What is hak pakai and right over land? What is the law on the right to use land owned by a foreigner in Indonesia that is transferred to another foreigner abroad, because it is used as collateral in an agreement between the parties?
In addition, Law 4/1996 also states that the right of use can be encumbered with a mortgage, so that it can be used as collateral in a debt and credit agreement.
However, it should be noted that there is a potential for law smuggling when the right of use is used by foreigners, not for the public interest of Indonesia. If the agreement concerning the right of use by the foreigner is not intended for the public interest of Indonesia, then the agreement is null and void.
Please take a look at the review below for a further explanation.
This is an updated article entitled Pledge of the Right of Use Owned by Foreigners, written by Tri Harnowo, S.H., MM., LL.M., MA., and was first published on Monday, 18 November 2019.
All legal information available on Klinik hukumonline.com has been prepared for educational purposes only and is general in nature (read the complete Disclaimer). In order to obtain legal advice specific to your case, please consult with Justika Partner Consultant.
Restrictions on Land Titles for Foreign Citizens
Before explaining further, we will answer your question regarding the meaning of land titles, which is the right obtained from the legal relationship between the title holder and the land, including the space above the land, and/or the space below the land to control, own, use, and utilize, as well as maintain the land, space above the land, and/or space below the land.[1]
Basically, the Indonesian Agrarian Law Regime adheres to the principle of limiting foreign ownership of land titles, which is reflected in various provisions in the Basic Agrarian Principle Law.
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A right-to-use is a right to use, and/or to collect products from land directly controlled by the state or land owned by another individual which grants authority and obligations as determined in the relevant right-granting decree by the official who is authorized to grant it or in an agreement with the land owner, where the agreement is not a land lease agreement or land exploitation agreement, given that everything is possible as long as it does not contradict the spirit and provisions of the Basic Agrarian Principle Law.[2]
legal entities established under Indonesian law and domiciled in Indonesia, and
foreign legal entities having representatives in Indonesia
Then, the right to use itself consists of the right to use within a certain period of time and the right to use as long as it is used.[4] The land that may be granted with the right-to-use within a certain period shall consist of the state land, the freehold title land; and the right-to-manage land.[5] Meanwhile, the land that may be granted the right-to-use as long as it is used shall consist of the state land and the right-to-manage land.[6]
The right-to-use within a certain period may transfer, be transferred, or be waived to other parties, or its right may be amended.[7] The waiver of the right-to-use shall be drawn up by and before an authorized official and reported to the Minister.[8]
Right to Use as Mortgage
The right-to-use within a certain period may be used as debt collateral by being encumbered with mortgage rights, in accordance with Article 60 section (1) Government Regulation 18/2021.
Moreover, Article 4 section Law 4/1996 explains that in addition to the land rights, the right to use on state land which according to the prevailing provisions must be registered and according to its nature are transferable, may also be encumbered with mortgage.
In our opinion, a mortgage can also be imposed on the right-to-use/right of use on land under a right-to-manage/management right. According to Boedi Harsono in Hukum Agraria Indonesia, Sejarah Pembentukan Undang-Undang Pokok Agraria, Isi, dan Pelaksanaannya (p. 280), management rights are a 'shake-up' of the state's right to control land. Based on the provisions of Article 1 number 3 of Government Regulation 18/2021, it is stipulated that right-to-manage is the right of control of the state whose part of its implementation authorities are delegated to holders of right-to-manage.
Thus, management rights are not purely land rights but are a reflection of the right to control from the state. Therefore, land with management rights is basically state land which, based on the provisions of Article 4 section Law 4/1996, can be encumbered with a mortgage.
In our opinion, a mortgage right can also be imposed on a right of use over a land right. A land right can be used as collateral if it is registered to meet the publicity requirements to be categorized as a "registered object".
This is reflected in the provisions of Article 51 Basic Agrarian Principle Law, which stipulates that only the right of ownership, right to cultivate and right to build can be encumbered with mortgage rights because only these land rights are subject to mandatory registration under the Basic Agrarian Principle Law.[9] In its development, the right to use is also required to be registered through the land office which will later be given proof of rights in the form of a land title certificate.[10] In addition, Article 23 section (1) Basic Agrarian Principle Law also explains that the right of ownership, as well as any transfer, abolishment, and encumbrance with other rights, must be registered.
Thus, the obligation to register the right of use, specifically, the right of use on the ownership land, makes the right of use a "registered object" as a condition to be encumbered with a collateral property.
Right of Use Transferred by a Foreigner
We assume that there is an agreement between the foreigner holding the right of use and another foreigner that turns the right of use into collateral in the form of a mortgage. Then, we also assume that the applicable law in the agreement is Indonesian law.
The granting of a mortgage right is preceded by a promise to grant a mortgage right as a guarantee for the repayment of a certain debt, which is stated in and forms an inseparable part of the relevant debt agreement or other agreement that gives rise to debt, which is made through a Deed of Granting Mortgage Rights by a Land Deed Making Official (Pejabat Pembuat Akta Tanah/ “PPAT”) and must be registered at the Land Office.[11]
If the debtor defaults, the first mortgage holder has the right to sell the mortgage object on its own power through a public auction as well as take the settlement of its receivables from the proceeds of the sale.[12]
However, upon the agreement of the grantor and the holder of the mortgage, the sale of the mortgage object may be carried out privately if it will be able to obtain the highest price that benefits all parties.[13]
Thus, there has not been a transfer of ownership of the object of collateral solely when the encumbrance of a mortgage right occurs. The encumbrance of the right of use with a mortgage to a foreign creditor outside Indonesia cannot be constructed as a transfer of the object of collateral to the creditor.
The transfer of ownership of the collateral object only occurs when the auction participant or buyer (in the case of a sale conducted privately) succeeds in becoming the winner of the auction/buyer of the collateral object. When this happens, it can only be said to be a transfer of the right to use.
Specifically for foreigners, the definition must be interpreted according to Article 1 number 14 Government Regulation 18/2021 as follows:
Foreigners are persons who are not Indonesian Citizens and whose existence provides benefit, operating business, working or investing in Indonesia
Therefore, foreigners can own a house on a right-to-use land as long as they work, do business or invest in Indonesia or provide other benefits.
Law Smuggling
It should be noted that there is a potential for law smuggling when the right-to-use is used as collateral to obtain funds from creditors, and then the funds obtained are used to do business or invest outside Indonesia.
Law smuggling occurs when a person, based on and using the words of the law, but against its spirit and purpose, deceitfully performs acts that are apparently held with the intention of circumventing the written or unwritten rules of law as stated by Sudargo Gautama in Pengantar Hukum Perdata Internasional Indonesia (p. 166).
In our opinion, the spirit and purpose of the laws and regulations related to granting the right of use to foreigners is that the granting of such rights must provide benefits to Indonesia, not solely for the benefit of the foreigners concerned.
When the right-to-use is used as collateral in an agreement to obtain funds to invest outside Indonesia, it is contrary to the spirit and purpose of granting the right-to-use to foreigners.
In our opinion, the spirit and purpose of the provision is part of public order, so that debt and credit agreements involving the right of use as collateral can be null and void. This is based on the provisions of Article 1335 jo. Article 1337 of the Civil Code which states that an agreement made based on a prohibited cause has no force. A cause is forbidden if it is prohibited by law or if it is contrary to decency or public order.
This is our answer, hopefully, you find it useful.
