Leasing Land In Indonesia

Buying Land in Bali - Right to Use Land Titles (Hak Pakai)

See also:

• Buying land and property in Bali with Freehold title (Hak Milik or HM)
• Buying land and property in Bali - Mixed Marriage Ownership, the Nominee Ownership Crisis
• Buying land and property in Bali - Access To Land
• Buying land and property in Bali - Buying property safely
• Buying land and property in Bali - Buying property a checklist
• Cost of land and house building in Bali

Right To Use Land Titles in Indonesia

As we said in a previous article (see foreign ownership of land here) there are legal ways that foreigners can hold land titles in Indonesia.

Foreigners can legally hold leasehold titles established under Hak Pakai and Hak Sewa land titles. These are fully legal arrangements that, if set up correctly, are safe, are far simpler and carry much less risk than illegal nominee ownership arrangements.

Hak Pakai (HP or The "right of use" land title)

Hak Pakai is a land title in which the government owns the land and an individual can lease the land from the government for a predetermined period of time (30 years). The title can be renewed at very little cost for an additional period of 30 years with another 2 periods of 20 years each after that. This gives a total of 90 years. No one knows what happens after that however it is probable that it can be renewed again.

Land held under Hak Pakai title has full rights and can be bought and sold, make capital gains and can be passed on to heirs (including foreigners) should they die.

Hak Pakai (The "right of use" land title) is established under Part VI of the Indonesian Agrarian Law.

Hak Pakai are primary rights meaning that they are established between an individual (or legal entity) and the government. The title has to be registered with the land office. This suggests that you cannot take out a Hak Pakai title with a private landowner unless that landowner surrenders his/her land to government control for the duration of the title.

We need to be careful, some landowners don't want to surrender their land so, to get around it, they may arrange what they call a Hak Pakai without registering it at the land office. We can suspect that such an arrangement does not comply with the legislation and so is risky.

Article 41 states:

1. Hak Pakai is the right to use and/or to collect produce from land directly controlled by the State, or land owned by other persons which gives the rights and obligations stipulated in the decision upon granting this right by an authorised official, or in the agreement to work the land, as far as it does not conflict with the spirit and provision of this law.
2. The right of use may be granted for a certain period of time as long as the land is used for a specific purpose.
3. The granting of the right of use may not be accompanied by terms that contain elements of blackmail.

Article 43

1. Regarding land directly controlled by the State, the Right to Use title may only be transferred to another party with the permission of an authorised official.
2. A Right to Use Title over land with right of ownership may only be transferred to another party if it is allowed within the terms of the agreement(s) concerned.

Hak Guna Bangunan (HGB or The "Right of Use for Building" land title)

Hak Guna Banguanan or HGB is a similar land title to the Hak Pakai The government owns the land and the owner can use the land for a period of 30 years and this period can be extended usually for up to 90 years.

Hak Guna Bangunan is for use by companies so they can own property to operate their businesses. A foreigner wishing to buy land under HGB must create a an investment company known as a PMA. Forming a PMA company creates issues with depositing finance, legal ownership of a company and taxation. It is easier for a foreigner to use Hak Pakai to own land.

Hak Sewa untuk Bangunan (The right to lease land for building title)

Hal Sewa untuk Bangunan (The right to lease land for building title) is established in Part VI of the Agrarian Law No 5 of 1960 Part VII.

Hak Sewa are secondary rights and are set up between a person (or legal entity) and someone who, in turn, has primary rights (such as Hak Milik - freehold title) established with the government. You can lease land from a landowner.

Article 44 of the act states: "A person or a corporation has the right to lease land, if he is entitled to utilise land owned by another for the purpose of building, by paying to its owner an amount of money as rent." It goes on to say that the rent can be paid before, after or during the rental period.

Articles 42 (Hak Pakai) and 45 (Hak Sewa) state that these titles are available to:

1. Indonesian citizens;
2. Foreigner nationals residing in Indonesia;
3. Legal entities established under Indonesian law and domiciled in Indonesia;
4. Foreign legal entities that have official representation in Indonesia.

Regulations

The Agrarian Law sets the basic legal parameters of land ownership. How the law is implemented and land ownership is managed is determined by regulations. These may vary by local legislation and may be subject to change from time to time.

Regulation 40 of 1996 further defines conditions and limitations:

• Land titles can be bought and sold, exchanged, granted or inherited.
• Rights can be transferred to other people.
• The land must be used for the purpose laid down in the title agreement.
• The land must be kept in good condition
• The environment must not be damaged.
• The land title can be revoked by the government if the title holder doesn't comply with his/her obligations, if it is in the public interest or if the land is neglected or destroyed.

Time periods (allowed duration) for leashold land titles

Regulation 40 of 1996 states a maximum period for a Hak Pakai title is 25 years which cannot be extended but can be renewed. Each renewal must be registered with the land office.

You will find a lot of variation in what people say are the time periods available for leasehold titles. My understanding is a maximum of 25 years (some people think 30) which can be extended, there is then an option to renew for a further period that can also be extended giving a total period of 90 years (some say 100).

How To Avoid Problems and Pitfalls when leasing land in Bali

Decide what title you will use

Hak Pakai is a primary title directly between you and the government and so is very safe. It would appear from the Agrarian Law that you cannot register Hak Pakai between you and an individual unless the individual surrenders control.

If you are leasing land from an individual who owns the land Hak Sewa is probably the way to go but you must check their Hak Milik status over the land.

Due Diligence

You should have a Due Diligence carried out to check:

• Who really owns the land, is it shared ownership.
• Does he have the right to lease the land to you.
• Are there any debts over the land.
• Define the piece of land exactly.
• Do you have legal access to the land from a public road.
• What the land is zoned to be used for, can it be used for the purpose you want to use it.

Preparing the Documents

In preparing the documentation you need to:

• Agree the price.
• Check taxes that have to be paid, how much and who will pay.
• Make sure the lease agreement is secure if the landowner dies or sells the land and that any new owner must honour the lease agreement.
• Make sure that you have the right to sell or pass on the land to a third party and that this will not require the signature of the landowner.
• Define the period of time and extensions available plus renewal options and further extensions on that.
• How much will extensions and renewals cost (this is usually "at the market rate").
• If you pay a deposit make sure you do it with a notarised document to make sure you can get the deposit back if something goes wrong and get a receipt for your money.
• When paying the money be very careful that the money is only paid after everything is secure.

If the land is leasehold you will have to arrange a building permit (IMB) in the landowner's name so keep on good terms with him/her.

It is very important that you find a trustworthy legal person to look after your interests when making arrangements or drawing up legal documents. Don't take things at face value, it is also always wise to get a second opinion. Sadly Indonesia is littered with human wrecks who fell foul of dubious people whose ethics were learned in a cock fighting ring.

See also:

• Buying land and property in Bali with Freehold title (Hak Milik or HM)
• Buying land and property in Bali - Mixed Marriage Ownership, the Nominee Ownership Crisis
• Buying land and property in Bali - Access To Land
• Buying land and property in Bali - Buying property safely
• Buying land and property in Bali - Buying property a checklist
• Cost of land and house building in Bali