Bali Leasehold Extension: What Happens When Your 25-Year Lease Ends?

A 25-year land lease signed in Bali in 2001 expires in 2026.

For decades, foreign investors have used long-term lease agreements to secure land for villas, hotels and other property projects in Bali. Many of these leases were signed for 25 or 30 years.

This means that agreements entered into during the 1990s and early 2000s are now reaching the point where investors must either extend the lease, renegotiate with the landowner or leave the property.

The key question is no longer theoretical: what actually happens when a valuable villa stands on leased land and the original lease is about to expire?

Many Bali lease agreements give the tenant a “priority right”, “first right” or “first option” to extend the lease.
These words can sound reassuring, but they do not necessarily mean that the landowner is unconditionally required to grant another lease term.
A priority right may only apply if the landowner decides to lease the land again. If the owner chooses not to offer another lease, the tenant may have no automatic right to force an extension.
This distinction becomes critical when a villa, swimming pool and other permanent improvements have already been built on the land.
A properly drafted agreement should therefore distinguish clearly between a priority to negotiate and a binding contractual obligation to grant an extension.

As the lease approaches expiry, the economic balance between the parties may change significantly.
The tenant may have invested heavily in a villa or other permanent structures that cannot simply be moved to another plot. The landowner, meanwhile, still owns the underlying land.
If the agreement only provides a priority right to negotiate, or says that the extension price will be agreed later at market value, the tenant may enter renewal discussions from a weak position.
The landowner may request a much higher price than the original lease rate. In some cases, the owner may decide not to lease the land again at all.
This is why the extension mechanism should be treated as one of the most important commercial terms of the original lease—not as an issue to be negotiated 25 years later.

This risk is not purely theoretical.
In a Denpasar case involving a property in Sanur, a lease originally running for 20 years contained an option related to a further 10-year extension. When the lease approached expiry, the parties disagreed over whether the tenant could enforce that option. The dispute ultimately reached the Denpasar District Court.
Another Bali dispute arose after the original landowner died. Some heirs agreed to renew an expired lease, while other heirs challenged the renewal because they had not consented. The dispute reached the Indonesian Supreme Court, which found the new lease deed legally defective.
These cases illustrate an important point: extension rights should not depend on vague wording, future goodwill or assumptions about what the landowner—or the landowner’s heirs—will do decades later.
The agreement should clearly define who is bound, how the extension is exercised, how the price is determined and what happens if ownership of the land changes before the extension is used.

Even a clearly stated extension right may be insufficient if the agreement does not address what happens when the original landowner is no longer involved.
Over a 25- or 30-year lease, the land may be inherited, sold or otherwise transferred to a new owner. A strong lease agreement should therefore state expressly that the relevant extension obligations bind the landowner’s heirs, successors and permitted transferees.
The agreement should also regulate what happens if a future owner refuses to cooperate with the extension process, refuses to accept payment or refuses to sign the required documents.
The objective is not simply to give the tenant a right on paper. It is to make that right as clear, enforceable and operational as possible throughout the full life of the investment.

A guaranteed extension is much less useful if the future price is left entirely open.
Clauses such as “at market price” or “at a price to be mutually agreed” can create serious uncertainty. After 25 years, land values may have increased dramatically, while the tenant may already have substantial capital tied up in the property.
A stronger agreement should define the pricing mechanism in advance. Depending on the transaction, this may involve a fixed formula, an agreed valuation method, independent valuers or another objective mechanism for determining the extension price.
The important point is that the tenant should understand today how the future renewal price will be determined—not discover the rules only when the original lease is about to expire.

The lease should also state clearly what happens to buildings and other improvements when the lease ends.
A villa, swimming pool, landscaping and other permanent improvements may represent far more value than the land rent itself. Their treatment at expiry should therefore never be left to assumption.
The agreement should address ownership of the improvements, any right of removal, possible compensation, handover obligations and the consequences of an extension dispute.
For an investor, this provision can be just as important as the lease term itself. The real financial risk at expiry may not be losing the right to use the land—it may be losing the value created on that land over the previous 25 or 30 years.

A well-drafted Bali land lease should anticipate the events that may occur long after the agreement is signed.
At Agreement Factory, we pay particular attention to future extension rights, pricing mechanisms, heirs and successors, transfers of ownership, notice procedures, payment mechanics and the treatment of buildings and improvements.
The difference between a “priority right to extend” and a binding extension obligation can be significant. The same applies to a clause that mentions renewal but does not explain how it must actually be exercised or enforced.
The objective is to reduce uncertainty before capital is invested and before a villa or other valuable asset is built on leased land.

A 25 or 30 - year lease may appear long when it is signed, but for a property investment the expiry date eventually becomes a commercial reality.
Before committing to land, investors should understand whether the agreement provides only a priority to negotiate, a genuine contractual right to extend, or something in between.
The extension term, price mechanism, heirs and successors, future landowners, payment procedure and treatment of improvements should all be considered before the original agreement is executed.
The safest time to negotiate these protections is before the investment is made—not when the lease has only a few years left.

Not necessarily. A priority right may only give the existing tenant preference if the landowner decides to lease the land again. A binding extension right should clearly require the owner to grant the additional term when the agreed conditions are met.

The agreement should at least contain a clear and objective pricing mechanism. Leaving the price entirely to future negotiation can create significant uncertainty when the original lease approaches expiry.

The lease should expressly address succession and state how relevant obligations apply to heirs and successors. This is particularly important for extension rights that may only be exercised decades after the original agreement was signed.

A properly drafted lease should regulate transfers of ownership and the effect of the agreement on future owners. The extension mechanism should not depend solely on the personal cooperation of the original landowner.

That depends on the agreement. The lease should clearly define the treatment of buildings, permanent improvements, removable assets, handover obligations and any compensation or removal rights at expiry.