Nominee Agreement for Buying Property in Indonesia – Is it legal?

The Minister of Law and Human Rights has determined the Government Regulation No. 18 of 2021 on Management Rights, Land Rights, Flat Units, and Land Registration that foreign citizens with immigration documents have rights to possess residential house in Indonesia. However, this provision is subjected to limitation as stipulated in the Article 185 and Article 186 of the Minister of Agrarian and Spatial Planning/Head of National Land Agency Regulation No. 18 of 2021 on Guidance of Management Rights and Land Rights Determination (“ATR/BPN Regulation No. 18/2021”). It can be concluded that the rights to own a residential house for foreign citizens is limited to certain kind of property rights and conditions.

In some cases, foreign citizens still insist to acquire a Certificate of Ownership/Sertifikat Hak Milik (“SHM”) over a land against the limitation under the Article 185 and Article 186 of the ATR/BPN Regulation No. 18/2021. Several foreign citizens employ a strategy using the names of Indonesian citizens for the Ownership Rights process, or known as Nominee. However, such Nominee arrangement is an Unlawful Act under the Supreme Court Decision Number 3020 K/Pdt/2014 jo. High Court Decision Number 12/Pdt/2014/PT.Dps jo. the District Court Decision Number 796/Pdt/G/2012/PN/Dps.

The case itself began when the Plaintiff  bought a plot of land. Since the Plaintiff is a foreigner, it is not possible for him to hold a SHM. The Plaintiff and the Defendant I (the Nominee) agreed to make an agreement where using the Defendant I’s name as the Nominee of the Plaintiff for the SHM. However, after the sale and purchase was completed, without the Plaintiff’s consent, the Defendant I sold the land to another party/Defendant II. The Plaintiff then filed a Civil Lawsuit, claiming that Defendant I and Defendant II have done an Unlawful Act/Perbuatan Melawan Hukum.  However, the court ruled in favor of the Defendants and rejected the Plaintiff’s claim with the consideration as the following:

“In accordance with the provisions of the Article 21 (1) of Law No. 5/1960, a Foreign Citizen is not eligible to become an owner of a land in Indonesia. Therefore, the sell and purchase over the land conducted by the Plaintiff (Foreign Citizen) by using the Defendant I’s name is an agreement that violating the Article 21 (1) of the Law No. 5/1960, and not valid, thereby violating one of the validity elements of the agreement as stipulated in the Article 1320 of the Indonesian Civil Code, namely lawful cause.” (see page 10 Supreme Court Decision Number 3020 K/Pdt/2014).

In light of the above, the common practice of nominee violates a lawful cause – one of the validity elements of the agreement under Indonesian law. Meanwhile, in this case, the existence of a sale and purchase agreement using Defendant I’s name as the nominee of the Plaintiff, who is a foreign citizens, to carry out the sale and purchase of land in Indonesia is something that is contrary to the applicable law. As a consequence, the nominee agreement made by the parties shall be declared null and void.

Written by: R. Bayu Perdana, Shabrina Hanifa, and Ali Mutthahari

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