Real Estate In Indonesia – Pre-Contract – Real Estate and Construction


Indonesia:

Real Estate In Indonesia – Pre-Contract


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The Indonesian Civil Code (ICC), as the regulatory foundation
for contracts, does not regulate pre-contract documents, such as
letter of intent, memorandum of understanding, term sheet or other
non-binding agreements, although these are customary to be entered
into by the transacting parties prior to executing a binding
contract.

Before signing a contract as part of a real estate transaction,
the buyer will conduct due diligence to identify any material risks
that may affect the transaction. The result of the due diligence is
crucial to determine the terms and conditions of the binding
contract to be entered into by the parties, such as the conditions
precedent to be imposed on the seller, representations and
warranties from the seller and indemnity in favor of the buyer. The
parties will usually execute a non-disclosure agreement before
making any disclosure of documents, data and information for the
purpose of the due diligence.

The use of a real estate broker is common for the sale or lease
of property, but a real estate broker’s business activity does
not cover real estate financing. Pursuant to Minister of Trade
Regulation No. 51/M-DAG/PER/7/2017 Regarding Property Brokerage
Companies (3 August 2017), the activities of a real estate broker
include services for property analysis, marketing, consultation and
dissemination of information regarding property. A real estate
broker will receive a commission for its services. For sale
transactions, the commission ranges from 2-5% of the transaction
value, while for lease transactions it is 5-8% of the transaction
value.

The real estate brokerage business is closed for foreign
investment and real estate brokerage companies must obtain a
business license from the Minister of Trade. The experts employed
by brokerage companies must obtain a competence certificate.

Contract of Sale

Land is legally acquired in Indonesia upon the execution of a
Sale Purchase Deed (AJB) by the seller and buyer, or a Land
Relinquishment Deed (APH) in favor of the buyer. An AJB is used if
the buyer wishes to acquire certificated title to the land with the
same type as the seller’s certificated title. An APH is used if
the seller has certificated title to the land that is not the same
type of title that the buyer can or wants to acquire, or if the
seller does not yet have certificated title to the land to be
sold.

An AJB or APH must be drawn up by a Land Deed Official (PPAT)
having jurisdiction over the land and be executed in the Indonesian
language before such PPAT. The clauses in the AJB or APH are
normally standard clauses (eg, details of the land object, purchase
price, transfer of proceeds and liabilities upon transfer of title
or execution of the deed,

allocation of fees, and dispute settlement forum). As AJBs and
APHs are documents that would need to be submitted or provided to
governmental authorities or other third parties for various
purposes, the transacting parties usually refrain from disclosing
therein arrangements that are commercial, sensitive or confidential
in nature. These arrangements are customarily regulated in a
separate sale and purchase contract between the parties.

Matters that are generally regulated in the contract include
conditions precedent, representations and warranties of both the
seller and buyer, undertakings or covenants, events of default, and
indemnity.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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