Archive for May, 2016

Conflicting Laws on Foreign Property Ownership (English Language)

conflicting lawsTalks on giving more flexibilities and freedom to foreigners on residential ownership in Indonesia are never-ending story. Despite different views from various parties, the government has made the final step by promulgating the government regulation by the last week of December 2015.

There are several elements in the regulation that are controversial or unclear. The change of duration of right of use (hak pakai) from 70 years to 80 years is highly material. The separation of marriage asset agreement is another element that is still unclear. Wide interpretation and meaning of residence permit for foreigner is also questionable. This writing will focus on the conflicts between the new regulation of 2015 and other regulations, vertically and horizontally.

Vertical Conflict

The new regulation refers to the law number 5 of 1950 on basic provisions of agrarian (land law). This is a fundamental law that has influence on many different areas of other laws. The land law stipulates the types and characteristics of rights of land in Indonesia, including right of use.

From its origin, as explained in the elucidation of land law, right of use derives from “collection of meanings” of various names of rights of land, with slight difference based on its regions. Right of use essentially authorizes the holder to use and/or cultivate crops over land that is directly controlled by state or other party that is not categorized as lease or land utilization agreement. The land law further stipulates that the duration of right of use can be for a definite term or as long as the land is used for a definite purpose.

Granted! The land law does not specifically stipulate the duration of right of use. It only states that it can be for a definite term or as long as it is used. Nevertheless, elucidation of the land law states that foreigner and foreign legal entity can have right of use since it only gives limited authority.

The “limitation of authority” is further translated through a government regulation of 1996 on right to build (hak guna bangunan), right to cultivate (hak guna usaha), and right of use. The regulation of 1996 stipulates that duration of right of use for a 25 years, extended for 20 years, and renewed for 25 years. This results to a maximum of 70-year duration. This duration is 10-year less than duration of right to build, namely maximum of 80 years. Plus, it regulates that if the holder of right of use would like to transfer his rights, he needs to obtain prior approval by the officials issuing the certificate of right of use. These are two essential terms under the regulation where the “limitation of authority” is differentiated between right to build, right to cultivate and right of use.

In order to promote foreign investment, the government of Indonesia has promulgated a new law on investment in 2007 granting an approval in advance on extension and renewal of duration of rights of land under the land law. Few months after its promulgation, the Constitutional Court nullified the terms “approval in advance” and accordingly, the extension and renewal can only be made before the term is going to expire. The investment law of 2007 clearly regulates that the duration of right of use is 25 years, extended for 20 years, and renewed for 25 years. The terms in investment law simply just follow what has been regulated under the government regulation of 1996.

Since the new government regulation of 2015 stipulates the duration of right of use is for 80 years, instead of 70 years, it is clearly conflicting with the investment law of 2007. In addition, it also violates the philosophical purpose of right of use under the land law of 1960.

Horizontal Conflict

From the explanation above, it is unquestionable that the duration of right of use is conflicting with what has been regulated under government regulation o