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Due to its nature, as an immovable object, or its high value, a land transfer transaction requires a different procedure which must be taken into account by all parties in order to ensure the transfer is conducted legally and diligently. Lack of diligence and not following the legal procedure for the transfer may result in the invalidity of the transfer and ultimately loss, especially to the party who acquire the land title.

Sale and purchase is one form or the transfer of land. For the buyer, compliance and diligence is a must in order to avoid future loss. If the buyer does not follow the procedure or act diligently in examining the land title, he might expose himself to the risk of illegal transfer and also legal claims from parties who claim that they have the right over the land. If the buyer acts diligently, it will establish himself as buyer with good faith and receive protection under the law.[1]

The question is, what the buyer needs to know and consider, in order to secure the land sale and purchase transaction and to avoid possible future loss after the transaction ended?

1. Legal Procedure

According to the law, a sale and purchase is a two party transaction, in which the seller shall deliver the goods that he/she sells and the buyer shall pay the agreed price (Article 1457 Indonesian Civil Code (“ICC”)).

Further, according to Article 37 paragraph (1) of Government Regulation Number 24 Year 1997 regarding Land Registration (“GR 24/1997”), a sale and purchase of land can only be proven by a deed made by the Land Deed Official (Pejabat Pembuat Akta Tanah –PPAT”). The deed is generally known as Land Sale and Purchase Deed (Akta Jual Beli Tanah – “AJB”), this is a form of authentic deed and made only by the PPAT.

On this reason, a sale and purchase of land cannot be conducted through a mere written agreement signed by both parties.

2. Binding Land Sale and Purchase Agreement

Prior to executing the AJB, both parties often entered into a Binding Sale and Purchase Agreement (Perjanjian Pengikatan Jual Beli– “PPJB”). Unlike AJB, this PPJB is not made before a PPAT. It can be made by the parties and privately executed or made before a Notary. However, there is an exception for a sale and purchase of house or strata title from the developer, a PPJB for this purpose should be made before a Notary.[2]  

The parties in a sale and purchase usually bind themselves into the PPJB with the purpose of setting out a terms and conditions of the sale and purchase which applicable for each parties, such as payment with installment or performing due diligence to the land or to the owner.

The execution of PPJB itself does not cause a transfer of title by way of sale and purchase. After all the terms and condition in the PPJB are met, the parties should follow it up with the execution of AJB before the PPAT in order to fulfill the requirements of land sale and purchase in accordance with the provision of the law.

3. Issues that needs to be considered if you intends to purchase a land

After we elaborate the procedure to purchase a land in accordance to the law, then further consideration must be made to specific issues related to the land. This Article will primarily take the buyer’s perspective rather than the seller. However, these issues may be taken by the seller as possible information or issues that would be inquired by the buyer, this is considering that the interest of the buyer is that the land is without defect and to avoid loss.

The maxim ‘Caveat Emptor’, meaning ‘let the buyer’s beware!’ may be applicable in considering to purchase a land. In Bahasa Indonesia we have a saying ‘jangan beli kucing dalam karung’ (literally translates to ‘you shall not buy a cat in a sack’). The point is the buyer should exercise caution if he/she intends to purchase a good and diligently examine whether there’s a defect on the good before deciding to purchase it. Under Indonesian Law it is considered as Buyer’s Good Faith.

What need to be considered?

a. Type of the land title that will be purchased

Under Indonesian law there are several types of land title. Some of the titles are Right of Ownership (Hak Milik), Right to Build (Hak Guna BangunanHGB), Right to Cultivate (Hak Guna UsahaHGU), Right to Use (Hak Pakai).

Each title has its own characteristic and purpose. For example: Right of Ownership may only be owned by Indonesian citizen and has no limitation period of ownership.[3] Therefore, if the buyer is a legal entity, it cannot purchase the land and the titled first needs to be converted to HGB or HGU. Other than that the purpose of the purchased land should be considered. If the land is to be used for plantation business then it needs HGU title.

HGB and HGU has limitation period of ownership. Therefore, it should be examined whether the HGB or HGU still has validity period or it will expires soon. 

b. the Ownership of the Land Title

In principal, a transfer (sale) of property can only be done by the owner.[4] Therefore, the next thing that needs to be considered is the owner registered in the land certificate.

In some cases, more than one person own the land, this is the case in a inherited land, and the land is owned by some heirs. In this condition, all heirs should jointly sell the land.

In case the land is owned by a married person, it should be examined whether the spouse grant his/her consent for the sale. This will be a different case if the couple entered into asset separation agreement, in this case, husband/wife who owned the land may sell the land without the spouse’s consent. [5] There is a precedent in Indonesia that a husband/wife who transfers a property without spouse’s consent  will cause the transfer becomes invalid.

If the land is owned by a legal entity, for example a Limited Liability Company, then it needs to be examined whether the directors require approval from the board of commissioners or the shareholders for such transaction. There is such requirement under Indonesian Company Law.[6]

c. Whether the Land is being seizured?

If the owner has an ongoing dispute with other party in the court, then there’s a risk or probability that his/her land has been, or will be, placed with a security seizure by the court. One possible way to find out about this is by examining whether the owner has an ongoing dispute (in this case as a defendant) in the court.

A transfer of property which is placed with security seizure constitutes a criminal act under the Article 227 of the Indonesian Criminal Code.[7]

d. Whether the land is encumbered with Mortgage?

Mortgage (Hak Tanggungan) is one form of security under Indonesian law, specifically for land. The existence of Mortgage means that such land may in any time to be sold through an auction by the mortgage right holder (Creditor), if the debtor is defaulted in paying his/her debt.

In practice it is possible that a third party, who is not a party to the loan agreement, to give his/her land as a security (with Mortgage) for the debtor’s debt, in this case the debtor is not the owner of the land. According to the article 7 of the Law Number 4 Year 1996, mortgage shall follow the land in whoever the land is owned. Therefore, even though the land is not owned by the debtor, it can be executed by the creditor (Mortgage holder). If the land you intend to purchase is encumbered with mortgage, it is advised to ask to release the mortgage first (‘Roya’).

Each party may also request information from the Land Office regarding the status of the land, either the ownership or the information whether the land is placed with seizure or encumbered with mortgage. The Agrarian Law and GR 24/1997 accommodate this.[8]

The issues explained above are general in nature for a land sale and purchase transaction. In specific, there’s also possibility a party who purchase a land has other conditions to be considered, for example to construct a factory, then it is advised also to check whether it is possible to construct a factory in the location, for this purpose the buyer needs to check with the local government and see the Spatial Planning (Rencana Tata Ruang WilayahRTRW).

After the abovementioned issued are checked and the buyer can accept the condition of the land, the buyer may proceed to execute the AJB before a PPAT. After the AJB is executed, the PPAT can process with the registration to the Land Office for the transfer of the land from the seller to the buyer.

Hope this is helpful.

FREDRIK J PINAKUNARY LAW OFFICES


[1] Decision of the Supreme Court of the Republic of Indonesia No. 251 K/Sip/1958 dated 26 December 1958 which stated “A buyer who has acted in good faith should be protected and the relevant sale and purchase should be considered valid.

Supreme Court Circular No. 7/2012, in point IX stated: “a legal protection should be granted to a buyer who has acted in Good Faith although latter it is discovered that the seller has no right….”

[2] Article 1 point 2 of the Minister of Public Works and Public Housing of Republic of Indonesia Number 11/PRT/M/2019 regarding the System of Preliminary Agreement of the Sale and Purchase of House.

[3] This is the general provision, there is an exception for the Right of Ownership, a certain legal entity may own a land with the Right of Ownership title.

[4] Article 584 ICC “Ownership of properties cannot be acquired in any manner other than by appropriation,

attachment, prescription, legal or testamentary succession, and by assignment or deliver pursuant to a transfer of legal title, originating from the individual who was entitled to dispose of the property..”

[5] Indonesian Family Law adopts joint property principle, where every property acquired by either the husband or wife during the period of marriage shall be owned jointly by the husband and wife, further, in relation to such joint property, the husband/wife may only act with the consent of the husband/wife. There is an exception, if the couple entered into a division of property agreement. Vide Article 35 – 36 Law No 1 Year 1974 regarding Marriage.

[6] Vide Article 102 of Law Number 40 Year 2007 regarding Limited Liability Company. You can also read our article about  Limitation to Board of Directors authority and corporate Approval for Company’s Transaction.

[7] Article 227 Criminal Code: “A maximum imprisonment of nine months or a maximum fine of six hundred rupiahs shall punish any person who exercises a right, knowing that he is by judicial verdict deprived thereof.”

[8] Elucidation of GR 24/1997 General Elucidation Paragraph 2 ”Beside that in facing concrete cases, land registration is necessary that allows for the title holder to prove his title over the land that he possess, and for parties who have interest, such as potential buyer or potential creditor, to obtain necessary information regarding the land that becomes the object of the transaction that will be performed, and for the Government for the execution of the land policy”.


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