villas into short-term rental businesses.
Bali’s current provincial spatial planning framework includes Bali Provincial Regulation No. 2 of 2023 concerning the Bali Provincial Spatial Plan for 2023–2043. Specific properties may also be subject to more detailed regency/city RTRW, RDTR and zoning regulations depending on their location.
A property should therefore be checked against its actual permitted land use rather than assumptions based on neighbouring villas.
Building legality is another issue.
Government Regulation No. 16 of 2021 governs Indonesia’s building regime. The Ministry of Public Works’ official SIMBG system administers matters including Persetujuan Bangunan Gedung (PBG) and Sertifikat Laik Fungsi (SLF) under this framework.
If the investor intends to operate the property commercially, business licensing may also apply. Indonesia’s current risk-based licensing framework is governed by Government Regulation No. 28 of 2025, which replaced PP No. 5 of 2021. PP No. 28/2025 provides that businesses must hold the applicable business licensing for their activities through Indonesia’s risk-based licensing framework.
This means a villa being marketed as an “investment property” does not, by itself, prove that it can legally be operated as the business the buyer has in mind.
Before leasing a Bali property for investment, check:
- applicable zoning;
- permitted use of the property;
- applicable PBG or legacy building documentation;
- SLF where required;
- existing business licences;
- whether the intended accommodation or rental business requires additional licensing;
- whether the buyer’s individual or corporate structure is suitable for the intended business.
A leasehold investment can look financially attractive while still carrying substantial regulatory risk.
Before You Sign a Bali Leasehold Agreement, Protect Your Investment
A Bali property investment can involve a substantial upfront payment and a commitment lasting decades. By the time a dispute appears—because the owner sells the land, an heir challenges the agreement, an extension is refused, or the property cannot legally be used as intended—the investor may already have significant capital at risk.
The safer approach is to conduct legal due diligence before signing or transferring substantial funds.
If you are considering a leasehold property in Bali, already have a lease agreement that you want reviewed, or are facing a dispute with a landlord, seller, developer, or new property owner, Hukumku can help connect you with professional Indonesian advocates for legal consultation, contract review, and dispute assistance. Hukumku provides online legal consultation and services covering land matters, contract review, contractual disputes, and other individual and business legal needs.
Protect your investment before a property issue becomes a legal dispute. Consult with Hukumku and have your Bali leasehold documents reviewed by an Indonesian legal professional.
