Top 5 Mistakes to Avoid When Signing a Commercial Lease Agreement

Let’s explore the top 5 mistakes business tenants often make when signing a commercial lease agreement — and how to avoid them under the Indonesian legal framework.

Understanding a Commercial Lease Agreement in Indonesia

If you’re a business owner in Indonesia — or looking to establish one — a Commercial Lease Agreement is a fundamental legal document that can impact your operations, finances, and legal standing. Whether you’re renting a storefront in Jakarta or leasing a factory in Surabaya, the lease binds your business to obligations and restrictions that require careful attention.

In Indonesia, lease agreements are governed by the Indonesian Civil Code (KUHPerdata), particularly Articles 1548–1600. However, specific regulations such as Minister of Agrarian Affairs and Spatial Planning Regulation No. 18 of 2021 on Procedures for Determining Management Rights and Land Rights and local zoning laws (RTRW) also apply depending on the business and property.

Mistake #1: Not Reviewing the Lease Terms Thoroughly

It may sound basic, but it’s surprisingly common — tenants skip the fine print or fail to ask questions about what they don’t understand.

Key Clauses Often Overlooked

• Lease Duration (Jangka Waktu Sewa): Indonesian commercial leases typically range between 1 to 4 years, but may be renewed. Always check if automatic renewal or early termination terms exist.
• Maintenance Responsibilities: Who handles the repairs — you or the landlord? The lease should clearly specify.
• Sublease and Assignment Rights: In many cases, tenants cannot sublet the property without the landlord’s written consent — and in some industrial zones, this might be prohibited by local government.
• Dispute Resolution: Is the forum set in Indonesian courts, or via arbitration? This can affect legal costs and timelines significantly.

Tips: Always request the lease in Bahasa Indonesia and English if you’re a foreign business owner.

Mistake #2: Ignoring Zoning and Licensing Compliance

This is particularly relevant in cities like Jakarta, Tangerang, Bekasi, Karawang, or Denpasar. Just because a property looks perfect doesn’t mean you can legally operate your type of business there.

Legal Consequences of Zoning Violations

Indonesian law requires businesses to align with local zoning plans (Rencana Tata Ruang Wilayah – RTRW). Failure to comply can result in:

• Forced closure by the Government
• License revocation (NIB, Izin Lokasi, or Izin Usaha)
• Fines or criminal litigation from local authorities

Tips: You must verify whether the leased premises are designated for your commercial activity under OSS (Online Single Submission) RBA zoning system.

Mistake #3: Overlooking Rent Escalation and Hidden Charges

Many business tenants focus only on the base rent, forgetting to check additional obligations that could cost millions in the long run.

Understanding “Service Charges” and Annual Adjustments

Common hidden costs in Indonesian commercial leases include:

• Service charges for security, parking, and common areas (Biaya Layanan Gedung)
• Annual escalation clauses (usually 5–10% per year, especially in malls and office towers)
• VAT (PPN) and Withholding Tax (PPh Pasal 4(2)) — commercial rent is taxable in Indonesia

Always ask: Is this a gross lease or a net lease? Clarify who pays what.

READ MORE:

• Buying Property in Indonesia: A Legal Guide for Foreigners
• How to Deal with a Breach of Contract in Indonesia

Mistake #4: Vague Exit and Termination Clauses

Not all businesses last forever. Maybe your business grows faster than expected — or the location simply doesn’t work out. Without a clear exit strategy, you’re stuck.

Why Exit Strategies Matter in Business Leases

Key risks of not having defined exit clauses include:

• Heavy penalties for early termination
• Obligation to pay rent until the end of term even if you move out
• Disputes over the condition of the premises upon exit

Best practice is to negotiate a termination clause with acceptable notice periods and proportional penalties. Also, inspect the condition handover clause (Berita Acara Serah Terima).

Mistake #5: Not Consulting a Legal Professional

It may feel tempting to “just sign it” — especially when the landlord pressures you. But not involving a lawyer can turn a business opportunity into a legal liability.

Legal Due Diligence and Contract Risk Analysis

A legal professional can help:

• Review the lease against Indonesian law
• Check the landlord’s legal title (Sertifikat Hak Milik or Hak Guna Bangunan)
• Analyze risks like encumbrances, land disputes, or pending litigation
• Ensure the lease is valid for company licensing and NIB registration

Practical Comment from Kusuma & Partners Law Firm

“In our commercial legal practice, we’ve seen countless businesses caught off guard by unclear lease terms or zoning errors. A lease agreement isn’t just paperwork — it’s a legal framework that supports your business. Whether you’re a local entrepreneur or a foreign investor, working with a trusted legal team ensures you’re protected from costly mistakes. Our advice? Don’t sign anything without a thorough legal review.”

Conclusion

Signing a commercial lease agreement is a serious step in your business journey. While landlords often standardize contracts, you always have the right to negotiate terms — and understanding the Indonesian legal framework is key.

Avoiding these 5 common mistakes can save you time, money, and legal trouble. Invest in legal advice, read the fine print, and always align your lease with your business strategy.

Looking to safeguard your next lease agreement?

Our team at Kusuma & Partners Law Firm is here to help you navigate the legal complexities with clarity and confidence. Whether you’re leasing for the first time or reviewing an existing contract, we offer tailored legal guidance grounded in Indonesian law and commercial best practices.

“DISCLAIMER: This content is intended for general informational purposes only and should not be treated as legal advice. For professional advice, please consult us.”