28 Jan 2013

Hak tanggungan (land mortgage) holders, financial institutions, banks, and creditors alike should be aware of the possible invalidation of their lien over land that has been pledged to them if the State has reasons to declare the land as abandoned land.

In January 2010, the Government issued Regulation No. 11 Year 2010 concerning Abandoned Land (“Regulation 11”), which regulates that the State, through the Badan Pertanahan Nasional (National Land Agency, the government’s institution in charge of land affairs that is directly responsible to the President “BPN”), could take away a registered land right from the owner if the land concerned remains idle or unused or improperly used (used not in line with the zoning) three years after the land right certificate is issued.

If a land right is taken by the State on the basis of the above Regulation 11, pursuant to Article 18 (1)(d) of the Hak Tanggungan Law (being Law No. 4 Year 1996) any lien on the land will automatically terminate as a consequence of the land owner’s loss of his/her right to the land.

Regulation 11 stipulates that right owners of suspected abandoned land will receive three warning letters at one month intervals from the relevant Provincial Level BPN regarding the consequence of the abandonment, giving them the chance to rectify the situation. If no actions were taken after the service of the warning letters, the provincial level BPN may send a suggestion letter to the Head of BPN in Jakarta (national level), for the latter to pass a decree stipulating amongst others that (i) the land is abandoned, (ii) all legal relationships between land right owner and certificate are terminated, and (iii) all objects above the land must be cleared out within one month or they will be expropriated by the State (“Decree”). Regulation 11 is not clear on the timeline between the third (final) warning letter, the suggestion to the Head of BPN in Jakarta and the passing of the Decree by the same.

The warning letters are issued based the report made and submitted by a so called Panitia C (which is a commission consisting of the regency level BPN and other regency level’s government institutions).  Panitia C derives its data from a process of arbitrary identification of suspected abandoned land and data collected by the regency level BPN.

As mentioned above, land right owners (whose name is stated as right holder in the land certificate  concerned) are provided with a right to fix the alleged land abandonment within the three months warning letters period.  However, Regulation 11 is silent on the rights of the mortgage holders, aside from their right to receive a copy of the warning letters and of the Decree.  There is no mention of whether they could make an attempt to hold off the process or object to the Decree.

In light of the above, Regulation 11 is certainly a very scary proposition to what should be normal plain vanilla land mortgage secured financing type deals.  Creditors would need to ensure that the land pledged as security will not fall into the category of abandoned land which could ultimately lead to the invalidation of their security right.  Unfortunately, it is not by any means an easy task to do. Based on precedents, in events of default attempting an open discussion with the debtors is something that is extremely difficult to do.

The above should also be the concern of land bank owners who envisage getting into real properties or plantation development in the future if and when their capital allows them to do so.  They would need to ensure that the development is executed soon enough in order to avoid the land abandonment allegation. (by:Giffy Pardede).