INDONESIA Law and Practice Contributed by: Yogi Sudrajat Marsono, Heru Pamungkas, Agnes Maria Wardhana and Andin Aditya Rahman, Assegaf Hamzah & Partners
These regulations impact leases by providing specific guidelines for different types of real estate, ensuring clarity and fairness in lease agreements. However, there are no specific asset class distinctions related to COVID-19 legislation in these laws. 6.15 Effect of the Tenant’s Insolvency Under the Bankruptcy Law, if a lessee is declared bankrupt, the receiver or the party renting out the property temporarily can terminate the lease agreement, provided that prior notice is given within a certain period, according to local cus - toms. According to Article 38 of the Bankruptcy Law, a period of three months is considered suf - ficient. This ground for termination can be stipu - lated under a lease agreement. 6.16 Forms of Security to Protect Against a Failure of the Tenant to Meet Its Obligations It is typical for lessors to request a security deposit from lessees, often equivalent to three months’ rent and service charges, as a form of protection against potential lease violations. 6.17 Right to Occupy After Termination or Expiry of a Lease Based on Article 1573 of the Indonesian Civil Code, if a lessee continues to occupy the prop - erty after the lease term has expired without being challenged by the lessor, a new lease will automatically begin. This principle, known as a silent agreement, is recognised in Indonesian law, where what is customarily agreed upon is considered part of the existing agreement, even if not explicitly stated. To ensure that a lessee vacates on the agreed date, the lease agreement must specify the deadline for vacating and authorise actions by the lessor, such as imposing fines or cutting
off access if the lessee fails to do so. It is also advisable to incorporate clauses allowing fines deducted from the security deposit or retaining the deposit until the lessee vacates. 6.18 Right to Assign a Leasehold Interest The ability of a lessee to assign its leasehold interest in the lease or to sublease all or a portion of the leased properties depends on the terms of the lease agreement. Under the Indonesian Civil Code, subleasing is prohibited unless the les - sor’s consent is obtained. Therefore, some lease agreements may permit assignment or subleas - ing, while others may restrict or prohibit it. Typically, the lessor/owner would also require notification from the lessee on the change of control in the case of the assignment of a lease - hold interest. 6.19 Right to Terminate a Lease Under the Indonesian Civil Code, written leases end automatically when the lease term expires. For oral leases, termination occurs when one party notifies the other, following the necessary notice period as per local custom. In addition, if the leased property is completely destroyed dur - ing the lease term due to an unforeseen event, the agreement is automatically terminated by law. Early termination grounds are typically outlined in the lease agreement, including due to expira - tion, mutual agreement (without any events of default), force majeure, a default event and/or other grounds as agreed by the parties (such as change of control, bankruptcy, cessation of business, the stopping of payment of debts, and the appointment of a receiver over its proper - ties).
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