Land Purchase Agreement

A land purchase agreement is a legally binding instrument between the purchaser and the original owner of the land in real estate. In other situations, the seller will give financing to the buyer for a mutually agreed-upon price, with the buyer repaying the loan in installments later.

Advantages for sellers: There may be a buyer who is interested in the real estate for sale but is unable to receive mortgage approval due to their credit history or other factors. The parties can agree on a property contract in which the buyer makes monthly payments to the seller directly.

Advantages for buyers: The seller does not get the whole purchase price up front, as if the buyer utilized a mortgage or paid cash, but the seller may have more alternatives for possible purchasers. In addition, by establishing a sale by land contract, the seller may be able to negotiate a greater purchase price for the property. A hefty cash down payment may be required and received by the vendor.

Land contracts provide various advantages to both buyers and sellers:

Before getting into a land contract, you should additionally examine the following potential drawbacks:

To ensure that a land purchase agreement is legally binding in Indonesia, it’s important to follow the specific legal procedures required by Indonesian law. Here are the steps to make sure your agreement is enforceable:

1.  Consult with a Land Deed Official (PPAT): The sale and purchase of land in Indonesia must be evidenced by a deed made by a PPAT. This deed, known as the Land Sale and Purchase Deed (AJB), is an authentic deed and is necessary for the transaction to be legally recognized.

2. Execute a Binding Sale and Purchase Agreement (PPJB):Before the AJB, parties often enter into a PPJB, which outlines the terms and conditions of the sale, such as payment installments or due diligence requirements. This agreement is not made before a PPAT but can be privately executed or made before a Notary.

3.  Ensure Compliance with Legal Procedure: According to Indonesian Civil Code Article 1457, a sale and purchase transaction requires the seller to deliver the goods and the buyer to pay the agreed price. Further, Government Regulation Number 24 Year 1997 states that a land sale and purchase can only be proven by a deed made by the PPAT.

4. Notarization: For certain types of property, like houses or strata titles from developers, the PPJB should be made before a Notary to ensure its validity.

The lease term ranges from 60 to 99 years. When the Leasehold Agreement is about to expire, the person who owns the property must renew it. The property worth will grow once you have successfully renewed the leasehold tenure; but, the value will decrease as you move near to the expiry date.

By far the finest type of real estate ownership is freehold. Even if you require approval and file an application to transfer the property into the name of another person, freehold indicates that you are the sole owner. Leasehold contracts do not need to be renewed, which may be a relief for many investors.

Foreigners can own property in Indonesia through several methods. One common method is through a leasehold agreement, where the foreigner leases the property for a certain period of time. Another method is through a local nominee, where a local Indonesian citizen holds the property on behalf of the foreigner. However, this method carries significant risks and is not recommended without proper legal advice.

If the buyer defaults on the land contract or fails to make the required monthly payments to the seller, the seller can launch a land contract forfeiture action in court.

A forfeiture right protects the seller against a buyer who fails to pay, allowing the seller to keep payments and a typically hefty down payment made by the buyer while maintaining the property to offer for sale to someone else.