Thought leadership from our experts

Road to legal certainty over land acquisition

, Leks&Co, Indonesia

The Agrarian Law of 1960, as a fundamental land law in Indonesia, has regulated land registration, including registration of right to land and the issuance of certificates of right to land, which are considered strong evidence of ownership.

This fundamental provision means that registration of right to land and certificates of land are not considered absolute evidence, which also means ownership can still be nullified.

The provision for land registration under the Agrarian Law created legal issues for all buyers of land or real estate. On one hand, this provision gives an opportunity for the true owner to file a claim or objection with regards to the land registration and related certificates of land.

On the other hand, this opportunity results on legal uncertainty for all buyers, especially good faith buyers, who buy the land or real estate from the seller or previous owner.

The classic problem between justice, protecting the true owner, and legal certainty, protecting the buyer, is one issue that is always being debated between jurists and practitioners. To accommodate the two poles, a government regulation on land registration in 1997 provided further provisions concerning land certificates.

It stipulated that a land certificate is powerful evidence with regards to its physical and juridical data it contains, so long as the data are in accordance with data contained in the measurement letter and related book of land.

Furthermore, it regulates that if a plot of land has been validly certified under the name of an individual or legal entity that obtained that land in good faith and actually controls it, then other parties who feel they have rights to the land can no longer claim their rights if they had not filed objections in writing to the certificate holder and related chief of land office or do not file a claim through a court with regards to the occupation of land or issuance of that certificate of land within five years of the issuance of the certificate.

This provision is intended to provide legal certainty to buyers after the five-year period has lapsed. Unfortunately, however, this provision is not always considered by the judges. Hence, uncertainty among buyers, especially investors, is not resolved.

Worse still, many legal disputes between claimants, who may not have certificates as evidence, win the legal claim against the buyer or owner of the land who already has a certificate of land under his name.

One positive development is the stance by the Supreme Court judges with regards to land purchased in good faith. Just recently in 2015, there were two decisions, regarded as legal jurisprudence, supporting and protecting the legal position of a buyer in good faith.

These two decisions came from the public court and the state administrative court.

The essence of these two instances of jurisprudence is that the buyer is considered as having acted in good faith so long as the certificate of land is already registered under the name of the buyer, the transfer (sale and purchase) of the right is made before a land conveyancing officer and is done according to the laws.

This good faith buyer must be legally protected from the perspective of civil law, state administrative law and criminal law. This is highly positive for all buyers of land and investors in real estate and is especially important in terms of development of land registration regulations in Indonesia.

One of the backgrounds of these decisions was a circular letter by the Supreme Court addressed to all chief of first instance courts and appeal courts of Indonesia in 2012 and then followed by another circular letter in 2014.

Under the circular letter of 2012, the civil section of the Supreme Court determines that protection must be given to the good faith buyer even if it is later discovered that the seller was not entitled to sell the land or real estate.

The true owner or claimant to the land can only file a claim for compensation against the seller who was not entitled to sell the land or real estate. Accordingly, the good faith buyer is legally protected.

An important point to note is that the protection is given only to a good faith buyer, not to all buyers. Therefore, it is crucial to understand what constitutes "good faith".

Black's Law Dictionary defines good faith as a state of mind consisting of honesty in belief or purpose, faithfulness to one's duty or obligation, observance of reasonable commercial standards of fair dealing in a given trade or business, or absence of intent to defraud or to seek unconscionable advantage.

Prof. Siti Ismijati Jeni explains that good faith derives from Roman law terminology, namely bonafides. She further explains that good faith refers to honesty and appropriateness.

In the same dictionary, bona fides is defined as the standard of conduct expected of a reasonable person, especially in making contracts and similar actions, acting without fraudulent intent or malice.

In short, elements of good faith are honesty, understanding one's obligation as a buyer, fair dealing and having no immoral intention.

To shorten it further, as Prof. Siti mentioned, good faith's elements are simply honesty and appropriateness. These elements must be proved to be considered a good faith buyer.

The circular letter and these two examples of jurisprudence are good signs for the judicial process in Indonesia, especially in providing legal certainty over land or real estate acquisition by buyers or investors.

This certainty is important to all land owners, having fulfilled these two elements when the purchase was made. When the legal certainty is upheld, one may confidently expect that national economic development will be steadier.

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The writer is CEO and managing partner at Leks & Co., Lawyers. The views expressed are his own.

(Published in The Jakarta Post)