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Avoiding the Risks of Nominee Agreement in Property Transactions

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In Indonesia, particularly in Bali, owning beachfront property or a tranquil piece of paradise is a highly desirable option. However, foreign nationals face strict restrictions on land ownership, which has led to widespread use of nominee arrangements. While these structures might appear convenient, they are fraught with legal risks and potential for disputes. Avoid the risks associated with using a nominee arrangement and explore safer legal alternatives for foreigners in Indonesian property transactions with our assistance.

What Is a Nominee Agreement?

A nominee agreement is an informal arrangement in which a foreigner funds the purchase of land, but the title is registered in the name of an Indonesian citizen.

The local individual acts as the chosen person or “nominee”, while the foreign buyer signs private agreements such as:

  • Sales and Purchase Agreement (Perjanjian Jual Beli/PJB).
  • Power of attorney.
  • Debt acknowledgment.

These documents, however, are not recognized as valid evidence of ownership under Indonesian law and cannot override registered land titles. Indonesian land law explicitly prohibits foreign nationals from owning land through the Right of Ownership (Hak Milik).

Risks of Using Nominee Arrangements

  1. No Legal Ownership for Foreigners
    Under a nominee structure, the name of the foreign citizen does not appear on the land certificate. Legally, only the individual whose name is registered on the land certificate is recognized as the lawful owner. Therefore, if a foreigner’s name is not written on the certificate, their claim to ownership is not recognized under Indonesian law.

    Private agreements stated above cannot serve as legal proof of ownership. A PJB is merely a preliminary agreement and does not transfer ownership. Under Indonesian civil law, ownership is only legally transferred upon execution of a Deed of Sale and Purchase (Akta Jual Beli or AJB), which cannot be signed by a foreign national unless the land is held under the Right to Use (Hak Pakai). As such, the PJB does not confer ownership rights to foreigners.

        This is regulated through:

  2. Contract Invalidity
    Courts may declare nominee agreements null, especially if the intention is to cover foreign ownership.
  3. Potential Unauthorized Transactions
    The nominee can legally sell, mortgage, or transfer the land without the consent of the foreigner. It may lead to administrative sanctions, tax investigations, or allegations of providing false information.

Legal Alternatives for Foreigners

Foreign nationals can still participate in Indonesian real estate legally by using compliant structures:

  1. Right to Use (Hak Pakai):
    Granted for residential purposes. This land certificate can be registered in the name of a foreign individual.
  2. Foreign Investment Company (Perseroan Terbatas Penanaman Modal Asing/PT PMA):
    Enables foreign entities to acquire land under the Right to Build (Hak Guna Bangunan) or Hak Pakai.
  3. Long-Term Leases:
    Leasing land for up to 30 years (extendable) provides security without violating ownership laws.

Operating without a legally binding NDA exposes a business to a higher risk of information leakage. Such exposure may result in loss of competitive edge, financial damages, and diminished trust from business partners.

Each structure requires careful legal planning and approval from the relevant regulatory bodies, including the National Land Agency (Badan Pertanahan Nasional / BPN) and the Ministry of Investment and Downstream Industry (Badan Koordinasi Penanaman Modal / BKPM).

We’re Here to Help

If you’re a foreign national exploring property acquisition in Bali or elsewhere in Indonesia, Putranto Alliance offers complete legal guidance and support. To avoid legal risks from informal nominee arrangements, engage with our partners for safe property transactions. We ensure every step aligns with Indonesian regulations.

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putranto@putranto-alliance.com
Jl. Denpasar Raya Blok C4/24
Kompleks Menteri, Kuningan
Jakarta Selatan 12950 Indonesia
+(62) 21-520-4989

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