One of the common cases in a transfer of land, for example in sale and purchase, is a lawsuit by third party who claims to own the land. It is often in this kind of cases, the buyer became the defendant with the demand of revocation of the transaction as well as compensation.

This situation may occur if during the sale and purchase transaction process the seller was not honest with the buyer or hid the truth about other person’s ownership of the land. Other causes may be that the seller also purchased the land from other party who wasn’t honest to the original buyer about the land.

In our previous article we have explained the importance of diligence for the buyer in examining and checking the ownership of the land before entering to the transaction. However, regardless the buyer has exercised diligence and found no defect, in the practice this kind of claim may still be happening. Moreover, in Indonesia, if there is a lawsuit in the court, then the lawsuit shall proceed until the lawsuit is revoked by the plaintiff or settled amicably by the parties or the judges issue a judgment. Therefore, the buyer may expose himself to the risk of losing the title of the land and suffer loss.

If this kind of lawsuit happened, what will be the buyer’s defense?        

Good Faith and Legal Protection for Buyer with Good Faith

In the sale and purchase transaction, it is important to have good faith. If the buyer is declared having good faith in entering the purchase transaction, he will have protection from the law. The consequence of the protection is that the transaction may be declared valid. The Supreme Court of the Republic of Indonesia in various decisions and also in its circular has confirmed this. For example in the decision No. 251 K/Sip/1958 on 26 December 1958 the Supreme Court established a principle stating: “The Buyer who acted in good faith should be protected and the sale and purchase should be deemed valid.” The same principle is also stated in the Supreme Court Circular Number 7/2012, in point IX, which states: “Protection should be granted to the Buyer with Good Faith, although in the future it is found that the seller has no right….”.

Therefore, the most important thing that need to be understood that how can a buyer can be deemed to act in good faith or the have good faith?

The prevailing laws do not define what good faith is. But, the laws states that a buyer may be deemed to have good faith if he does not have any knowledge of the existence of defect in the good (Article 531 of Indonesian Civil Code or “ICC”) and further he does not have any knowledge whatsoever that he is dealing with a person which is not the owner.

In relation to the land transaction, the Supreme Court provides a guidance to determine whether the buyer may be deemed to have good faith in its Circular Number 4 Year 2016 (“Supreme Court Circular 4/2016”) which regulates the criteria of the buyer with good faith and should be protected pursuant to Article 1338 paragraph (3) of ICC is as follows:

1. Conduct the sale and purchase of the land in accordance with the valid procedures and documents which have been stipulated in the laws and regulation, as follows:
   • the purchase is made through public auction or;
   • the purchase is made before the Land Deed Official (Pejabat Pembuat Akta Tanah – PPAT) (pursuant to Government Regulation Number 24 of 1997) or;
   • the purchase of Customary Land (tanah milik adat)/which is not registered, should be conducted pursuant to the customary law, that is:
     1. Conducted in clear and cash manner (before/with the knowledge of the Village Chief/Head of Sub-district).
     2. Perform a prior examination/check the status of the land and the result of the examination/checking shows that the land is owned by the seller.
     3. The purchase is made with proper price.
2. Conduct diligence by examining/checking some issues related to the land, such as:
   • the seller is the person who has right /owns the land title, as stated in the proof of ownership;
   • the land is not confiscated, or;
   • the land is not encumbered/placed with mortgage (Hak Tanggungan), or;
   • for a registered land (and has a certificate of ownership issued by Land Office), it has obtained a statement from the National Land Agency and history of legal relationship between the land and the holder of the certificate.

From the above provision, it can be concluded that there is an obligation for the buyer to perform a prior checking on some issues related to the land that he wishes to purchase and its ownership. The buyer has an obligation to see and evaluate whether the land that he intends to purchase is free from defect (not confiscated, or not encumbered), beside that he must see whether the seller is the owner of the land as stated in the certificate. Further, the buyer should obtain a statement from the National Land Agency regarding the land. Finally, after performing all the checking and the result shows that the land is free from defect then the sale and purchase should be performed in accordance with the laws and regulation, which is through the making of Deed of Sale and Purchase before a PPAT. This way, the buyer can be deemed to have good faith.

According to the Supreme Court Circular 4/2016, with the diligence effort, the buyer is expected to evaluate whether the seller is the person that has the right to sell the land. Then if a defect is found on the land or that the seller has no right to sell the land but the buyer still proceed with the purchase transaction then this situation can be considered that the buyer does not have good faith, or having bad faith. If the buyer has bad faith, then if there is a lawsuit against him by third party, the buyer may face a risk that the transaction is revoked by the court and will lose the land he purchased.

Legal Protection for Buyer with Good Faith against Third Party Claim

Further issue is that after the buyer performed all the diligence requirements pursuant to the Supreme Court Circular 4/2016 and found no defect and based on the land certificate and statement from the National Land Agency that the land is owned by the seller, yet still there is someone who claims to own the land and file a claim against the buyer. Such third party is proven to own the land or one of the owners of the land. In other word, the seller does not provide true information to the buyer.

In this case, what kind of legal protection the buyer may receive? The buyer in this case is considered as buyer with good faith in the transaction, and therefore it should get the legal protection.

Previously we have explained that the Supreme Court in its decision Number 251 K/Sip/1958 dated 26 December 1958 states that because the buyer is the buyer with good faith then the sale and purchase should be deemed valid. Therefore the legal protection that will be received by the buyer with good faith is that the sale and transaction shall be deemed valid and the buyer will be protected as the owner of the land he purchased.

Then how about the third party claim? Is he allow to claim for compensation to the seller? The Supreme Court Circular Number 7/2012 in point IX explains that the original owner may only file a claim for compensation to the seller that has no right. Therefore, the seller should compensate to the original owner for the sale and purchase transaction. In this case, the buyer remains to become the owner of the land and is not obligated to compensate the loss of the third party who actually has the right.

Statute of Limitation for the Third Party who has the right to make a Claim

It must be noted that pursuant to Article 32 paragraph (2) of the Government Regulation Number 24 of 1997 concerning the Land Registration (“GR 24/1997”), the statute of limitation for third party claim is 5 (five) years from the issuance of the certificate validly.[1]

Every sale and purchase of land should be conducted with an execution of the Deed of Sale and Purchase of Land and further will be followed up with the registration to the National Land Agency. After the registration, the name in the certificate will be the name of the new owner (buyer).

Then referring to the provision of the Article 32 paragraph (2) GR 24/1997 if in the period of 5 years since the registration the party who has right does not file any lawsuit to the court, such party may no longer file a lawsuit to revoke the land registration.

However, even though the third party has no right to make a claim it does not mean that he cannot file a lawsuit to the court. In Indonesia, if someone file a lawsuit to the court then the lawsuit will be processed and will only be finished if there is a court decision, settled amicably by the parties, or the plaintiff revoke the lawsuit.

How about this statute of limitation? This statute of limitation can only be used as an argument for the defendant (buyer) to rebut the plaintiff’s lawsuit. In many cases, third party still file a lawsuit after the expiry of the statute of limitation referred to in the Article 32 paragraph (2) GR 24/1997, and the judges decide to reject the lawsuit by reason of the lawsuit is filed after the expiry of the statute of limitation as stipulated under the law.

However, not all cases are rejected by the judges. In some lawsuit the plaintiff won the case with the reason that the buyer has no good faith when entering the sale and purchase transaction. Therefore, in the land sale and purchase transaction, it is advised for the buyer to proceed diligently and check the land and the ownership as a form of good faith, because it is the main legal protection for the buyer.

We hope this will be useful.

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[1] Article 32  paragraph (2) GR 24/1997 : “In the case of a land parcel for which a certificate has been legally issued on behalf of a certain individual or a legal entity that has acquired the land parcel in good faith and has in reality been possessing it, any other parties who think they have rights thereon can no longer claim for these rights in the case where, within five (5) years following the issuance of the said certificate, they never raised their objections in writing to the holder of the certificate and to the Head of the relevant Land Office and never filed a lawsuit to the court over the possession of the land parcel in question or the issuance of the said certificate.”