Can Foreign Nationals Hold Title to Land in Indonesia Through a Nominee Agreement?

A nominee agreement (perjanjian pinjam nama) is a contractual concept in which one party appoints another party to act on the appointing party's behalf as a representative in specific matters. In land ownership, for example, a common practice is for a foreign national (WNA) to enter into a nominee agreement in order to obtain freehold title (hak milik) over land in Indonesia. The foreign national makes the agreement with an Indonesian citizen (WNI) so that the foreign national can control the freehold certificate, while the Indonesian citizen merely lends their name voluntarily for the foreign national's benefit.

This practice in fact contravenes Article 21 paragraph (1) of Law Number 5 of 1960 on the Basic Agrarian Principles (UUPA), which reads: “Only Indonesian citizens may hold freehold title.”

In addition, Article 26 paragraph (2) of the UUPA provides that: “Every sale and purchase, exchange, gift, bequest, and other act intended to transfer freehold title, directly or indirectly, to a foreigner, to a citizen who in addition to Indonesian citizenship holds foreign citizenship, or to a legal entity, except those determined by the Government as referred to in Article 21 paragraph (2), is null and void by law and the land falls to the State, provided that the rights of other parties encumbering it remain in force and all payments already received by the owner cannot be reclaimed.”

It can therefore be concluded that a foreign national is not permitted by law to hold a freehold certificate over land in Indonesia. Accordingly, a nominee agreement between a foreign national and an Indonesian citizen concerning land ownership ought to be void by law because it fails to satisfy the valid-contract requirements of Article 1320 of the Civil Code, namely the requirement of a lawful cause (kausa yang halal).

A dispute over the nominee agreement practice in land ownership was decided in Decision Number 4233 K/Pdt/2022, which is an example of nominee agreements concerning land ownership in Indonesia. The facts are that the Plaintiff, a foreign national, wished to lawfully control freehold title to land in Indonesia that was registered in the name of the Defendant, an Indonesian citizen. In its reasoning, the panel of judges held that the nominee agreement was void by law because it constituted a form of legal smuggling (penyelundupan hukum). Legal smuggling is an act that sets aside the application of national law by submitting oneself to foreign law, where the purpose of such submission is unlawful under national law.

Therefore, a nominee agreement concerning freehold title to land entered into by a foreign national is invalid.