Background

Indonesian House of Representative is currently discussing the Draft Bill on Land (“Bill on Land”), which is included in 37 priority bills to be passed this year. Bill on Land will replace Law No. 5 of 1960 on Agrarian (“Agrarian Law”) on the date the regulation is issued. Bill on Land, among others, sets out a number of changes in legal entities criteria for Right-of-Ownership (Hak Milik), maximum and minimum size of a land right, and Leaseholds of Buildings included in the land rights.

Key Changes

We outline several keys changes on Land Rights as regulated under Bill on Land as follows:

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New Land Rights

Bill on Land recognizes a new land right of under the ground and above the ground areas. The new land right of an under-the-ground area is Right-to-Build the under-the-ground area/ Hak Guna Bangunan bawah tanah or Right-to-Use the under-the-ground area/ Hak Pakai Bawah Tanah. The party might be granted different right between the above-ground land rights and the underground land rights. Bill on Land is silent on the procedure to obtain these rights and we would expect that it would be regulated in the implementing regulations.

How does it affect you?

  • At present, Agrarian Law does not regulate the maximum limit of land area under the Right-to-Cultivate for a business entity or a group of business entities. Should the Bill on Land be passed, then a national business entity or a group of national business entities for plantation purposes where the majority of shares are owned by one person, including its affiliated entities may not have the Right-to-Cultivate for the land area of more than 10,000 Hectares in one province, or 50,000 hectares in the Indonesian territory. We would expect the government to issue the implementing regulations to regulate on how these restrictions interplay with other technical regulations such as plantations law etc.
  • Pursuant to the prevailing regulation on land, a tenant who has a Right of Leasehold of Building may only encumbrance its building under Hak Tanggungan (mortgage) with the approval of the land lord. The Bill on Land regulates that the tenant may encumbrance its building under a fiduciary security without the approval of the land lord, unless the land lease agreement determines otherwise.  The land lease agreement between the landlord and the tenant shall be made in the form of deed of land lease agreement made by the Land Deed Official (PPAT), and the land certificate where the building is erected may be given a note on the existence of this Right of Leasehold for Building.
  • After the Bill on Land is enacted, the land owners must comply with the provisions in this Bill on Land to renew their land rights. This would require specific legal advices and depend on the implementing regulations of this Bill on Land which may or may not be issued before the expiry the land titles.

Going Forward

We still need to see any further changes, specifically on the above-mentioned matters, since the Bill on Land is still being discussed by the House of Representatives (DPR) and the final form may be substantially different to the current form as the basis of this client update.