I. Fundamental Principles (Legal Basis)

1. Foreign nationals are legally permitted to lease land and/or buildings in Indonesia.
2. There is no legal prohibition for a foreign national to be a direct party to a lease agreement.
3. What is prohibited under Indonesian law is:
   • the use of nominee arrangements,
   • the use of a local person’s name to circumvent legal restrictions (fraus legis).

Accordingly, the appropriate legal solution is not to terminate the lease relationship itself, but rather to correct and regularize the legal structure.

II. Concrete Steps to Be Taken

1. Termination of the Nominee Relationship (Legal Cleansing)

This is a critical first step:

• Prepare a written declaration (in the form of a notarial deed or signed statement) confirming that:
  • the previous lease agreement did not reflect the actual legal relationship;
  • the local party acted solely as a name lender (nominee);
  • such nominee relationship shall not be continued.

This step is essential to:

• eliminate future legal risks;
• demonstrate good faith should the matter ever be subject to legal scrutiny.

2. Termination or Cancellation of the Existing Agreement

Two possible approaches may be taken, depending on the factual circumstances:

Option A – Termination by Mutual Agreement (Recommended)

• All parties mutually agree to terminate the existing lease agreement.
• A Deed of Termination is executed before a notary.

Option B – Cancellation Due to Legal Defect

• The agreement is declared null and void due to:
  • unlawful cause (nominee arrangement),
  • legal circumvention (fraus legis).

This option is generally used only in dispute situations.
Option A is safer and more elegant, as it avoids conflict.

3. Execution of a New Lease Agreement (Directly in the Name of the Foreign National)

This is the core legal solution.

The new lease agreement must:

• name the foreign national as the direct lessee;
• clearly state the lessee’s identity:
  • passport details,
  • nationality,
  • overseas address;
• clearly describe the leased object:
  • location of the land,
  • land size,
  • land title status (Freehold / HGB of the owner).

Important note:
There is no legal requirement that a lessee must be an Indonesian citizen.
A foreign national may lawfully be a direct lessee.

4. Form of Agreement: Strongly Recommended to Use a Notarial Deed

For maximum legal protection:

• Execute the lease as a Notarial Lease Deed before a Notary/PPAT;
• Ensure the notary:
  • fully acknowledges that the lessee is a foreign national;
  • includes a clause explicitly stating that the lease does not create ownership rights.

This will:

• strengthen evidentiary value,
• provide legal certainty for the foreign lessee.

5. Reasonable Lease Term Arrangement

Best practice:

• Lease term of 10–25 years (subject to agreement),
• with an extension option clause,
• without clauses resembling a transfer of ownership.

Avoid:

• excessively long terms (e.g. 80–100 years),
• clauses implying “full control as owner”.

6. Transparent Lease Payment Mechanism

To avoid allegations of legal circumvention:

• Lease payments must be made:
  • directly by the foreign national,
  • directly to the landowner’s bank account;
• Payment records must be retained;
• Lease-related taxes must be paid in accordance with applicable regulations.

7. Additional Alternatives (For Stronger Legal Protection)

Depending on the intended use of the land:

1. Right of Use (Hak Pakai over Freehold Land)

• Suitable for medium- to long-term use;
• Requires a more formal administrative process.

2. For Commercial Use

• The foreign party establishes a PT PMA;
• The lease is executed in the name of the PT PMA (not personal);
• This structure offers the highest level of legal security for commercial activities.

III. Protection of Funds Already Invested by the Foreign National

For funds already paid, the following instruments may be used:

• A debt acknowledgment or reimbursement agreement from the nominee party; or
• A written acknowledgment that the funds constitute lease payments transferred to the new agreement.

This ensures that:

• the funds are legally recognized,
• no future dispute arises regarding past payments.

IV. Final Conclusion

1. Foreign nationals are legally allowed to lease land directly in Indonesia.
2. The lawful and compliant approach is to:
   • terminate nominee practices,
   • terminate or cancel the existing agreement,
   • execute a new lease agreement directly in the foreign national’s name.
3. This mechanism:
   • eliminates legal circumvention risks,
   • protects the foreign investor’s financial interests,
   • provides legal certainty for all parties involved.