It’s definitely a lease.  The original term in Jawi was “pajakkan”.  No one seriously contests that that word means “lease.”

Malaysia likes to say that this was a permanent cession of territory.  That not only goes against the plain language of the contract and the contemporaneous understanding of the parties (there’s correspondence in 1878 from the British referring to a “rental” and “leasehold”); it also defies the mechanics of the agreement – what kind of one-off transfer calls for a permanent annual payment?

Some people argue that the status changed in 1903, when an additional agreement changed the sum from $5,000 to $5,300.  In that agreement, the first paragraph uses the term “menyarakhan” (“handover”).  But no one seems to have bothered to read the second paragraph of the 1903 agreement:

The reason why these islands were not named in the agreement made with Baron de Overbeck and Mr Alfred Dent on 19 Muharam 1295, equivalent to 22 January 1878, is that it was understood and assumed by both parties that these islands were included in the lease of territories and islands as stated in that agreement. And in verification and confirmation of the above, we therefore set our seal to this statement.

So, the 1903 agreement reinforced the fact that this was a lease.

Moreover, even British contemporaries referred to the agreement as a “rental” or a “leasehold”.  Part of the confusion may lie in the word “cession” used in the 19th Century English; although today we think of a cession as a giveaway, the writers in 1878 used it interchangeably with what today we call a “concession” – a territory or function handed over to a private party to control and make money out of, in exchange for some kind of payment.

Finally, some people argue that the grant of authority from the Sultan to Baron Overbeck accompanying the agreement, giving the Baron “power of life and death” over the Sultan’s subjects in Borneo, could only constitute a cession of sovereignty.  This fundamentally misunderstands what the Sultan was doing: he was making Overbeck his viceroy, giving him the authority to stand in the Sultan’s shoes.  He didn’t make him Sultan.