Year 22 of a 25-year lease. That’s when the phone call usually comes.
Not year one, when everything is exciting and the villa is new and the Airbnb reviews are rolling in. Not year ten, when you’ve paid back your investment and the place is running like a machine. Year 22. Three years left. Suddenly the question that felt abstract when you signed — “what happens at the end?” — has a date on it.
I got one of these calls last month. An Australian woman, owned a two-bedroom in Seminyak since 2004. Twenty-two years into a 25-year lease. She’d earned well over $300,000 in rental income during that time, on a property she’d originally leased for $85,000. By any measure, a great investment. But now she needed to know: could she extend, and for how much?
The short answer was yes, she could probably extend. The long answer — which is really what I’m trying to lay out here — involves money, relationships, bargaining power, timing, and a legal reality that most buyers never think about until it’s too late.
Let me get the uncomfortable part out of the way first.
Under Indonesian law, when a Hak Sewa (leasehold) expires, your rights to the property end. Full stop. The land goes back to the landowner. And here’s the part that really bothers people: the villa you built on that land — the pool, the kitchen, the landscaping, every dollar you poured into construction — that goes back too. Unless your contract says otherwise, the landowner gets everything.
This isn’t a theoretical risk. It’s the default legal position. There is no automatic renewal. The landowner is under no legal obligation to extend your lease, to compensate you for the building, or to give you any priority over the next person who comes along with a checkbook.
Now. In practice, things usually work out better than that. Most landowners want to extend — they get another lump sum payment, the property is already built and maintained, and the relationship is established. But “usually” is not “always,” and the difference between a smooth extension and a nightmare is almost entirely about what you put in the contract on day one.
I review leasehold contracts every week. Some of them are excellent — clear, detailed, protective. Most are not. The most common problem isn’t that the contract is bad. It’s that the extension clause is either vague, missing, or written in a way that gives you almost no real negotiating position.
Here’s what should be in there:
A guaranteed right to extend for a specific additional term — typically 20 to 30 years. Not “the lessee may request an extension” (that’s nothing — anyone can request anything). You want language that says you have the right to extend, period. Something your lawyer can point to and say “this isn’t optional.”
Then there’s the pricing question, and honestly, this is where most of the arguments happen.
Some contracts lock in a fixed extension price from day one. You sign in 2026, and the contract says the extension in 2051 will cost, say, $100,000. Clean, simple, no surprises. The catch is that landowners are getting wise to this. Bali land values have been climbing 7–13% a year in sought-after areas. A landowner who agrees to a fixed price today is promising to ignore twenty-five years of appreciation. I still see it occasionally — maybe one in ten contracts — but it’s getting harder to negotiate, and I understand why. If I were the landowner, I’d push back too.
The approach I actually prefer is a formula tied to independent appraisal. You write into the contract that when extension time comes, both parties will jointly select three licensed appraisers, and the extension price will be the average of their valuations. Nobody can game that. The landowner can’t pull a number out of thin air, and neither can you. It grounds the whole conversation in market reality. I’ve seen this save relationships — both sides walk away feeling like the process was fair, even if the number wasn’t exactly what they wanted.
What worries me is what I see in the majority of contracts: “extension price to be negotiated at prevailing market rates.” Sounds perfectly reasonable when you’re reading it in 2026. Feels a lot less reasonable in 2050 when “prevailing market rates” is whatever the landowner says it is, and you have two years left and zero alternatives. That language gives you almost no protection. It’s better than nothing — barely — but it leaves the hardest conversation completely unresolved.
A compensation clause for improvements. If the lease ends without extension — for whatever reason — you should get something for the villa you built. A reasonable clause might specify that the landowner pays the lessee the depreciated construction value, or a percentage of the current market value of the improvements. Without this, you walk away with nothing.
A right of first refusal. If the landowner wants to sell the land, you should have the first opportunity to match the offer. This doesn’t happen often, but when it does, you don’t want to learn about it after the sale closes.
I want to walk through a few situations that come up more often than people expect, because the “standard” extension story doesn’t always apply.
Scenario: the land value exploded. You leased in 2005 when Canggu land was $30 per square meter. It’s now $2,500. Your extension clause says “market rate.” The landowner sees a twenty-year lease on this plot as worth $400,000 or more — regardless of what you paid originally. Your construction cost of $200,000 is now a fraction of the land value. In this scenario, your negotiating position is weak unless you have a formula clause, because the gap between what you paid and what the land is worth today makes any “fair” number feel astronomical to you and too low to the landowner. The investors I’ve seen handle this best are the ones who triggered the extension conversation early — five to eight years before expiry — when they still had time and options.
Scenario: the landowner wants to sell. Mid-lease, the landowner gets an offer from a developer who wants to buy the freehold and build a hotel. Your lease is a problem for the buyer — they either have to wait it out or negotiate you off the land. If your contract has a right of first refusal, you’re in a strong position. If it doesn’t, you might find yourself dealing with a new landowner who has very different plans. I’ve seen this happen twice in Canggu. In one case, the lessee matched the developer’s offer and effectively bought out the freehold through a PT PMA. In the other, the lessee had no refusal clause and ended up negotiating a cash payout to surrender the remaining eight years early — he got about 60% of what the remaining term was worth. Not terrible, but not great.
Scenario: you’ve invested more in renovation than the extension costs. You spent $150,000 rebuilding the villa — new roof, new pool, full interior redesign — and now the extension costs $80,000. Without a compensation clause, your $150,000 in improvements belongs to the landowner if you can’t agree on extension terms. This gives the landowner perverse incentive: the more you improve the property, the more they get if the lease expires. A compensation clause flips this — it means walking away costs the landowner money too, which keeps both sides motivated to find a deal. I always tell clients: if you’re planning a major renovation, negotiate the extension first. Don’t pour $150,000 into a property where your future is uncertain.
Here’s something that no legal guide will tell you, but it might be the most important thing I can say on this topic.
In Bali, leasehold contracts exist within a social and cultural context that operates differently from what most Western investors are used to. The contract is important — essential, even. But it’s not the whole picture. Your relationship with the landowner matters enormously, sometimes more than what the paper says.
I’ve seen cases where the contract was airtight but the relationship had soured — the landowner dragged their feet, found procedural objections, or simply made the extension process as difficult as possible. Technically the lessee had rights. Practically, enforcing those rights in an Indonesian court against a local landowner is expensive, slow, and uncertain.
I’ve also seen the opposite: a contract with a weak or ambiguous extension clause, but a landowner who was happy to extend on reasonable terms because the lessee had been a good tenant, paid on time, maintained the property well, and — this matters — had treated the landowner with respect throughout the relationship.
A practical example. Our Australian client in Seminyak had no fixed extension price in her contract. Just “to be negotiated.” When she approached the landowner, his opening ask was high — about $120,000 for another 25 years, on land that she’d originally leased for $85,000 in 2004. That’s roughly a 40% increase. In a market where land values have tripled or more since 2004, it was actually a fair number. She negotiated it down to $95,000, they signed a new notarized deed, and she’s now secured through 2052.
Contrast that with a case I heard about secondhand — an investor who’d rented his villa through Airbnb for years, never visited, never met the landowner, and left property management issues (including a septic overflow that affected the neighbor’s land) unresolved. When his lease came up for extension, the landowner simply refused. No negotiation, no counter-offer. Just no. The investor had no practical recourse — his extension clause said “may be extended by mutual agreement,” and there was no mutual agreement to be had.
The lesson is uncomfortable for people who think of property as a purely financial transaction. In Bali, it isn’t. The human side of the leasehold relationship is a variable you need to manage from year one, not year 22.
When should you start thinking about your extension?
The honest answer is: the day you sign the original lease. Your extension clause should be negotiated before you buy, not as an afterthought.
But in terms of actually triggering the extension conversation with the landowner, the consensus among agents and notaries I work with is somewhere between 3 and 5 years before expiry. Some say even earlier — 5 to 10 years.
Why does timing matter so much?
Because your options shrink as the clock runs down. At year 20 of a 25-year lease, you still have five years of income ahead of you, your property is still attractive to buyers (who could take over the remaining term), and the landowner knows you’re not cornered. You could sell. You could negotiate. You could wait.
At year 24, the whole picture flips. No buyer wants a lease with one year left. You can’t sell. Your only options are to extend or walk away. The landowner knows this. If they want to charge a premium, or revisit terms that were already agreed, your ability to push back is close to zero.
I’ve seen extension prices double between “negotiated five years early” and “negotiated six months before expiry.” Same property, same landowner, same market. The only difference was timing.
This is actually how most foreign investors exit. Rather than extending and holding for another 25 years, they sell the remaining lease term to another buyer and take their profit.
The math is simple enough. A villa with 20 years left on a 25-year lease is a desirable asset — plenty of time for the new buyer to earn back their investment and then some. A villa with 10 years left is harder to sell — the buyer’s window is shorter, the payback period is tighter, and they’re already thinking about extension risk. Below 10 years, things get tough. Below 5, it’s fire-sale territory.
The sweet spot, based on what we see in transactions, is about 15 to 20 years remaining. That’s the window where a leasehold sells most easily and at the strongest price relative to the original purchase cost. Above 20, you’re leaving future value on the table. Below 15, every passing year compresses your buyer pool.
We wrote about the economics of this in our article about leasehold time decay — the chart showing resale value declining against cumulative rental income tells the whole story visually. The best exit window is around year 8–12 of a 25-year lease, when you’ve already earned back most of your investment through rental income and the remaining term is still long enough to attract strong buyers.
One thing I’d add from experience: if you’re planning to sell, extend the lease first if you can. A villa with “18 years remaining” and a villa with “18 years remaining plus a signed 25-year extension option” are two very different propositions to a buyer. The second one commands a noticeable premium — sometimes 15–25% more — because the buyer knows they have a path beyond the current term.
This comes up more than you’d think, and it’s one of the less pleasant conversations to have.
Under Indonesian inheritance law, the landowner’s rights (and obligations) transfer to their heirs. In principle, your lease survives the landowner’s death — provided it was properly notarized and, ideally, registered or at least acknowledged by the local village authorities.
In practice, it can get complicated. Indonesian inheritance often involves multiple heirs (Indonesia follows Islamic, customary, or civil inheritance law depending on the family), and those heirs may not all agree about the lease arrangement. Disputes between family members about land are common in Bali, and a lessee can get caught in the crossfire.
The best protection is a thoroughly documented lease — notarized, with witnesses, and ideally acknowledged by the kelurahan or banjar (local village administration). If the lease is properly recorded, the heirs inherit the obligation along with the land. If it’s a handshake deal or a poorly documented agreement… things can go sideways.
We had a client whose landowner passed away in 2023. There were four heirs. Three were fine with the existing lease. One wanted to renegotiate. It took eight months and about $4,000 in legal fees to resolve — the lease was upheld in the end, but the client described those eight months as “the most stressful period of my life.” A better-documented lease would have shortened that considerably.
If I could write one clause into every leasehold contract in Bali, it would look something like this:
The lessee has the guaranteed right to extend this lease for an additional 25 years. The extension fee will be determined by the average valuation of three independent licensed property appraisers selected jointly by both parties. The lessee must provide written notice of intent to extend at least 24 months before the expiry of the initial term. If the lessee exercises this right, the landowner agrees to execute a new notarized lease deed within 90 days. Any permanent improvements made by the lessee during the initial term shall be valued and compensated at depreciated replacement cost in the event the lease is not extended.
That’s it. Five sentences. Every one of them matters. And I’d guess fewer than 20% of the leasehold contracts I review contain all five elements.
If your existing contract doesn’t have this — if your extension clause is vague or missing — it’s not too late to fix it. You can negotiate an addendum with your landowner at any time during the lease. It’s easier and cheaper to do this while the relationship is good and the clock isn’t ticking than to wait until year 22 and hope for the best.
A German couple bought a 30-year lease on a villa in Ubud in 2002 for $45,000. Included a clear extension clause with a formula based on independent appraisal. In 2027 — five years before expiry — they triggered the extension. Appraisers valued the extension at $78,000. They paid, signed a new deed, and they’re now covered through 2057. Total cost of 55 years of property rights in Ubud: $123,000. That’s the system working the way it should.
A British investor bought a 25-year lease on a villa in Canggu in 2005 for $110,000. His contract said “extension to be mutually agreed.” In 2024, he approached the landowner. The landowner’s ask: $280,000 — more than double the original price, reflecting the explosion of Canggu land values. The investor thought this was outrageous. The landowner thought it was below market. They went back and forth for months. Eventually settled at $200,000. Not a bad outcome, but the investor told me: “If I’d locked in a formula in 2005, I’d have saved $50,000 easily.”
An American who bought a 20-year lease in Sanur in 2009 for $60,000. No extension clause at all. In 2025, with four years left, he approached the landowner. The landowner said no — his son wanted to build on the land. The American had no legal basis to force an extension. He tried selling the remaining four years, but no buyer wanted a lease that short. He’s now renting the villa month-to-month through word of mouth, earning a fraction of what he used to make, and he’ll walk away in 2029 with nothing to show for the building he put $150,000 into constructing. A compensation clause would have changed everything.
If you already own a leasehold in Bali, pull out your contract tonight. Find the extension clause. Read it carefully. Does it give you a guaranteed right to extend? Is there a pricing mechanism? Is there a compensation clause?
If the answer to any of those is no, call your notary tomorrow and ask about adding an addendum. It’s a conversation that might cost you $1,000–$2,000 in legal fees and a lunch with your landowner. Compared to the alternative — standing on year 24 with no protection and no options — that’s the best money you’ll ever spend.
If you’re thinking about buying a leasehold and you haven’t signed yet: make the extension clause your non-negotiable. Walk away from any deal where the seller or agent waves it off as “something you can sort out later.” Later doesn’t come with bargaining power.
And if you’re somewhere in the middle — years into a lease, things are going well, extension feels like a distant problem — just remember that every year you wait, the conversation gets a little harder and a little more expensive. The best time to negotiate your extension was the day you bought. The second best time is today.
