Land Titles: Freehold vs. Leasehold

Brief Overview

Essentially, certain land rights are required to be possessed by individuals (whether persons or legal entities) to legitimately procure land in Indonesia. Land Titles are rights that are obtained from legal relationships between the titleholder and the Land to control, own, use, and utilize, as well as to maintain.” The main titles that are commonly used, include: Freehold Title and Leasehold Title. A freehold title provides full ownership of both land and building and requires individuals to posses the right of ownership. Meanwhile, a leasehold title provides for partial ownership that only includes the right to use and utilize land (right to cultivate) without the individuals possessing the capacity to own the land. 

What is Land Ownership?

Reference taken from Law Number 5 of 1960 on Basic Agrarian Principles (“Law 5/1960” or “UUPA”) provides several provisions that can be analyzed to conclude the definition of ‘land ownership’.

‘Land’

First and foremost, the concept of ‘Land’ comes from the definition of ‘Earth’ as provided in Article 1 (4) of UUPA, which read: ‘earth includes not only the surface of the earth but also the body of the earth below it and that which is under water’. As the earth, water, and airspace, including the natural resources contained therein are controlled by

1. Government Regulation Number 18 of 2021 on Right-T-to-Manage, Land Titles, Mukltistory Housing Units, and Land Registration, Article 1 (4)

2. UUPA, Article 1 (4)

the State. On this basis of the right of control of the State, it is then determined that various other rights exist, which encompass lands. Meaning it may be granted to and owned by people, either individually or jointly with other people as well as legal entities.

The rights for land authorizes the usage for not only the area on the surface of the earth, but also for the body of earth and water below as well as the airspace that are directly related to the use of the land in question. 

‘Ownership’

Article 16 of UUPA describes that there are mainly seven land rights, which include: Right of ownership, Right to cultivate, Right to build, Right to use, Right to lease, Right to clear land, and Right to collect forest products.  However, to prevent exploitation which could harm the public interests, several limitations are put in force. These limitations specifically put an emphasis on disallowing land ownership and authorization exceeding the limits with any of the rights referred above. 

Right of Land Ownership

Right of Land Ownership which bases the Freehold Title is the strongest and fullest right upon land which one may hold due to its hereditary characteristic. It is one of the primary land rights which entails it can be owned or controlled directly by persons or legal entities and can be transferred to another party.  Only Indonesian citizens and

3. Ibid. Article 2 (1)
4. Ibid. Article 4 (1)
5. Ibid. Article 16 (1)
6. Ibid. Article 17 jo. Article 7
7. Ibid. Article 20
8. Ibid;  H. M. Arba, Hukum Agraria Indonesia, 2016, p. 97, 216

legal entities that have been determined by the Government can possess the right of ownership.

According to Article 21 (3) and Article 26 (2) of UUPA. In cases where: 

• Indonesian citizens who have ownership rights and after the enforcement of UUPA lose their citizenship; 
• Foreign citizens who acquire a right of ownership due to inheritance without a will or mixing of assets due to marriage. 

In such cases, subjects of the categories above must relinquish said rights within a period of one year after the events mentioned occured. After said period, the right of ownership is relinquished and consequently this right shall be abolished by law and the land falls to the State. Essentially, foreign citizens do not possess the right of ownership as only Indonesian citizens can have such a right.

Additionally, Foreign citizens (whether those who have foreign citizenship or those who in addition to their Indonesian citizenship has foreign citizenship), or legal entities that are not stipulated by the Government which acquire land through sale and purchase, exchange, grant, testamentary gift and other actions intended to directly or indirectly transfer right of ownership will be considered null and void by law and the land falls to the state.

Freehold Title

Taking reference from The Decree of the Minister of Agrarian Affairs and Spatial Planning / Head of the National Land Agency Number 1339/SK-HK.02/X/2022 OF 2022 on The Granting of Land Rights In General (“Kepmen ATR BPN 1339/2022”), the Freehold Title is a title that provides its owner full capacity of the land and buildings upon it. Freehold Title can either be gained from:

9. Ibid. Article 21 (1 & 2)
10. UUPA, Articles 21
11. Ibid. Article 21 (4)
12. Kepmen ATR BPN 1339/2022

1. Freehold title of residential houses, shophouses and offices originating from Right to Build or Right to Use;
2. Freehold Title of the residential house which has been purchased by a civil servant from the government originating from Right to Build or Right to Use;
3. Right to Build or Right to Use originating from Freehold Title.

Leasehold: Right-to-Cultivate, Right-to-Use, & Right-to-Build

The Leasehold Title grants its holder temporary right to hold land or property on land that is not their own. This is possible due to some of the rights that the holder also acquire. These rights, include: Right-to-Cultivate, Right-to-Use, and Right-to-Build. Further description can be read below. 

In accordance with Article 6 of  Kepmen ATR BPN 16/2022, the Heads of regional offices must grant Right-to-Cultivate (Hak Guna Usaha) for legal entities on State Lands or Right-to-Manage lands which cover an area of more than 250,000 m2 up to 5,000,000 m2.

Right-to-Cultivate

The Right-to-Cultivate is the right to work on land directly controlled by the State that can be transferred to and from another party. This right provides the owner the capacity to acquire the Right-to-Use title (Sertifikat Hak Pakai) that can last for a maximum period of 25 years with a maximum extension period of 35 years and additional period of 25 years shall be granted upon request of the right holder and having regard to the circumstances of the company. After the period of granting, extension, and renewal expires, the right-to-cultivate Land will be returned to become Land that is either controlled directly by the State or Right-to-Manage land.

13. Government Regulation 18/2021, Article 22 (1)
14. UUPA, Article 29 (3)

The holder of right-to-cultivate is granted a Land Title certificate as proof of the right. This right is granted on land which encompasses an area of at least 5 hectares, on the condition that if the area of the land is 25 hectares or more, the owner of the right must adopt adequate capital investment and good corporate management techniques. 

Right-to-Use or Right-to-Manage

Right-to-Use is a right to use, and/or to collect products from land directly controlled by the State or land owned by another individual that grants authority and obligations as determined by the authorized official or in an agreement with the land owner. On the other hand, the Right-to-Manage is the right of control of the state whose part of its implementation authorities are delegated to holders of Right-to-Manage. The determination for these rights is the authority of the Heads of Regional Offices which establish these provisions: 

1. Agricultural lands for Individual persons: Right-to-Use is granted for individual persons on State Lands or on Right-to-Manage over agricultural lands which cover an area of more than 50,000 m2 up to 250,000 m2
2. Non-agricultural lands for Individual persons: Right-to-Use is granted for individual persons on State Lands or on Right-to-Manage over non-agricultural lands which cover an area of more than 10,000 m2 up to 20,000 m2
3. Agricultural lands for Legal entities: Right-to-Use is granted for legal entities on State Lands or on Right-to-Manage over agricultural lands which cover an area of more than 250,000 m2 up to 5,000,000 m2; and 
4. Non-agricultural lands for Legal entities: Right-to-Use is granted for legal entities on State Lands or on Right-to-Manage over non-agricultural lands which cover an area of more than 30,000 m2 up to 250,000 m2

In cases where agricultural lands for individual persons and non-agricultural lands size exceeds the provisions. The granting of Right-to-Use is conducted through utilizing

15. Government Regulation 18/2021, Article 24 (3)
16. Ibid. Article 1 (3)

Appropriate capital investment and company techniques that fulfills the requirements as well as be equipped with a business license.

Right-to-Build

The Right-to-Build is a right to construct and possess buildings on land which is not their own for a maximum period of 30 years. However, upon request of the right holder and in view of the needs and of the condition of the buildings, the period may be extended for a maximum period of 20 years. The Right-to-Build occurs on land that’s directly controlled by the State (due to Government stipulation) and  on owned land that happened due to an authentic agreement between the owner of the land concerned and the party who will obtain the right to use, which intends to give rise to said right.

Similar to the provisions on Right-to-Use and Right-to-Manage, determination of Right-to-Build falls under the Heads of Regional Offices authority. Which provides: 

1. Right-to-build is granted towards Individual persons on State Lands or on Right-to-Manage lands which cover an area of more than 10,000 m2 up to 20,000 m2 
2. Right-to-Build is granted towards legal entities on State Lands or on Right-to-Manage lands which cover an area of more than 30,000 m2 up to 250,000 m2 

Likewise, in case where the Right-to-Build lands’ size exceeds the provision, the granting of Right-to-Build is conducted through utilizing appropriate capital investment and company techniques that meet the requirements as well as be equipped with a business license.

17. Kepmen ATR BPN, Article 8 (2)
18. Ibid. Article 7 (1)
19. Ibid. Article 7 (2)

Conclusion

Understanding Land Titles is significantly needed when an individual is planning to acquire land in Indonesia. It provides the holder, the capacity that is needed to conduct activities on the land that they have acquired. This article is intended to provide such individuals more in-depth comprehension of the importance these land titles possess. However, even so, the extent of such topic still remains wide and varied. Therefore, should you feel the need to acquire more information or consultation on this topic. You can contact us at Selaras Law Firm through the contact information we provide below. 

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Source

Laws and Regulations

• Law Number 5 of 1960 on Basic Agrarian Principles
• Government Regulation Number 18 of 2021 on Right-T-to-Manage, Land Titles, Mukltistory Housing Units, and Land Registration
• Regulation of the Minister of Agrarian Affairs and Spatial Planning / The Head of the National Land Agency Number 16 OF 2022 on the  Delegation of Authority For The Granting of Land Right and Land Registration Activities 
• The Decree of the Minister of Agrarian Affairs and Spatial Planning / Head of the National Land Agency Number 1339/SK-HK.02/X/2022 OF 2022 on The Granting of Land Rights In General

Literature

1. M. Arba, Hukum Agraria Indonesia, 2016