Things Need to Consider When Preparing a Property Lease Agreement in Bali

Despite the hurdles created by the pandemic in the tourism sector, Bali has shown signs of recovery due to a change in demand for luxury real estate.

As the nature of office work has changed over the pandemic, many businesses sought to migrate to the beautiful island of Bali. This, therefore, stimulated the demand for luxury housing. Previously, the ‘digital nomads’ movement in Bali was driven by hospitality and IT workers, but today it attracts a far broader range of businesses.

Employers are usually responsible for finding accommodation for their expatriate staff. Moreover, companies that are new to Indonesia will likely confront leasing methods that are different from what they are used to in their home country.

This article will provide important information regarding property leasing agreements in Bali.

What Needs to Be Considered When Renting a Property in Bali?

Purchasing a property with a leasehold title implies that one owns the property for a certain time but not the land on which it is built. Annual land rent payments or full payment for the life of the lease will be required to maintain property ownership.

The certificate might last anywhere from one to 80 years. When your lease certificate expires, you may either renegotiate for a longer period or, in certain cases, a lease extension is already included in the lease purchase.

The property will return to freehold title and ownership of the Indonesian after the lease has expired without being extended. You won’t have to put up much money, but your options for using the property will be limited. Furthermore, the physical structure’s value will not rise as much as freehold property, which is in higher demand among foreigners.

If you decide to acquire a leasehold property, the preparation of the agreement should be made by a third-party legal counsel. This is because the key to a cost-effective leasehold structure is ensuring renewals and controlling rent rises.

6 Items to Check Before Renting a Property in Bali

Quotation and Payment

Rent is usually quoted in US dollars per month but must be paid in Indonesian Rupiah.

Duration of Lease Terms

The normal lease term is 20-30 years, and it might include land or an existing structure.

Items Covered in the Leasing Contract

Maintenance costs, such as air conditioning, water pumps, and small repairs (generally under $100), are normally borne by the renter. Tenants should budget for running expenditures that are not included in the rent, such as electricity, water, internet, and telephone.

Security Deposit

The renter will normally be asked to pay a booking fee equivalent to at least one month’s rent after signing a letter of intent.

Renewal Right

In most cases, the renter has the option to renew their lease at the market rental rate. During a renewal, apartment rent normally rises between10% and 15%, whereas house rental hikes are chosen at the will of the proprietor.

Sublet Right

If the lease agreement allows it, tenants are usually entitled to sublet the premises throughout the lease period with the landlord’s consent. Embassies may include a provision in their leasing agreement that permits them to cancel the lease if the expatriate is relocated outside of Indonesia.

Do You Need to Conduct Property Due Diligence?

It is imperative to conduct thorough due diligence before the execution of a contract while renting a property in Bali. This is because the results may serve as a foundation for negotiating the contract’s terms and conditions (eg. condition precedence, representation, and warranty, indemnity).

Due diligence would normally cover the following:

• To guarantee that the seller is the legal owner of the land and has the authority to transfer the title. Depending on whether the land is certificated, the documentation must be inspected.
• To determine if the current land licenses are relevant to the buyer and whether they have secured the necessary licenses for the land and any structures placed on it. Also, the buyer must additionally verify the validity of the appropriate licenses.
• All applicable agreements connected to the land must be reviewed by the buyer (eg. lease agreement, financing, or loan agreement making the land an encumbrance).
• If the seller is a business, the buyer will need to examine the seller’s articles of organization, authorized representative, and other applicable corporate documentation.
• Evidence of tax payment (eg. land and building tax, land purchase tax, and duty), zoning and spatial layout studies at the relevant government institution, and a map of the land.

How Cekindo Can Help?

Cekindo will assist you in setting up your land and property investment plan in the most secure way. Our consultants provide you with a hassle-free legal agreement preparation and conducting due diligence and background check. Moreover, we provide a wide spectrum of ancillary services related to company registration, like legal consultancy, license and other documents acquisition, tax and accounting, and HR services.

Let’s start by filling out the form and talking to one of our professional consultants.