A recent case before the first-stage court may prove to be of note to legal practitioners for the relief granted to the claimant. This article explores whether today, more than 50 years after the agrarian law was first implemented, the sale and purchase of land can still be conducted without a standardised form before a land conveyancing officer (PPAT).
Background
Agrarian law in Indonesia is based on customary law. This customary law is then applied to various laws and regulations related to land and building. This application includes principles for the sale and purchase of land, namely cash and transparent principles. Cash means that the transfer of land occurs when the money is paid by the buyer to the seller, even though it is not fully paid. Transparency requires that the transaction should be made before an authorised official (eg, among indigenous people, it must be conducted before the chief of village). In 1961, after the promulgation of 1960 agrarian law, it was later regulated that sale and purchase was to be conducted before a PPAT and made based on a standardised form.
Nevertheless, after 1961, there were still arguments among judges on the use of the standardised form of sale and purchase before the PPAT. One judge said that the requirement to execute the standardised form did not determine the legitimacy of the sale and purchase of land since it only fulfilled the administrative requirements.1 But the Supreme Court increasingly considered that sale and purchase could only be evidenced by the standardised form before the PPAT.2 Sale and purchase via the standardised form was again regulated under the government regulation of 1997 (revoking the old regulation of 1961), which is still valid to date.
Facts
On 3 August 2023, the first stage court decided on a case in which there was a sale and purchase of land, including the building on that land. A certificate of land had already been issued, but no deed had been made and executed before the PPAT.3 What the parties signed was an agreement on the delivery of right over land and building. From this case, it can be understood that the agreement was privately made, in contrast to a notarial form made before a notary.
The agreement was made in 2005. The underlying land right was a certificate of right to build that would expire in 2019. The price was fully paid, and the claimant considered this agreement to be a sale and purchase of land agreement. The buyer, acting as the claimant, argued that the seller’s (ie, the defendant’s) whereabouts was unknown. Therefore, the formal deed of sale and purchase before the PPAT could not be executed.
This situation caused the land certificate to expire and thus the land returned to being state land. Consequently, the claimant filed a claim for breach of contract:
- demanding that the privately made agreement be considered a sale and purchase agreement;
- demanding that the land certificate be registered under the buyer’s name; and
- declaring that the claimant had the right to apply for renewal of the land certificate.
Decision
The panel of judges granted most of the claimant’s reliefs. They considered that the agreement was valid since there was evidence of receipt of payment. Several witnesses testified that:
- the claimant was the previous owner;
- sale and purchase had occurred;
- there had been continuous physical possession; and
- no party objected to that possession.
The panel of judges confirmed that, since the privately made agreement of 2005 was considered valid, this agreement should be used as basis to change the registered name in the land certificate. As the claimant still possessed the land and building, the priority right was granted.
Since this is just a first stage decision, this decision can later be overruled by the High or Supreme Court.
Comment
The judges’ consideration seemed fair and attempted to resolve the claimant’s problems, namely the inability to change his name in the land certificate. But the major question was, why did the parties execute a private agreement in 2005? They should have known that it was not an appropriate document to transfer a land ownership, specifically regarding registered land. The claimant should have known from the beginning that by executing that private agreement, he could not change the registered name in the land certificate. The proceedings showed that the claimant had tried to execute the deed of sale and purchase before the PPAT but had been unable to since he did not know where the defendant was.
Legal certainty
Land transaction must be made in a certain standardised form. It is important for the parties involved to have legal certainty. Not everyone can carry out a land transfer without a proper procedure. However, with this judgment, parties will now be able to ask a court to legitimise non-standardised forms, which has implications also on how much certainty there can be in the administration of the land registry. If any document can be used as evidence to change a registered name on the land certificate, this will confuse the land registry officer.
Taxes
Land transfer can only be executed by the PPAT after the income tax and acquisition levy for the transfer of land and building have been paid by the transacting parties. The same applies for land and building tax. Thus, the decision raises the following questions:
- Does this decision legitimise non-payment of tax since the land office must change the registered name with a document that is not a standardised form under the prevailing regulation?
- Could this decision be used in bad faith to evade tax?
Good faith
A buyer is considered to be in good faith if they follow the legal procedure and, if the land is certified, they execute the agreement before the PPAT, as well as going through the due diligence process beforehand. Unless these conditions are met, a buyer is not considered to be in good faith. This raises the question of whether a buyer who is considered to be in bad faith would then be protected.
Consistency
Due to the large number of land disputes in Indonesia, consistency of decision among the judges is imperative to avoid never-ending legal disputes related to land. Regulations must be clear and officers must rigidly implement them. Parties must be educated and be consistent in their transactions. Only in extraordinary cases may a deviation from the established principles be made based through a court’s decision.
For further information on this topic please contact Eddy Leks at Leks & Co by email (eddy.leks@lekslawyer.com). The Leks & Co website can be accessed at www.lekslawyer.com.
