Leasing land and buildings in Indonesia

A lease (sewa) lets you use land or a building without holding the title. Foreigners and companies can take one. The owner keeps the land, and most of the terms are whatever the two sides agree.

It’s still a contract with the owner, not a land right. A lease is only as good as the owner’s title, the wording of the deed and the steps you take to make it visible to anyone who later buys the land or lends against it.

What the law says about a lease

The Civil Code defines a lease as an agreement in which one party gives the other the use of something for a set time in return for a price (Article 1548). The Basic Agrarian Law (Law 5 of 1960) adds a right to lease land for building (hak sewa untuk bangunan): the right to put up a building on someone else’s freehold in return for rent, paid at once or in instalments, before or after the land is used. It can be held by Indonesians, foreigners domiciled in Indonesia, Indonesian companies and foreign companies with a representative in Indonesia.

A written lease ends on its expiry date without any notice (Article 1570 of the Civil Code). If you stay on and the owner lets you, a new lease arises under the rules for unwritten leases, which run until one side gives notice (Articles 1571 and 1573). That’s a weak position for anyone who has built on the land, so the renewal terms belong in the deed.

Have the lease made as a notarial deed. An authentic deed is full proof of its contents between the parties and their heirs (Article 1870 of the Civil Code).

For land with a certificate, Government Regulation 18 of 2021 lets an interested party ask the land office to record a lease in the public register or on the certificate (Article 90). Once it’s recorded, anyone who checks the certificate before buying the land or lending against it will see your lease.

If the owner sells, dies or borrows

A sale doesn’t end an existing lease unless the lease itself allowed for that (Article 1576 of the Civil Code). Read the deed for any clause that lets the owner end it on a sale.

A lease doesn’t end when either side dies (Article 1575). The owner’s heirs step into the owner’s place, and the practical trouble is getting all of them to sign a renewal or a consent.

The Mortgage Law (Law 4 of 1996) lets a bank write a promise into the mortgage deed that the owner won’t lease the property, change a lease term or take rent in advance without the bank’s written consent (Article 11). If the land is already mortgaged, get that consent before you pay, or your lease is in a weak position if the bank enforces.

Lease or Hak Pakai

For a home, a foreigner can also hold a right of use (Hak Pakai), as buying property as a foreigner explains. The two compare like this:

	Lease (sewa)	Hak Pakai
What it is	A contract with the owner	A registered land right
Term	Whatever the deed says	On freehold, up to 30 years, then a new deed
Proof	A notarial deed, which can be recorded on the certificate	Its own land certificate
Mortgage	Can’t carry one	Can carry one if it has a fixed term
If the owner sells	Continues unless the lease says otherwise	Binds any later owner once registered

A company faces the same choice. A foreign-owned company (PT PMA) can hold a right to build (Hak Guna Bangunan, HGB) for its business. A lease keeps its capital out of land but leaves the business on someone else’s title.

Leasing on HGB over HPL

Some land in industrial estates and port areas, and land managed by the new capital’s authority, sits under a right of management (Hak Pengelolaan, HPL) held by a government body, a state-owned or regional company or the Land Bank Agency. An HPL can’t be sold or transferred. Instead the holder signs a land utilisation agreement with you, and you can be granted HGB or Hak Pakai on top of the HPL with its approval.

Under Government Regulation 18 of 2021, HGB over HPL runs for up to 30 years, can be extended for up to 20 and renewed for up to 30, each time with the HPL holder’s approval. When it ends, the land goes back to the HPL holder. The agreement has to set the fee, the term, the extension and renewal terms, and who owns the land and buildings at the end. Any legal act on the right, a mortgage included, needs the HPL holder’s recommendation. If you lease a building from an HGB holder on such land, ask to see that agreement. Industrial land near ports covers estates.

Tax on rent

Rent from land and buildings carries a final income tax of 10% of the gross amount under Government Regulation 34 of 2017. Gross means everything the tenant pays for the property, service, maintenance and security charges included, whether they sit in the lease or in a separate contract. A tenant that’s a government body, an Indonesian company, a permanent establishment or one of the other withholders named in the regulation deducts the tax and pays it over. Otherwise the landlord pays it. Hotels and similar lodging fall outside this rule. If the landlord is registered for VAT, VAT can apply on top.

Before you sign

• Check the owner’s certificate at the land office, as set out in how to check a land certificate, and make sure your term doesn’t outlast the owner’s own right.
• Ask whether the land is mortgaged and, if it is, get the bank’s written consent.
• Have the owner’s spouse sign too if the land is marital property.
• Write in the renewal terms, how rent is set for each new term, whether you can sublet and who owns any building you put up. Without a clause, the Civil Code’s default is that you may remove what you built, at your own cost and without damaging the property.
• Keep the lease a lease. Side deals such as a power of attorney to sell can make it look like a nominee arrangement, and the law voids those.