Leasehold Agreement

In Indonesia, a leasehold agreement, also known as a “hak sewa,” is a legal contract between a property owner (the lessor) and a tenant (the lessee) that grants the lessee the right to possess and use the property for a specified period. Unlike freehold ownership, where the owner has complete ownership rights, a leasehold agreement confers temporary ownership rights to the lessee for a predetermined duration, typically up to 30 years with an option for renewal. During the lease term, the lessee is obligated to pay rent to the lessor and adhere to the terms and conditions outlined in the agreement.

The pricing is one of the most obvious advantages of owning a leasehold property. A leasehold property is less expensive than a freehold home. It may be advantageous for people who have a certain budget in mind while purchasing a home. Aside from that, leasehold homes are outfitted with features and amenities, as well as being designed to be more appealing to renters.

Because the owners do not have complete authority over their properties, you may only transfer ownership with approval from the state government. The permission approval process might take up to 6 months or a year. This might cause major issues when it comes to selling the houses in the future. Another downside of having a leasehold property is that its value may fall after 30 years when compared to its initial worth. As a result, the owners may suffer a significant financial loss.

In Indonesia, a leasehold agreement typically imposes several specific obligations on the landlord. These obligations may include:

1.  Maintenance and Repairs: The landlord is generally responsible for maintaining the leased property in a habitable condition throughout the lease term. This includes addressing any structural issues, repairing damages, and ensuring the property complies with safety and health standards.

2.  Payment of Taxes and Fees: The landlord is usually responsible for paying property taxes, as well as any applicable government fees or charges related to the property. This may include land tax, building tax, or other local taxes levied by the government.

3.  Providing Essential Services: The landlord is generally expected to ensure that essential utilities and services, such as water, electricity, and sanitation, are provided to the leased property. This includes ensuring that these services are available and functional for the tenant’s use.

4.  Ensuring Safety and Security: The landlord is responsible for ensuring the safety and security of the leased property. This may involve installing adequate security measures, such as locks or surveillance systems, and addressing any safety hazards or risks on the property.

5.  Renewal and Termination: If the lease agreement includes provisions for renewal or termination, the landlord must adhere to these terms. This may involve providing notice to the tenant within the required timeframe and following any procedures outlined in the lease agreement or under Indonesian law.

The buyer of a freehold home owns the ground on which the property is built. In contrast, with leasehold property, the buyer owns the property but not the ground on which it is built. Simply explained, leasehold property is a long-term tenancy in which you can occupy the property for the duration of the lease.

In the long term, freehold properties appreciate in value more. During the first 20 to 30 years, prices may be lower or equal to similar freehold homes. However, the value of leasehold properties often depreciates over time when the lease period expires and there is uncertainty about securing an extension or renewal of the lease, which diminishes the property’s marketability. The value of freehold properties is lower than that of leasehold ones, owing to the greater entrance cost. Purchasing and selling leasehold property takes longer since state authorization and approval are required.

One obvious concern is whether or not you will be allowed to maintain a leasehold property once the lease expires. If you wait for it to expire, the property or land will immediately revert to state possession and be offered for purchase by anybody else. Any renewal request at this time may be refused. If the lease has ended and you still want the land/property, you must file for a new alienation, which will cost nearly as much as purchasing it again.

In Indonesia, leasehold agreements commonly include stipulations regarding the permissible use of the property. These provisions serve to delineate the boundaries of acceptable activities conducted on the leased premises. For instance, clauses may limit the property’s usage to residential purposes only, prohibiting commercial activities like operating a business. Similarly, restrictions may be imposed on subleasing arrangements, requiring prior consent from the landlord to sublet the property. Additionally, lease agreements often mandate that tenants refrain from making substantial alterations or modifications to the property without obtaining approval. Provisions regarding illegal activities, noise disturbances, and pet ownership may also be included to uphold the safety, tranquility, and integrity of the leased premises. Understanding and adhering to these usage restrictions are vital for both landlords and tenants to maintain a harmonious and lawful tenancy

A premium is the whole amount of coverage that homeowners must pay in order to keep their lease on the property. Leasehold properties, unlike freehold apartments, do not carry a premium, thus they must be renewed on a regular basis once a certain term has elapsed.