A Tale of Villas and Contracts in Bali

 

Never mind the problem with enforcement of contracts in a court of law; we will get to that another day. But what could go wrong with the contract itself?

First, are you fluent in Indonesian? Do you know what the contract says? Do you know the Indonesian law about this?

Or have you relied upon someone else to explain it to you?

I want to tell a story. I’ve change the names and some details, mostly because I don’t want to stir up another hornets’ nest, but this story it true.

A friend of mine, call him John, a few years ago sent me a copy of a contract in connection with the extension of a villa lease. The contract was in Indonesian, and John doesn’t speak Indonesian, so he asked me to confirm whether it said what Simington, the villa developer, claimed it did.

Now the land under the villas belonged to a Balinese family, and they had leased it for 25 years to Simington, who built the villas and leased them out individually to expatriate investors. The Balinese family and Simington had agreed that Simington could exercise an option within four years to extend the lease to an additional 25 years, bringing the entire lease period to 50 years total. Simington would then give the option to the villa owners to extend their villa contracts for the extra 25 years as well, based upon the extended land lease, for a 50 year total.

The contract John sent me was a copy of the extension lease between the Balinese family and Simington.

I recognized the Balinese family name. They were very wealthy and very influential. One of them was a lawyer.

I read the extension lease, and found that it stated “the lease may be extended for a further 25 years until 2058 with the payment of Rupiah (a certain sum of money).”

The document then went on to say that the payments could consist of… and it listed four checks, complete with check numbers, dates, banks, and rupiah amounts.

The funny thing was, everything was written in the future or conditional tense. “The lease could be extended…” “Payments by these checks could be made…” No where did it state that the payments had actually been received and the lease extended.

In fact, the could language was exact the same as in the original contract which gave the option in the first place. Why would they do that? Why not just say: these checks were received, and the lease is now extended to 2058?

I checked with my lawyer, Maharidzal, who found it just as peculiar as I did. I went back to John, and he went back to Simington, and a few days later John explained to me that:

• Even though Simington was not fluent in Indonesian, he could read a little, and the Indonesian language doesn’t have tenses and he was sure that the contract would be okay. (Actually, Simington was wrong. Indonesian does have tenses and they can be quite clear, it's just that Indonesian verbs aren’t conjugated for tense.)

• Simington’s receptionist had reassured John that if there was any problem with the extension contract, the notaris would not have signed it.

• Everyone else was signing their extensions, so it must be okay.

• Villas values were going up quickly, so it would be a shame not to get in on it.

I looked a bit into Simington’s background and found that a few years earlier he had fled England ahead of accusations of shady real estate dealings.

So what was going on here? Was it just strange language in a contract, or was Simington scamming his tenants, or was the Balinese family scamming Simington?

I suspect two scams, but I don’t know. I think Simington doesn’t care, because he will be long gone from Bali, with the cash, before the first 25 years are up. And the Balinese family has an option for the second 25 years: in 2023 they, or their heirs, can accept the extension lease, or they can refuse to recognize it, depending on how they feel about it at the time.

After all, they can always say “the agreement says the lease could be extended and payments could be made, but they weren’t.” If the villa tenants think they are going to take a wealthy and influential Balinese family to court in such dubious circumstances, I think not likely. And Simington probably won’t be around to testify. What does he care? He took his money years ago.

I believe there are lots of contracts like that in Bali. They are in Indonesian, and they are full of loopholes and defects. I think of them as “lottery ticket” contracts. No one buys a lottery ticket because they are sure to win with every ticket. But it’s nice to have the tickets, because some day one of them might turn out to be a winner.

There has been a real explosion in villa development in Bali. If there are a lot of “lottery ticket” villa contracts out there, no one will even know about them for another 15 years.