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Bali Legal Expert Warns that Foreign Villa Owners in Bali Face a Rough Road Ahead

Discussion in 'Owning Property in Bali' started by balibule, Jul 3, 2012.

  1. balibule

    balibule Active Member

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    ...

    Ketut Suwiga Arya Dauh, a leading local lawyer, predicts “I think in the coming ten years there will be many property case disputes in Bali.” He explained that a failure to understand Indonesian law and the mistaken belief that “everything can be sorted out” has lured many foreigners into a false sense of security, unaware of the many problems they may face in the future.

    ...

    Full article on Bali News: Barely Legal
     
  2. jaffa

    jaffa Member

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    Mmmmm......Who has failed to understand the law??
    Highly 'respected' Notaris' like Rainy Hendriany and other Notaris who make a healthy living out of this business?? Despite my aversion to using some of these Notaris', I would suggest that they in fact understand the law very very well. Naturally there is the argument that any legal construction that seeks to circumvent the law (i.e. nominee agreements) may be potentially illegal in themselves BUT - at this is the key that most people don't understand - the validity of a legal agreement is not guaranteed until it is tested before a court. And Indonesia being a Civil law jurisdiction means that the law is 'interpreted' from the articles within the constitution NOT by way of referring to precedent law (i.e. previous decisions by other courts).

    Yes, that could spell danger but realistically who in Jakarta is going to sanction a law change (Agrarian Law No. 5) which would rip the heart out of Indonesian/Bali foreign investment?

    On top of this you need an unruly nominee who is going to either
    a) try to sell the land without your permission (difficult without Land Certificate and with a Lease over the top of the Hak Malik)
    b) report the 'illegal' contracts to the authorities and be prepared to pay the court fees

    Sure it will happen BUT like most things money will talk and most disputes will be settled without the need to go to the courts.

    In any regard the case in the article arose because of non payment of tax for income derived from villas - I think that is potentially a far bigger issue going forward for Expats to worry about than Nominee agreements.
     
  3. spicyayam

    spicyayam Well-Known Member

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    Every other week there seems to be the same story in the Bali Discovery newletter, but nothing ever seems to happen. I think the problem is partly that there is no clear information on guidelines what licences a commercial villa needs and what taxes they need to pay. If there was a clear procedure for villa owners to follow this would create a good source of tax revenue for the government.
     
  4. davita

    davita Well-Known Member

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    I'm new to this and recently bought a villa in Kerobokan using my WNI nephew as 'nominee'. My wife, his aunt, was Indonesian but lost her citizenship after marriage to me and immigrating to Canada...we both became Canadians. We intend to live in the villa permanently using my Retirement Kitas to stay in Bali.

    My understanding is there is nothing unlawful about having a 'Nominee' own the property, but he/she is the owner. It is the 'agreements' that some notaries append to the Hak Milik title in an attempt to circumvent the law, so that foreigners believe they actually own the property, that may be disputed.

    Am I correct in in para 2?
     
  5. borborigmus

    borborigmus Member

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    My understanding of this fraught area is that you are are correct when you say it is not unlawful to buy land via nominee because the nominee holds the hak milik and is therefore the owner.
    The difficulty is the 'law' says foreigners can not 'own' land, but the 'constitution' uses a critically different wording, saying they can not 'control' land, so nominee deals are unconstitutional.
     
  6. balibule

    balibule Active Member

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    Hi Davita. I don't think you will have an issue as your nominee is family which earn a higher trust than a random person.

    I think that the main issue is when an Indonesian nominee becomes aware that the agreement they have with foreigners is shaky.
     
  7. davita

    davita Well-Known Member

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    Thanks borborigmus.

    I don't follow that the word 'control' makes the nominee method unconstitutional unless you mean it is the agreements that some notaries attach that 'appears' to give control to the foreigner.

    I'm well aware that my nephew owns and controls our villa and I would need his permission to do anything with it. This is a serious trust but that's all I can lawfully expect.
    The only other way I can think is to have an agreement that he owes us a certain sum of money if he sold the property.
     
  8. borborigmus

    borborigmus Member

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    That's what I was driving at - the possibility of a future challenge to the nominee agreement, which is the weak link in the chain of land use rights. Courts invariably give greater weight to constitutional law in disputes.

    While it might seem negative, it is sometimes good to consider all eventualities in order to protect yourself. For example, I would tend to trust a close family member too, but I would personally want to cover myself in the even of something happening to that family member. How would *his* immediate family react should they find themselves suddenly 'inheriting' your property? It is theirs by title; would they feel bound by any private, quasi-legal agreement between you and your nephew?

    One legal way out of this impasse is to lease. Both parties to a long-term lease (unlike a foreigner "purchase" agreement) are fully legally protected. Typically a lease would run for 20-25 years, after which it can be renewed. In some ways it is similar to the ACT in Australia, where no-one can actually buy property - they lease it from the government.

    Maybe it would be possible for you to execute a long-term lease with your nephew (since he is the legal owner of the property) which would give you both security of tenure and a great deal of flexibility in terms of renovations etc. Since you have already paid for the property, it makes sense that any payment for a lease term be purely nominal - a 'peppercorn' rental, so to speak.

    I stress that these are just my opinions - consulting a trustworthy notaris for advice, and to draw up the proper documents is, of course, essential.

    As a postscript, I see that the Thai government (which has similar laws re foreigner property ownership to Indonesia) has just cracked down on nominee arrangements there. They are threatening to seize and sell all property bought 'illegally' in this manner, and to deport foreign owners for various property law breaches. Whether this is posturing or not remains to be seen. I would imagine, however, that Jakarta, with the current nationalistic fervour sweeping the country, would be looking very carefully at the Thai initiative to see whether they could reap a financial benefit as well ;-)
     
    #8 borborigmus, Jul 9, 2012
    Last edited: Jul 9, 2012
  9. jaffa

    jaffa Member

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    There is a excellent publication by an American lawyer who has translated the Indonesian constitution into English and in particular the relevant articles which govern property ownership (Agririan Law No. 5 1960). It is sitting on my desk in London but I can;t for the life of me remember the name of the book (its on Amazon). An excellent insight if you want to understand the law on Indonesia a little better BUT be warned - interpreting law for non trained people is fraught with danger. References at the beginning to the land, air and sea belonging to the people of Indonesia should make you sit up and pay attention. This is NOT a free market Western democracy where foreigners can simply buy property (well not easily). The underlying theme is that the political ideology is still very much socialist in nature.

    Unless you are trained, can speak the language to a business level AND can make a judgement call on how courts may interpret the law, you are just guessing. I can name half a dozen Notaris' that give widely contradicting interpretations of all the various methods of holding title or controlling land via Hak Sewa, Hak Pakai, etc. And there are plenty of Western 'solicitors' (i.e. they are NOT solicitors in Indonesia) who have a vested interest in selling which ever scheme nets them the most money.

    That probably doesn't help but if I can remember the name of the book I will post.
     
  10. davita

    davita Well-Known Member

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    Thanks again borbo and jaffa...

    Property law in Indonesia is indeed fraught with danger and my wife and I discussed this issue before committing. I also wrote somewhere else about these 'agreements', and their legality, and was surprised that many foreigners believe that the contract that is appended to Hak Milik title is lawful. My understanding of law is that a contract cannot be used to circumvent a law or constitution. However, as someone here said...it needs to be tested in court and I haven't heard of any case.

    That is why we wish to know that the simple nominee system is legal. We understand the nominees are legal owners and inheritance law prevails, basically, by law, we only use the villa...in fact our nephew's father (wife's brother) holds title to our apartment in Jakarta. The family have enough houses of their own so I don't think they need to steal ours.

    I'm not too familiar with Thailand but understand the visa system, and property ownership, is similar to RI. The Malaysian MM2H visa is the best in Asia, maybe the world, and permits property ownership but there is a minimum threshold on the price to prevent foreigners swallowing up cheap property.

    I have the MM2H visa but don't want to live in Malaysia....pity.
     
  11. Fred2

    Fred2 Member

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    I think the biggest problem is that a nominee type of land sale will never get to court. You can try & come to some agreement with your nominee or just walk away.
    I was told by a good notaries that the lease part is all you have. I think he said something like only a bank can loan money. Also your nominee's will should have you or your wife to inherit the land which gives you time to draw up a new agreement with your new nominee.
     
  12. Barekarma

    Barekarma Member

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    Following this thread I got worried. In my Nominee agreement there appears to be a clause which says that if the law 'changes' then the Agreement becomes a 100 year lease. Is that a common clause in such Agreements? Anyone know?
    Barekarma
     
  13. gilbert de jong

    gilbert de jong Active Member

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    @barekarma...clauses can differ very much from person to person and/or from notary to notary.
    if I remember right, I have some clause/paragraph that says something like ; if the law changes and foreigners are allowed to own land in their own name, then the name on the certificate will be changed into my name.
     
  14. davita

    davita Well-Known Member

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    As gilbert alludes.....any agreement between two parties should not be cause for worry unless it is clearly designed to circumvent the law where foreigners are not permitted to own/control Hak Milik property.

    The OP's link concerned a case where some foreigners used the nominee method to control a resort of villas. This was not run as a proper business, did not submit taxes, and this opened a can of worms.

    Many other absent foreign villa owners are doing something similar and no doubt will be entertained as suggested by the OP's link.

    My worry is that foreigners who genuinely use a nominee to enable them to enjoy living in Bali, might be seen as unlawful. I hope this will not be the case and that any contract or agreement which does not attempt to circumvent law, or be an illegal agreement, will not be heard.
     
  15. davita

    davita Well-Known Member

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    Thanks for the above quote borborigmus...which I hope you don't mind my edit just to keep it concise to the point.

    Your advice has merit...The owner (my nephew) could easily sign a lease for a fixed sum with us for a certain amount of years. That would not constitute circumventing law and is an agreement between two willing parties that is not illegal. It would matter not if it was between two Balinese or two Javanese or one Ambonese and a couple of foreigners. He could also write into the contract that we could renovate or sublet....so long as the title to the property remained in his ownership, and he remained a WNI, we are not attempting to transfer title or control of the land.

    I've read that some say this would need to be re-registered as Hak Pakai but I don't see why....it is a simple long term landlord/tenant agreement and not a change of property title.

    Does anyone see any flaw in this approach?
     
  16. hermit

    hermit Member

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    Read the interviews with Rainy Hendriani at the bottom of the article that started this thread .She clearly outlines the difference between a Lease and Hak Pakai on Hak milik.
     
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