Drafting a Conditional Sale and Purchase Agreement for Housing and Condominium: The Ultimate Checklist

Buying a house or condominium in Indonesia often starts with a Conditional Sale and Purchase Agreement (CSPA). This agreement not only secures your rights as a buyer but also gives developers a clear legal framework under the Housing Law Indonesia.

Regulation on Conditional Sales and Purchase Agreements (CSPA)

Article 42 paragraph (1) of Law Number 1 of 2011 concerning Housing and Residential Areas as amended by Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation into Law (“Housing Law”) regulates that single houses, terraced houses, and/or condominiums that are still under construction can be marketed through a conditional sales and purchase agreement system in accordance with the provisions of statutory regulations. Article 42 paragraph (3) of the Housing Law then mandates that this conditional sales and purchase agreement system be regulated in a government regulation, where the one currently in effect is the Government Regulation Number 12 of 2021 concerning Amendments to Government Regulation Number 14 of 2016 concerning the Implementation of Housing and Residential Areas (“GR on Housing Implementation“).

Article 1 number 11 of GR on Housing Implementation defines a Preliminary Sale and Purchase Agreement or Conditional Sale and Purchase Agreement (“CSPA“) as:

“an agreement between a developer and any person to purchase or sell a house or condominium unit, which can be executed by the developer before construction for condominiums or during the construction process for single houses and terraced houses, drawn up before a notary.”

Before drafting the CSPA, there are certainty requirements that must be met first. Article 22 paragraph (5) of the GR on Housing Implementation emphasizes that the CSPA is carried out after fulfilling the certainty requirements regarding land ownership status, the agreed matters, Building Construction Approval (“PBG”), availability of Infrastructure, Facilities and Public Utilities, and the completion of at least 20% construction. The drafting of the CSPA must certainly also fulfill the legal requirements for an agreement as regulated in Article 1320 of the Indonesian Civil Code (“ICC“).

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The CSPA, drawn up when condominiums, single houses, or terraced houses (“House“) is unfinished, plays a crucial role in the overall sale and purchase process due to the interests of each party that must be protected through the CSPA. The CSPA must be carefully drafted in accordance with applicable law and must also consider other factors that may have an impact, such as those related to the completion of the house’s construction. This article summarizes the must have clauses in the CSPA according to the GR on Housing Implementation, the important to have clauses in the CSPA even if they are not mandatory, and the nice to have clauses in the CSPA.

The ‘Must Have’ Clauses in the CSPA

The clauses that must be included in the CSPA refer to the minimum requirements for CSPA as regulated in the GR on Housing Implementation and its attachment. If the CSPA does not include the matters required by this statutory regulation, then the provisions of CSPA violating the laws and regulations may be considered as non-binding. Article 22I paragraph (3) of the GR on  Housing Implementation stipulates that, as one of the certainty requirements, the agreed-upon matters must include at least:

• the condition of the house;
• the infrastructure, facilities, and public utilities that serve as marketing information;
• an explanation to prospective buyers regarding the contents of the PPJB; and
• the status of the land and/or building in the event that it serves as collateral.

Article 22J of the GR on Housing Implementation stipulates that the CSPA must at least contain:

• the identity of the parties;
• a description of the CSPA object;
• the price of the house and term of payment;
• the guarantee of the developer;
• the rights and obligations of the parties;
• the time of handover of the building;
• building maintenance;
• use of the building;
• transfer of rights;
• cancellation and termination of the CSPA; and
• dispute resolution.

The Attachment of GR on Housing Implementation then provides detailed instructions on the contents of the CSPA as follows:

Heading of the deed

Contains the title of the deed, deed number, time, day, date, month, year, full name, and domicile of the notary.

Identities of the Parties

Includes the full names, place and date of birth, nationality, occupation, position, status, and residence of the parties entering into the agreement.

Description of the CSPA Object

Describes the object of the agreement, namely the House, by explaining the physical data (land and building area for a single house or terraced house, or the area and dimensions of an condominium unit), location (village or sub-district, district, city or regency, province), complete with a location map, and the House location (cluster/block, house number or condominium floor and unit number, along with a site plan/block plan as determined by the Regional Government).

House Price and terms of payment

Contains the selling price of the House, an explanation of the term of payment, and any fees arising from the agreement. The developer may not charge more than 80% of the funds to the buyer before fulfilling the CSPA requirements, and the CSPA is no longer valid once the buyer has fully paid the selling price.

Developer’s Guarantee

Contains the developer’s guarantee that the legal ownership of the house is not disputed, and proof of ownership of the house is provided in the form of right to build, right of use, or right of ownership.

Rights and Obligations of the Parties

• The rights of the developer include at least:
  • receiving payment for the House; and
  • other rights stipulated in statutory regulations and/or as agreed.
• The obligations of the developer include at least:
  • constructing the House in accordance with the site plan and permits;
  • completing the House construction in a timely manner;
  • informing buyers of construction progress;
  • providing infrastructure, facilities, and public utilities in accordance with permits and submitting them to the Regional Government;
  • providing buyers with the opportunity to learn the CSPA;
  • providing clear explanations and information to buyers regarding the contents of the CSPA; and
  • specifically for condominium units:
• facilitating and promoting the formation of an association of condominium owners and residents in accordance with statutory regulations;
• managing the transitional period prior to the formation of an association of condominium owners and residents during condominium construction; and
• explaining the common areas, common objects, and common land.
• The buyer’s rights include at least the following:
  • obtaining true, honest, and accurate information regarding the House;
  • knowing the terms and conditions of the House sale and purchase before making payment for the House price;
  • receiving the handover of the House within the agreed timeframe;
  • filing a claim for repairs to the physical condition of the house that does not meet the agreed specifications;
  • receiving legal protection from bad faith by the developer and exercising proper defence in legal proceedings;
  • the right to form an association of condominium residents and owners during the construction of the condominium in accordance with statutory regulation; and
  • other rights regulated in accordance with statutory regulations and/or the agreement.
• The buyer’s obligations include at least the following:
  • paying the House price in accordance with the amount and term of payment agreed upon in the CSPA;
  • fulfilling payment obligations, including Land and Building Acquisition Tax (“BPHTB“) arising from the house sale and purchase;
  • make payments for the house according to the terms of payment agreed upon in the CSPA;
  • using the House according to its intended purpose;
  • establish an association of condominium owners and residents specifically for condominium buyers;
  • comply with environmental provisions issued by the developer as the temporary manager prior to the issuance of regulations stipulated by the condominium owners and resident association;
  • act in good faith to implement the provisions of the CSPA; and
  • other obligations stipulated in accordance with statutory regulations and/or the agreement.

Building handover time

The handover is carried out by the developer for the completed House, accompanied by a key handover report and a sale and purchase deed or ownership certificate/condominium unit ownership certificate/condominium unit building ownership certificate.

Building maintenance

The developer is responsible for maintaining the house for a minimum of three months from the signing of the handover report. During this maintenance period, the buyer has the right to file complaints regarding any discrepancies and/or imperfections in the House as agreed. Repairs to complaints, including replacements and any costs incurred, are the responsibility of the developer.

Building Usage

The using of the House as a residence is in accordance with its intended purpose and designation, and the costs of using paid facilities and/or paid utilities used by the buyer are the buyer’s responsibility.

Transfer of Rights

Buyers are prohibited from transferring their ownership of the House before signing the deed of sale and purchase. Transfer of rights before signing the deed of sale and purchase may be made with prior written approval from the developer and the transfer of rights is conducted before a notary.

Cancellation and Termination of the CSPA

Cancellation of the CSPA may only be carried out in accordance with the provisions governing the cancellation conditions in the CSPA agreed upon by the buyer and the developer. The CSPA terminates upon the fulfillment of the agreed performance or obligations and certain conditions in the agreement. The provisions regarding the termination of the CSPA in the Attachment to the GR on Housing Implementation are inconsistent with the provisions regarding House price and terms of payment above, which states, “the CSPA is no longer valid once the buyer has fully paid the selling price”.

This disharmony creates confusion about what causes the CSPA to terminate, whether payment is fully paid or obligations are fulfilled. Nevertheless, we must still consider the main purpose of the CSPA and the interests of both parties. If the CSPA is terminated simply because the buyer has fully paid the price, then the buyer’s interests will not be adequately protected, as the developer (seller) is no longer obligated to complete construction and other obligations, due to the termination of CSPA by the buyer’s full payment of selling price. Thus, the CSPA should only terminate when the parties have fulfilled all of their obligations.

Dispute Resolution

Disputes related to the CSPA must be resolved through deliberation to reach a consensus within a maximum of 30 (thirty) days, and may be resolved through dispute resolution as referred to in the laws and regulations of the housing and residential sector.

The parties can choose to resolve their disputes through court litigation or through alternative dispute resolution in the form of arbitration. In this regard, the parties generally also agree on the preferred court domicile or the preferred arbitration institution. In the context of arbitration, the CSPA also further agrees on the place of arbitration, the number of arbitrators, and the language of the arbitration.

Closing

Information about the signing and the place of signing.

Attachment

CSPA for single houses or terraced houses must include a vertical cut-out drawing of the building showing the contents or interior of the building, and a floor plan showing the location of the house. Meanwhile, for condominium with one condominium building, the floor plan drawing of the common land boundaries, a building plan drawing, a section drawing of the floor plan showing the condominium unit and a floor plan drawing of the condominium unit, a description of the common parts and common objects and their location. If the condominium has more than one condominium building, the CSPA must also include a drawing of the position of the block/tower of the condominium building on the site, a drawing along with the boundaries of the common land, a description of the common parts and common objects and their location.

In addition to the points mentioned above, the GR on Housing Implementation also regulates other matters that must be followed in the CSPA as follows:

Payment Refund

If a prospective buyer cancels a House purchase due to the developer’s failure to meet the construction schedule, all payments received by the developer must be fully refunded to the prospective buyer. If the reason for cancelling the House purchase is not due to the developer’s negligence, the developer shall refund the payment received to the prospective buyer, with a minimum deduction of 20% of the payment received by the developer plus any calculated taxes. If the reason for cancelling the purchase is due to a house ownership loan being disapproved, the developer shall refund the payment received, with a maximum deduction of 10% of the payment received plus any calculated taxes.

After signing the CSPA, if the cancellation of the House purchase is due to the developer’s negligence, the payment received must be refunded to the buyer. If the buyer’s payment is a maximum of 10% of the transaction price and the cancellation is due to the buyer’s negligence, the developer shall retain the full amount of the payment. If the buyer’s payment exceeds 10% of the transaction price and the cancellation is due to the buyer’s negligence, the developer shall be entitled to a 10% deduction from the transaction price. Payments made by the buyer during the marketing phase are considered part of the House purchase price.

Payment Refund Period

Payment refund shall be made no later than 30 calendar days after the cancellation letter is signed.

Late Payment Refund Penalty

If the 30-calendar-day payment refund period is not met, the developer will be subject to a fine of 1% per calendar day of late payment refund, calculated from the total payment refund due.

The ‘Important to Have’ Clauses in the CSPA

Apart from what is required by statutory regulations, in the best practice, CSPA also needs to include the following clauses:

Force Majeure

During the House construction process, unforeseen circumstances beyond the control of the parties may occur. Thus, a force majeure clause is necessary in the CSPA, which generally includes notification obligations and tolerance for events such as natural disasters, riots, and so on.

Differences in Area

The land area stated on the House certificate issued by the National Land Agency may differ from the initial measurements provided by the developer/seller. If such a difference exists, the seller and buyer need to agree on the price difference. The parties may refer to Article 1484 of the ICC, where there can be a price reduction based on proportion if there is a shortage of area, and refer to Article 1485 of the ICC, where there can be an additional price based on proportion if the excess area reaches 5% of the area stated in the CSPA.

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Differences in Condominium Unit Numbers

In the context of condominium sales and purchases, there may be differences between the unit numbers listed in the CSPA and those listed in the certificate. If a difference occurs, the parties must agree on which number will be the reference and binding number, as well as the implications, such as on condominium management costs and other things (if any).

Purpose

Whether the buyer can use the house solely for residential purpose or for other purposes is important to be agreed on in the CSPA. Furthermore, it is important to agree on what are the responsibilities (including sanctions and connection with third parties) if the house’s use is found to be inconsistent with the specified purpose.

Loan Facility Management

House purchases generally involve financing institutions such as banks and other financial institutions, so there are many essential technical matters that must be agreed upon in the CSPA regarding loan facility management. These include completing data, attendance at interviews and signing of the loan agreement with the financing institution, the down payment difference based on the loan approval, and what to do if the loan application is later rejected by the financing institution (may refer to the refund payment clause).

Renovation

This important renovation clause is closely related to the mandatory building maintenance clause. While the building maintenance clause stipulates that the developer must repair any damage to the House, the renovation clause stipulates the House renovation by the buyer itself. The renovation clause should specify the extent and type of renovations the buyer may undertake. For example, in the CSPA, it may be agreed that the buyer may only renovate the interior of the House after receiving approval from the developer.

Buyer’s Warranty

In addition to the guarantees from the developer required in the CSPA, it is also important to regulate the guarantees from the House buyer. These guarantees include the buyer’s authority to enter into the CSPA, the absence of any other party holding joint rights to the House, and the buyer’s nationality.

Correspondence

For clarity, a clause regarding correspondence between the parties needs to also be stipulated in the CSPA, considering that the parties will continue to communicate regularly after the CSPA is signed, at least until the House is completed and the sale and purchase process is done.

Confidentiality

Parties must protect each other’s confidential information, such as personal data.

Default and Compensation

A default clause in the CSPA is necessary to protect the injured party from default by the other party. Furthermore, compensation can be agreed upon to be given by the defaulting party to the injured party. Nevertheless, the ‘must have’ clause on the payment refund, payment refund period, and late payment refund penalty should be complied with by the parties.

Buyer’s Identity Verification

In order to fulfill the reporting obligation mandated by Law Number 8 of 2010 concerning the Prevention and Eradication of Money Laundering Crimes (“Money Laundering Law”), a clause related to the Know Your Customer (KYC) principle in the form of verifying the buyer’s identity is important to be included in the CSPA. This clause essentially gives the developer as the seller the right to verify the identity, request information, request documents, interview, or carry out other matters related to this reporting obligation towards the buyer.

Waiver of Article 1266 of the ICC

Article 1266 of the ICC, which regulates the need for court approval for termination of an agreement, is generally waived in agreements for the sake of effectiveness and efficiency. Article 1267 of the ICC is also sometimes waived. These articles are waived to the extent that court approval is required for termination of the agreement. The waiver of Article 1266 of the ICC, which is in the same context as the termination of the CSPA, certainly still requires attention to the points on the termination of the CSPA regulated in the GR on Housing Implementation.

Entire Agreement

The entire agreement clause referred to here is that the CSPA automatically replaces all verbal or written agreements between the parties that existed before the CSPA, and that the CSPA contains all agreements between the parties regarding the sale and purchase of the House.

Governing Law and Language

If there are foreign elements and the CSPA is drawn up in two languages, for the sake of clarity and legal certainty, it is best to determine which law and language govern the CSPA.

The ‘Nice to Have’ Clauses in the CSPA

The clauses mentioned in this section are not as important as those in the two sections above, but they are good to be included in the CSPA. The following clauses are good to be included in the CSPA:

Definition and Interpretation

The definition and interpretation clauses in the CSPA will ease the parties and reduce the risk of ambiguity and multiple interpretations in the agreement.

House Insurance

The CSPA may stipulate that there should be insurance for the House against all risks, including coverage for third-party losses resulting from incidents within the House.

Severability

A severability clause generally regulates the separation of inapplicable agreement provisions from the remaining agreement provisions. The existence of this clause makes other provisions of the CSPA remain binding if some of its provisions are no longer binding, for example due to changes in laws and regulations.

Changes and Amendments

This clause stipulates that any changes and amendments to the CSPA must be made in writing.

Further Warranty

The parties may add a further warranty clause stipulating that each party is obliged to do everything necessary to provide maximum results and the transactions stipulated in the CSPA.

Benefits of the Agreement

The benefits of the agreement clause essentially stipulates that the CSPA is binding and applies to the interests of the parties to the agreement, and not to provide benefits to other parties outside the agreement.

Cumulative Rights

There are two main points in the cumulative rights clause that are usually included, namely:

• The rights, powers, authorities, discretion, and right to compensation of one party in the CSPA do not override the rights, powers, authorities, discretion, or right to compensation of the other party.
• The failure of one party to demand the enforcement of the provisions of the CSPA by the other party at one time will not affect its right to demand enforcement of those provisions at a subsequent time.

Duplicates

The clause regarding duplicates generally regulates how many duplicates of the CSPA are made and that each duplicate is considered an original document and all duplicates together are considered the same document.

Freedom of Contract Principle versus Compliance with CSPA Provisions

As a crucial agreement, a CSPA must be carefully drafted in accordance with applicable law and with attention to ensuring that the interests of the parties are adequately protected. When drafting a CSPA, there are three categories of clauses to consider: the must have clauses, the important to have clauses, and the nice to have clauses.

Indonesian law recognizes the principle of freedom of contract, and the CSPA as an agreement is also subject to this principle (vide Article 1338 of the ICC). Under the Decision No. 1403 K/Pdt/2018, the Supreme Court held the opinion that by signing the CSPA without coercion, the parties have agreed to the clauses in the agreement. However, the principle of freedom of contract still has its limitations, namely that it must not conflict with the law, morality, and public order (vide Article 1337 of the ICC).

The must have clauses category refers to the GR on Housing Implementation and the Money Laundering Law, which are clearly laws that limit and regulate CSPA. Even though as government regulation, the GR on Housing Implementation remains firmly rooted and must be complied with, as it was created as a mandate of Article 42 paragraph (3) of the Housing Law. Therefore, any contradiction from the ‘must have’ clauses in a CSPA may risk it considered as either non-binding or null and void.

The important to have clauses and the nice to have clauses in a CSPA may, in principle, be omitted from the CSPA and will not render the CSPA clauses as non-binding. Keeping in mind that a PPJB should be based on law and to protect the interests of the parties to the agreement, it would be beneficial if the entire clause checklist in this article are included in the CSPA, especially the must have clauses and the important to have clauses.

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Reference:

Statutory Regulations:

• Indonesian Civil Code.
• Law Number 1 of 2011 concerning Housing and Residential Areas as amended by Law Number 6 of 2023 concerning the Stipulation of Government Regulation in Lieu of Law Number 2 of 2022 concerning Job Creation into Law.
• Law Number 8 of 2010 concerning the Prevention and Eradication of Money Laundering Crimes.
• Government Regulation Number 12 of 2021 concerning Amendments to Government Regulation Number 14 of 2016 concerning the Implementation of Housing and Residential Areas.
• Attachment of Government Regulation Number 12 of 2021 concerning Amendments to Government Regulation Number 14 of 2016 concerning the Implementation of Housing and Residential Areas.

Court Decisions:

• Decision No. 1403 K/Pdt/2018.