One of the most profitable forms of investment is land or property acquisition. The benefit from property investment is generally derived from the appreciation of property value over time.
Although considered a long-term and potentially lucrative investment, property acquisition must be conducted properly and securely to avoid legal issues — one of which involves the use of a nominee agreement.
What is a Nominee Agreement in Property Ownership?
A Nominee Agreement in property ownership refers to a contractual arrangement whereby one party (the nominee) holds legal title to a property on behalf of another party (the beneficial owner).
For instance, Mr. A purchases a house from Mr. B, but for the purpose of the sale and purchase deed, Mr. C is listed as the buyer at the request of Mr. A. The certificate of ownership is then transferred from Mr. B to Mr. C. Meanwhile, Mr. A and Mr. C enter into a private nominee agreement.
Motivations Behind Nominee Agreements in Property Ownership
The use of nominee agreements in land ownership may be motivated by various factors on the part of the buyer or the actual funder of the property transaction, such as:
- The buyer has already exceeded the allowable limit of land ownership;
- The buyer prefers to use the identity of a trusted individual for personal or professional reasons;
- An attempt to circumvent ownership restrictions for the benefit of a foreign national.
While these motivations may seem justifiable, any party entering into a nominee agreement must be fully aware of the legal implications and risks involved, especially in land transactions.
Legal Risks of Nominee Agreements in Property Ownership
Under Indonesian law, land ownership is proven through documentation, primarily in the form of a land certificate or “old proof of ownership.”
Pursuant to Article 1 point 20 of Government Regulation No. 24 of 1997 on Land Registration, a land certificate is defined as an official document serving as evidence of land rights, including management rights, waqf land, ownership rights to strata title units, and mortgage rights.
Accordingly, the legally recognized owner of a piece of land is the individual whose name appears on the certificate of ownership.
This position is further reinforced by Supreme Court Circular Letter (SEMA) No. 10 of 2020 concerning the Enactment of Formulated Legal Principles from the Plenary Chamber Meeting of the Supreme Court as Guidelines for Judicial Practice. The SEMA states that the legal owner of a parcel of land is the person whose name is listed on the certificate — even if the land was acquired using funds, assets, or resources from a foreign national or another third party.
Therefore, the individual whose name appears on the certificate (acting as a nominee) legally possesses the authority to transfer or encumber (e.g., mortgage) the property without obtaining consent from the beneficial owner. If this occurs, the investment made through a nominee agreement can turn into a legal and financial liability, turning expected profits into potential losses.
Conclusion
Based on the explanation above, nominee agreements are not legally binding in determining property ownership in Indonesia. The rightful owner under the law is the person whose name is formally registered on the land certificate, not the actual financier or beneficial owner. This creates significant risk for anyone attempting to acquire property through nominee arrangements.
Legal References
- Law No. 5 of 1960 on Basic Agrarian Principles
- Government Regulation No. 24 of 1997 on Land Registration
- Supreme Court Circular Letter (SEMA) No. 10 of 2020 on the Enactment of Formulated Legal Principles from the Supreme Court Chamber Plenary Meeting as Guidelines for the Courts
Writer:
- Gracia, S.H.
- Evi Mutiara Marpaung
Editor: Parwira Agusfia, S.H., M.H