Mixed Marriage Land Ownership

Buying Land in Bali - Mixed Marriage Ownership

While foreigners cannot own land under freehold title in Indonesia their spouse can if the foreigner is married to an Indonesian citizen. They can only do this if they take out a pre nuptial or post nuptial agreement to separate their assets. Here we look at mixed marriage ownship of land, prenuptial and post nuptial agreements and a checklist of things to consider when buying land under this arrangement.

Nominee ownership by foreigners is illegal

Several times over the years this column has discussed the issue of using nominee arrangements to allow foreigners to "own" freehold land in Bali and Indonesia. As we have said many times, under the Agrarian Law it is illegal for foreigners to own land, what is particularly relevant for nominee arrangements is that it is also illegal for anyone other than the government to "control" the ownership of land. The nominee arrangement and the many risks involved were explained in the recent article on nominee ownership (see www.mrfixitbali.com/articles/buying-land-bali-freehold.html).

For people with such nominee arrangements there are dark clouds on the horizon, the Indonesian Minister for Agrarian Affairs and head of the National Land agency, Ferry Mursyidan Baldan has announced that his department will take action against expatriates illegally owning land, they will survey and inventory land ownership to identify foreign owners. We have to assume that he is talking about nominee arrangements for owning land.

Experts suggest that because foreigner - nominee ownership arrangements are illegal, all documents associated with them are null and void and the government can repossess the land. In the minister's words "We will ask if he has an Indonesian wife and divert the land to her. But, if he doesn't have an Indonesian wife, then the land will be taken by the State."

Who knows how many people may be involved, hundreds and probably even thousands.

Some of these would be people who knew the law but took out nominee arrangements anyway perhaps believing that the practice was so widespread it is inconceivable that action would be taken.

But sadly there are probably very many who were simply not aware that they were doing something illegal and have been led astray by misinformation and possibly even fraudulent activity. Well meaning, decent people who came from countries where professional integrity is assumed, these people may never have suspected that the "ever so friendly" real estate agent promising freehold land ownership was a person who thinks that an ethic is some form of malignant growth in their congenitals. These are the real victims who may be facing a tragedy they never envisioned, they deserve our sympathy and any assistance they can get.

Some have been hoping that the laws would be changed but the reality is that it is highly unlikely that fundamental cornerstones of Indonesian law, the Constitution and the Agrarian Law, will be modified anytime soon to allow foreigners to own freehold title.

Regarding the minister's announcement, it is early days yet and time will tell if government agencies have the capacity to enact the minister's intention or whether some workaround is forthcoming.

As things stand at the moment for people in nominee ownership arrangements who wish to extricate themselves from illegality there are probably four options they might consider:

Form a PMA (foreign investment) company which would be permitted to own land (complex and has conditions attached).
Marry an Indonesian national and transfer ownership to them. For a few this may be an option however ownership rules for Indonesians married to foreigners have strict guidelines (see below).
Sell the property.
Become an Indonesian citizen (complex and may take time).
Convert to Hak Pakai. This would involve handing ownership of the land over to the government so they can issue a Hak Pakai (right to use land title). This provides many advantages, it is fully legal for foreigners, will provide full individual control over the land. Hak Pakai is for a period of 25 years, can be extended for a further 20 years then renewed for another 25 years. The cost is a nominal (0.2% of the land value) but Hak Pakai is only available to foreigners with resident permits (KITAS and KITAP holders) and each foreigner is limited to only one property.

This last option is probably the safest and most likely solution for many people however for those many people who are not residents and bought a holiday home under a nominee ownership arrangement a clear solution is not obvious though some form of lease agreement may be the way forward.

Mixed Marriage Ownership of Land

As we discussed last week foreigners cannot own, or partly own, land in Indonesia but what happens if a foreigner marries an Indonesian citizen? Let us quickly look at mixed marriages and property ownership.

In Indonesia assets are considered to be owned jointly my married couples as stated in The Marriage Law (Law No 1 of 1974) Article 35 paragraph 1- property acquired during the marriage shall become joint marital property of the husband and the wife.

Article 35 paragraph 2 states that - property brought into marriage by the husband or the wife or acquired separately by either one of them as a gift or inheritance shall remain the property of the party concerned, unless determined otherwise.

What this means is that Indonesians married to foreigners cannot own land unless they owned the land before they got married or they receive it as a gift or inheritance.

(It should also be noted that any Guarantees on loans or debts incurred during the marriage are a shared responsibility and any legal processes regarding joint property have to be agreed to by both partners, ie the spouse's consent is compulsory).

Prenuptial Agreements

When it comes to owning property there is a way to get around this. If the couple make a prenuptial agreement before getting married which states that each of the partners owns their own assets as an individual and not jointly as a couple (what is mine is mine and what is yours is yours) then the Indonesian partner can own land in their name. Of course they will retain total control of the land. With a pre nuptial agreement in place they can also buy property during their marriage to a foreigner.

It is generally understood that prenuptial agreements must be established BEFORE the marriage takes place. Also be aware that some marriage documents (notably the muslim marriage book) state the existence of the prenuptial agreement so it is a good idea to make sure such an agreement is entered on the marriage document.

Property Separation Agreements (post nuptial)

The law has been modified in 2016 and it is now possible for a couple to make a legal agreement to separate their assets AFTER they have got married. This will allow wives or husbands of foreigners who are already married but did not take out a prenuptial agreement to take out an agreement so that she (or he) can own land in theor own right.

If the Indonesian partner dies and the land is inherited by the foreigner spouse, the foreigner must dispose of the land within 12 months or the state can take possession of it.

A further twist to this has been revealed in a recent case of murder, if the marriage is a muslim marriage a person that murders their husband cannot benefit from the crime - they cannot inherit the property.

A Checklist for Buying or Leasing Land

Finally let us look at all the things you need to consider if you are thinking of buying property in Bali.

1. You will need to find a good, honest PPAT. Land transfers and land title deeds in Indonesia are drafted by a Land Deed Official known as Pejabat Pembuat Akte Tanah or PPAT. You will find these people everywhere. A PPAT is not a notaris however in many cases a notaris is also a PPAT (you will see it marked on their signboard outside their office).

2. You will need to arrange for a due diligence to be carried out that will check:

Who, exactly, is the owner? Beware of cases where multiple siblings have inherited the land.
Are there any outstanding debts or mortgages over the land?
Which, exactly, is the land you are dealing with?
What is the zoning of the land - can you build residential property on the land?
Are there any existing titles (such as unexpired leases or Hak Pakai) over the land?
Is there legal public access to the land?

3. When you build you will need an IMB (building permit) before you build and this will be in the name of the owner of the land.

4. You should also check:

Is the land stable? This is an island where land has a surprisingly regular ability to disappear at a moment's notice.
Can you get electrical power to the land?
Can you get water to the land?