i

LAND ADMINISTRATION PROJECT

FINAL REPORT ON

THE REVIEW OF THE BASIC

AGRARIAN LAW 1960

Prepared By

Warren L. Wright

TA Land Law Adviser

International

December 1999

iii

EXECUTIVE SUMMARY OF THE REVIEW OF INDONESIA’S BASICAGRARIAN LAW 1960

Introduction

This report is divided into five chapters, namely: Chapter I - Indonesian LandTenures, Chapter - II Registration of Land Rights and Security of Title, ChapterIII – ILAP, the Land Market and the Basic Agrarian Law, Chapter IV – HakUlayat and the Basic Agrarian Law, and Chapter V - Auxiliary Observations andConclusions.

Chapter I Indonesian Land Tenures

After an intensive examination of the provisions of the Basic Agrarian Law whichcreate the land tenures which exist in Indonesia and a review of severalimplementing laws and regulations, the general conclusion is that, from a legalperspective, those tenures are complex, use-related and are not at all secure.This is so because they remain continually liable to forfeiture to the State,usually without just compensation. Apart from the constant susceptibility toforfeiture by abandonment or failure to comply with the conditions of the grantsof the main tenures, all but one of the tenures are limited in time and theirextension and renewal is dependent on the exercise of executive discretions ofthe State. The result is that rather than there being a developed system of privateland law, there is constant intervention in and control over land tenures by theState. Furthermore, this insecurity is compounded by an astonishing degree ofuncertainty in the Indonesian land law which is generated by the basicprovisions of the Basic Agrarian Law and maintained by successivegovernments since the law was enacted.

The principle recommendations flowing from this examination include that thiscontrol by the State over tenures and its correlative allocative function ought tobe abandoned in favour of secure private land tenures which are not susceptibleto such control. The several distinctive use-related tenures ought to berationalised into a simple ownership/leasehold dichotomy. The generaluncertainty also needs to be addressed through a thorough review of the BasicAgrarian Law.

Chapter II Registration of Land Rights and Security of Title

In addition to the problem of the fundamental juridical insecurity of the existingtenures identified in Chapter I, the system of title registration which prevails in

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Indonesia is a negative system. Furthermore, title to land passes regardless ofregistration. The deleterious consequences of these facts from the perspective oftitle security particularly and the land administration system generally arediscussed. The negative and positive systems of title registration are comparedand the benefits of positive registration discussed at length. Of particularconcern is the problem of the maintenance of the land title registration systemfollowing initial registration and the prioritisation of competing interests in land.

The conclusion from this Chapter is that it is essential for the Indonesian titleregistration system to move from the negative system to a positive system ofland title registration.

Chapter III ILAP, the Land Market and the Basic Agrarian Law

One of the objectives of the Indonesian Land Administration Project is thecreation of an equitable and efficient land market. This Chapter examines thisobjective having regard to the provisions of the Basic Agrarian Law whichimpact negatively on the creation and operation of such markets.

It is concluded that if the goal of a stable land market is to be realised inIndonesia, then, in addition to addressing the problems of the insecurity andcomplexity of the tenures and the negative system of title registration, urgentattention needs to be given to re-examination of those provisions of the BasicAgrarian Law which inhibit or prevent a land market from developing. Thoseprovisions are identified and briefly discussed.

Chapter IV The Basic Agrarian Law and Hak Ulayat

Chapter IV considers the issue of the rights of Indonesia’s indigenous peoplesand the provisions of the Basic Agrarian Law which pertain to what is known ashak ulayat – the traditional right or relationship with land which is exercised bycommunal groups. An examination is also made of some recent legislativedevelopments and their impact on hak ulayat. The main conclusion from thoseconsiderations is that there is little or no effective protection of the rights ofindigenous peoples. Since much social conflict has been generated by the lack ofeffective legal protection of those rights in the basic law, it is recommended thata thorough review of the relevant existing laws be undertaken with a view to thedrafting of an effective legislative scheme which has due regard to hak ulayatand provides an effective mechanism for the resolution of that conflict.

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Chapter V Auxiliary Observations

This chapter contains some incidental observations which augment the generalneed for the reform of the Basic Agrarian Law and sets out some calls for reviewwhich have been made within Indonesia.

General Conclusion

The Basic Agrarian Law must be reviewed and replaced with a Basic Land Lawwhich addresses the numerous problems identified in this review. Since secureland tenure and title is essential to good governance and civil peace. Havingregard to the extraordinary degree of conflict between the State and society overland in Indonesia, it is essential that these problems be addressed. In addition, ifthe most benefit is to be gained from land and land-related markets, thesubstantial legal obstacles to the creation of truly efficient and equitable marketsmust be removed through the same review of the Basic Agrarian Law. Attentionmust also be given to the plight of traditional indigenous communities whichexist in many parts of the nation.

As Indonesia seeks to move away from its authoritarian past towards a just andpeaceful society through a process of comprehensive reformation and renewal, aparticular urgency attaches to the necessity to review the Basic Agrarian Law.

Finally, attention is directed to the reports produced under the auspices of PartC of the project which also consider the Basic Agrarian Law; in particular, thoseentitled “Indonesian Land Law and Tenures - Issues in Land Rights” and“Commercial Transactions and Security Interests in Land”. This review of theBasic Agrarian Law has drawn significantly on the analyses and conclusions ofthe former report and the writer respectfully endorses the findings of that report.

TABLE OF CONTENTS

EXECUTIVE SUMMARY i - iii

1. CHAPTER I - LAND TENURES ........................................................................................................................................ 1

1.1 INTRODUCTION .................................................................................................................................................................11.2 OBJECTIVES OF THE INDONESIAN LAND ADMINISTRATION PROJECT (ILAP) ......................................................11.3 LAND TENURES - INTRODUCTION..................................................................................................................................31.4 ENGLISH COMMON LAW TENURES – THE FEE SIMPLE AND THE LEASEHOLD ESTATE......................................31.5 INDONESIAN LAND TENURES..........................................................................................................................................5

1.5.1 Right of Ownership (Hak Milik)........................................................................................................................ 61.5.2 Right of Exploitation/Cultivation (Hak Guna Usaha).................................................................................. 61.5.3 Right to Use Buildings (Hak Guna Bangunan) .............................................................................................. 71.5.4 Right of Use (Hak Pakai) .................................................................................................................................... 71.5.5 Right of Lease (Hak Sewa).................................................................................................................................. 81.5.6 Apartment Ownership Right (Hak Milik atas Satuan Rumah Susun) ........................................................ 91.5.7 Security Right (Hak Tanggungan).................................................................................................................... 91.5.8 Right of Management (Hak Pengelolaan)....................................................................................................... 91.5.9 Right to Clear Land and Right to Collect Forest Produce (Hak Membuka Tanah dan HakMemungut Hasil Hutan) ....................................................................................................................................................101.5.10 Right to Use Water and Right to Cultivate and Catch Fish (Hak Guna Air dan Hak Pemeliharaandan Penangkapan Ikan) ...................................................................................................................................................111.5.11 Right of Use of Airspace (Hak Guna Ruang Angkasa)................................................................................11

1.6 SECURITY OF INDONESIAN TENURES..........................................................................................................................111.7 THE ORIGINS OF LEGAL UNCERTAINTY IN INDONESIAN LAND LAW....................................................................121.8 THE ABOLITION OF THE COLONIAL DUALISTIC LAND LAW AND THE UNIFICATION OF INDONESIAN LAND

LAW – MORE LEGAL UNCERTAINTY.....................................................................................................................................131.9 INSECURITY THROUGH FAILURE TO ENACT IMPLEMENTING REGULATIONS OF THE BASIC AGRARIAN LAW151.10 THE REINFORCEMENT OF UNCERTAINTY .................................................................................................................161.11 CONFLICTS BETWEEN ADAT LAW AND THE BASIC AGRARIAN LAW ..................................................................171.12 AN EXPLANATION OF THE ARTICULATION OF ADAT LAW IN THE BASIC AGRARIAN LAW ..........................251.13 WHY INDONESIAN LAND TENURES ARE INSECURE ..................................................................................................261.14 EXTINCTION OF HAK MILIK – THE BASIC AGRARIAN LAW...................................................................................271.15 ABANDONMENT ..............................................................................................................................................................281.16 TIME PERIOD OF ABANDONMENT ...............................................................................................................................281.17 GOVERNMENT REGULATION NO 36 OF 1998 RE CONTROL AND UTILISATION OF ABANDONED LAND.........301.18 PROCEDURE FOR CONTROLLING AND UTILISING ABANDONED LAND .................................................................321.19 COMPENSATION FOR EXTINCTION OF RIGHTS ON ABANDONED LAND ...............................................................341.20 LOSS OF HAK MILIK AND REVERSION TO STATE CONTROL UNDER OTHER LAWS............................................351.21 REGULATION OF THE MINISTER FOR AGRARIAN AFFAIRS NO 2 OF 1960 RE THE IMPLEMENTATION OF

SOME PROVISIONS OF THE BASIC AGRARIAN LAW .............................................................................................................351.22 REGULATION OF THE MINISTER FOR AGRARIAN AFFAIRS NO 2 OF 1962 RE CONFIRMATION OF

CONVERSION AND REGISTRATION OF FORMER INDONESIAN RIGHTS ON LAND ............................................................361.23 STATE CONTROL OF OTHER LAND UNDER THE CONVERSION PROVISIONS OF THE BASIC AGRARIAN LAW 371.24 MORE UNCERTAINTY FOR HAK MILIK ........................................................................................................................381.25 HAK MILIK ON STATE LAND .......................................................................................................................................381.26 CANCELLATION OF DECREE GRANTING HAK MILIK ON STATE LAND ...............................................................391.27 CANCELLATION OF HAK GUNA USAHA, HAK GUNA BANGUNAN AND HAK PAKAI ...........................................40

1.27.1 Hak Guna Usaha.................................................................................................................................................401.27.2 Hak Guna Bangunan .........................................................................................................................................41

1.27.3 Hak Pakai ............................................................................................................................................................431.28 CONCLUSION RE GOVERNMENT REGULATION NO 40 OF 1996 ...............................................................................431.29 STATE CONTROL ENTRENCHED IN THE BASIC AGRARIAN LAW ..........................................................................441.30 WHY SECURITY OF LAND TENURE IS INDISPENSABLE – ECONOMIC DEVELOPMENT AND PROTECTION OF

INDIGENOUS LAND TENURE.....................................................................................................................................................46

2. CHAPTER II - REGISTRATION OF LAND RIGHTS AND SECURITY OF TITLE...............................................49

2.1 ALTERNATIVES TO NEGATIVE TITLE REGISTRATION SYSTEM ............................................................................502.2 TYPES OF REGISTRATION SYSTEMS ............................................................................................................................502.3 DEEDS REGISTRATION SYSTEMS..................................................................................................................................502.4 PRIORITY RULES IN DEEDS REGISTRATION SYSTEMS .............................................................................................512.5 RELEVANCE OF REGISTRATION IN DEEDS REGISTRATION SYSTEM .....................................................................522.6 TITLE BY REGISTRATION – THE TORRENS SYSTEM ................................................................................................522.7 INDEFEASIBILITY............................................................................................................................................................532.8 REGISTRATION IN THE INDONESIAN SYSTEM ...........................................................................................................552.9 INCENTIVES TO SEEK REGISTRATION.........................................................................................................................562.10 DEFERRED INDEFEASIBILITY V. IMMEDIATE INDEFEASIBILITY............................................................................602.11 INDEMNITY AND ASSURANCE – THE TORRENS POSITIVE SYSTEM .......................................................................612.12 REGISTRATION AND LAW REFORM .............................................................................................................................622.13 THE FIRST FALTERING STEP TOWARDS A POSITIVE SYSTEM IN INDONESIA .....................................................642.14 ARTICLE 32(2) AND THE CIVIL CODE .........................................................................................................................662.15 SOME ISSUES ASSOCIATED WITH THE INTRODUCTION OF A POSITIVE REGISTRATION SYSTEM ...................662.16 THE POSITIVE SYSTEM AND “LAND THEFT”.............................................................................................................672.17 ADVANTAGES OF REGISTRATION OF TITLE TO DEVELOPING COUNTRIES .........................................................682.18 PRECIS OF MAIN BENEFITS OF TITLE BY REGISTRATION.......................................................................................70

3. CHAPTER III - ILAP, THE MARKET AND THE BASIC AGRARIAN LAW 1960................................................73

3.1 INTRODUCTION ...............................................................................................................................................................733.2 THE MARKET AND THE BASIC AGRARIAN LAW.......................................................................................................733.3 THE SOCIAL FUNCTION OF RIGHTS ON LAND ...........................................................................................................753.4 PROHIBITION ON ABSENTEE OWNERSHIP AND LIMITS ON AREAL QUANTITIES ..............................................763.5 PROHIBITION ON CORPORATE OWNERSHIP OF HAK MILIK.....................................................................................773.6 RESTRICTIONS ON FOREIGN OWNERSHIP ...................................................................................................................783.7 FURTHER ISSUES FOR THE LAND MARKET - LAW NO 4 OF 1996 RE SECURITY TITLES ON LAND AND LAND-RELATED OBJECTS....................................................................................................................................................................80

4. CHAPTER IV - HAK ULAYAT AND THE BASIC AGRARIAN LAW.....................................................................83

4.1 INTRODUCTION ...............................................................................................................................................................834.2 HAK ULAYAT IN THE BASIC AGRARIAN LAW...........................................................................................................834.3 GOVERNMENT REGULATION NO 24 OF 1997 RE LAND REGISTRATION AND HAK ULAYAT .............................864.4 REGULATION OF THE MINISTER FOR AGRARIAN AFFAIRS NO 5 OF 1999 ............................................................864.5 ILAP AND HAK ULAYAT ...............................................................................................................................................89

5. CHAPTER V - AUXILLIARY OBSERVATIONS AND CONCLUSIONS...............................................................91

5.1 POSSESSION.......................................................................................................................................................................915.2 REVIEW OF PUNITIVE PROVISIONS...............................................................................................................................915.3 INVOLVEMENT OF PRIVATE SECTOR IN LAND REGISTRATION..............................................................................925.4 REGISTRATION OUTSIDE CITIES..................................................................................................................................935.5 CALLS FOR REVIEW OF THE BASIC AGRARIAN LAW FROM WITHIN INDONESIA ................................................935.6 GENERAL CONCLUSION..................................................................................................................................................94

BIBLIOGRAPHY & REFERENCE a - f

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REVIEW OF THE BASIC AGRARIAN LAW 1960

“The legal foundation…needs fundamental reform.” 1

1. CHAPTER I - LAND TENURES

1.1 Introduction

The Basic Agrarian Law of 1960 is the legal foundation of the Indonesian land lawsystem. It was enacted on 24 September 1960.2 The purpose of this document is toprovide a briefing paper on that law. This will be undertaken primarily from theperspective of the goals of the Indonesian Land Administration Project (hereafterILAP). Consequently, not all of the provisions of that law will be subjected toscrutiny but only those which have a direct or indirect impact on the objectives ofthe project. It is to be noted, however, that, in the course of examining thoseprovisions which are pertinent to ILAP, it is necessary to go beyond the BasicAgrarian Law itself and to include a review of some of its more importantimplementing laws and regulations.

The paper begins which an overview of land tenure as regulated in the BasicAgrarian Law from the perspective of the legal security which is conferred onthose tenures by that law and its main relevant implementing provisions. Anexamination of the negative title registration in Indonesia follows along with ananalysis of the positive registration system and the benefits which it can have fordeveloping countries. The paper then proceeds to look at the Basic Agrarian Lawand the land market. Finally, the position of indigenous peoples under the BasicAgrarian Law will be considered.

1.2 Objectives of the Indonesian Land Administration Project (ILAP)

The main objective of ILAP is “to foster efficient and equitable land markets andalleviate social conflicts over land through the acceleration of land registrationand,…through improvement of institutional framework for land administrationneeded to sustain the program” (sic).3

1 Indonesian Land Law and Tenures Issues in Land Rights Final Report Topic Cycle 4 Part C Indonesian LandAdministration Project (Support for Long Term Development of Land Management Policies) at p. 1-11.2 State Gazette No 1960-1-043 Per World Bank Staff Appraisal Report Document No 12820-IND Indonesian Land Administration Project 16August 1994 at p. i.

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It is said that efficient and equitable land markets are an important basis foreconomic development in terms of more efficient and transparent landtransactions, less risk in land-related investment, mobilisation of financialresources through use of land as collateral and provision of incentives for longer-term investment towards sustainable land use.4 It is also stated that a“comprehensive, accurate and efficient land registration system is a sine qua non indeveloping such land markets since it enables land to be freely traded byreducing or eliminating the risk perceived by purchasers and vendors of land.”5

The progress to be achieved under the project is also supposed to be“instrumental to development in various sectors to encourage foreigninvestment.”6

The assertion that an accurate and efficient land registration system is anindispensable precondition to the development of a land market represents asuperficial analysis of the problems which exist in the Indonesian land lawsystem. This is so because registration, of itself, will not achieve the goal of anoperational land market so long as there are other deep-seated problems with theland law system upon which rights to land depend. If the basic tenures which arethe subject of registration are fundamentally insecure, then the stated objective cannot be achieved merely through registration. Further, even if those tenures areotherwise secure, if registration of titles to the tenures does not result in a securetitle, then the risks associated with transactions with land rights will not beeliminated.

What is meant by security is firstly, the degree of security which is conferred bythe law on private land right ownership from intervention from the State and,secondly, the degree of protection which is conferred by the land title registrationsystem which a right holder who purchases land in good faith and for valuableconsideration enjoys from claims from other people

Once an initial land ownership record is constructed through the implementationof systematic registration, it is of the utmost importance that the land law andregistration system contain effective mechanism which ensures that derivativeregistrations (that is, the registration of transactions and devolutions with the land

4 Ibid. at page 2.5 Ibid.6 Ibid. at pages i-ii.

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right after it has been registered for the first time. If there is not sufficient incentivein the registration system to ensure the capture in the register of transactions withland following initial registration or the system itself inhibits derivativeregistration capture, then the maintenance of the system will not be achieved. Ifmaintenance is not achieved, then the results of initial registration will bemeaningless and what progress was made through systematic registration will beirretrievably lost. It is with regard to such issues that the following overview of theBasic Agrarian Law has been undertaken.

1.3 Land Tenures - Introduction

Tenure defines the nature and characteristics of the object of ownership and isprescribed by the basic concepts of the land law. A land tenure defines the lengthof item the land is used or owned, the rights and responsibilities of use orownership, the opportunities for transfer and devolution and the risk of itsextinction and reversion to the public authority of the State.

By contrast, title identifies the owners of the tenure in particular parcels of land ata particular time. Whereas tenures are the subject of this Chapter, the issuespertaining to title are discussed in Chapter II. Security of tenures from forfeiture tothe state and security of title to those tenures from the claimed constitute the realsine qua non of not only a land market but are also essential for the maintenance ofa just social order.

There follows, for the purposes of comparison, a brief discussion of the landtenures which exist under one of the contemporary predominant land tenuremodels - the English common law tenure system. This will be followed by anexamination of Indonesian land tenures with a view to establishing whether or notthe latter can be considered to be legally secure land tenures.

1.4 English Common Law Tenures – The Fee Simple and the LeaseholdEstate

The English land tenure model is a dominant model in many advanced marketeconomies. It admits only two basic tenures: freehold and leasehold. Within thecategory of freehold tenures, there are three sub-categories: the fee simple, the feetail and the life estate. The fee tail no longer exists. It descended only to linealheirs. The life estate is not inheritable at all; lasting only so long as the owner of itis alive and it can not be transferred from the original grantee. Its creation and useis usually limited to family arrangements.

The most important tenure under the English common law is the fee simple. Theestate in fee simple is the largest estate known to that law. It is the most “extensive

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in quantum, and the most absolute in respect to the rights which it confers”.7 Theessential features of the fee simple which distinguish it from the fee tail and thelife estate are:

w the owner may be an individual or a body corporate and has the unfetteredpower to dispose of the fee simple either by sale or gift during the owner’s lifeor by will upon his death; and

w on intestacy (dying without making a will), the land devolves, in the absence oflineal heirs, to collateral heirs.8

Freehold estates are conceptually tenures held of the State although this now hasonly one practical but extremely rare consequence of reversion to the State if theowner dies without a will or without lineal or collateral heirs; a process known as“escheat”.9 It is otherwise a perpetual estate which can never be lost to the Statethrough, for example abandonment, failure to use or care for the land or any otherprovision of the law.

Nor can it vanish because of the destruction of the physical earth. Land in Englishlaw is indestructible since it is not merely the surface nor the physical substance ofthe earth but is the three dimensional space defined by reference to natural orartificial boundaries. Tenures under the Indonesian system can vanish because ofthe so-called destruction of the land10.

A fee simple can be compulsorily acquired by the State in the public interest butcompulsory acquisition can only be implemented for public purposes and it is apower which all States exercise in relation to the land within their territories.Where property rights are protected by the law from arbitrary acquisition by theState, just compensation must be paid to the owner.

The other broad category of tenure in English law is the leasehold estate. Theleasehold estate is a lesser tenure than the fee simple because it is limited induration. It is created by agreement between the person who leases and the owner

7 Per Butt P Land Law Edition 3 1996 LBC Information Services p. 112.8 Lineal heirs are direct descendants (children). Collateral heirs siblings or relatives other than children.9 Escheat also occurred under feudal land law rules where the owner was convicted and sentenced to death forcrimes. Per Williams The Fundamental Principles of the Present Law of Ownership of Land (1931) 75 Sol J 843cited at footnote 12 in Butt op. cit p.67. The death penalty since been abolished in many common lawjurisdictions.10 For example, Article 27b Basic Agrarian Law: A right of ownership shall be nullified when any of thefollowing takes place…..b. the land in question vanishes.

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of the fee simple. It is terminable for breach of terms of the lease and is therefore alesser estate than the fee simple. Its primary use is in connection with commercialtransactions.

1.5 Indonesian Land Tenures

Whereas there are only two basic land tenures in common law systems of landownership, in Indonesia there are several unique tenures. Article 16 of the BasicAgrarian Law creates the following tenures:

w the right of ownership (hak milik);

w the right of exploitation/cultivation (hak guna usaha);

w the right to use buildings (hak guna bangunan);

w the right of use (hak pakai);

w the right of lease (hak sewa);

w the right to clear land (hak membuka tanah); and

w the right to collect forest produce (hak memungut-hasil-hutan).

Article 16 also provides for the creation of rights other than those mentionedabove which must be stipulated by way of an act and also refers to “the rights oftemporary nature which are mentioned in Article 53” (see infra).

Rights which have been stipulated by way of an Act are:

w the right of ownership of apartments (hak milik atas satuan rumah susun);

w the security right (hak tanggungan); and

w the right of management (hak pengelolaan).

In addition, the Act creates the following additional rights to water and airspace:

w the right to use water (hak guna-air);

w the right to cultivate and catch fish (hak pemeliharaan dan penangkapan ikan); and

w the right to use airspace (hak guna-ruang-angkasa).

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There follows a brief description of the basic nature of the several Indonesian landtenures.

1.5.1 Right of Ownership (Hak Milik)

A hak milik is described as “the strongest and fullest right which one can have toland and which goes down from one generation to the next”. A hak milik can betransferred to other parties. Only Indonesian citizens (that is, individuals) can owna hak milik but the government may determine which corporate bodies can have ahak milik and what requirements they shall fulfil to make them eligible for holdinga hak milik.11

The Act also states that “the use of land having the status of a hak milik by a partyother than the owner shall be defined and regulated by way of legislation” andthat “hak milik can be used as debt collateral by encumbering it with a haktanggungan (security title).”12

1.5.2 Right of Exploitation/Cultivation (Hak Guna Usaha)

A hak guna-usaha is the “right to work on land directly controlled by the State for adefinite term which can be granted to a company dealing in agriculture, fishery, oranimal husbandry. A hak guna-usaha may only be granted on land whose area is atleast five (5) hectares, “on the condition that in the case where the area of the landis 25 hectares or more, adequate investment shall be made and good corporatemanagement techniques shall be adopted as appropriate, given the currentdevelopments in times.” A hak guna-usaha may be transferred to another party.

The term for which a hak guna usaha may be granted is strictly prescribed. The Actprovides that the term of a hak guna-usaha shall be “at most, 25 years”. However,where a company requires more time, it can be granted a hak guna-usaha with aterm of “at most, 35 years”. In addition, the Act further provides that, “uponrequest of the right holder and in view of the condition of the company in

11 Articles 20, 21 Basic Agrarian Law.12 Articles 24, 25 Basic Agrarian Law.

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question, the terms of a hak guna-usaha as meant in paragraphs (1) and (2) of thisarticle can be extended for, at most, 25 years.”13

Only Indonesian citizens and corporate bodies established under Indonesian lawand domiciled in Indonesia may be granted hak guna usaha.14

A hak guna-usaha is created by a right granting decree by the State and it can beused as debt collateral by encumbering it with a hak tanggungan (security title).15

1.5.3 Right to Use Buildings (Hak Guna Bangunan)

Although the term for this right implies that it is limited to the use of existingbuildings, it includes the right to construct buildings on another’s land as well asto use such buildings. Thus, a hak guna-bangunan is described in the Basic AgrarianLaw as “the right to establish and possess structures on land which is owned byanother party for a period of at most, 30 years”. Upon request of the right holderand in view of the needs and of the condition of the structures, the term can beextended for “at most, 20 years”. A hak guna-bangunan can be transferred to anotherparty. Ownership of hak guna usaha is also restricted to Indonesian citizens andcorporate bodies established under Indonesian law and domiciled in Indonesia.

A hak guna-bangunan can be created, in the case of land directly controlled by theState, by a right granting decree by the Government and, in the case of land havingthe status of a hak milik, by an agreement between the owner and another partyintending to acquire a hak guna-bangunan with the purpose of giving rise to theintended right. A hak guna-bangunan can be used as debt collateral byencumbering it with a hak tanggungan (security title).16

1.5.4 Right of Use (Hak Pakai)

The right of use is “a right to use, and/or to collect produce from, land directlycontrolled by the State or land owned by another individual which provides theholder with powers and obligations as determined in the relevant right-granting

13 Articles 28, 29 Basic Agrarian Law.14 Article 30 Basic Agrarian Law.15 Articles 32, 33 Basic Agrarian Law.16 Articles 35-40 Basic Agrarian Law.

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decree by the official who is authorised to grant such a right or as determined inan agreement with the owner of the land, such an agreement being other than aland-lease agreement or land-exploitation agreement, given that everything ispossible as long as it does not contradict the spirit and provisions of this Act.”

A hak pakai can be granted for a definite term or for as long as the land is used for aspecific purpose or for free, for a certain payment, or for any kind of service. TheAct provides that “the granting of a hak pakai shall not be entailed with conditionswhich contain elements of human exploitation.”

Hak pakai may be owned not only by Indonesian citizens but also by foreigncitizens residing in Indonesia and corporate bodies established under Indonesianlaw and domiciled in Indonesia or foreign corporate bodies having representationin Indonesia.

In the case of land directly controlled by the State, a hak pakai can be transferred toanother party only with approval of an authorised official. A hak pakai on landhaving the status of a hak milik (right of ownership) can be transferred to anotherparty only in the case where such a transfer is possible under the relevantagreement.17

1.5.5 Right of Lease (Hak Sewa)

The Act states that “an individual or a corporate body has a hak sewa atas tanah(right of lease of land) when the individual or corporate body in question isentitled to use land owned by another party for purposes related to structures bypaying to the owner of the land a certain sum of money as rent.” The payment ofthe rent can be made either on a once-and-for-all basis or on an instalment basisand either before or after the use of the land in question. The Act also providesthat “an agreement on land lease as meant in this article shall not be includeconditions which contain elements of human exploitation.”

A hak sewa atas tanah may be owned by Indonesian citizens, foreign citizensresiding in Indonesia, corporate bodies established under Indonesian law and

17 Articles 41-43 Basic Agrarian Law.

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domiciled in Indonesia, and foreign corporate bodies having representation inIndonesia.18

The elucidation states that a hak sewa is a hak pakai with special characteristicsand, in view of the provisions of Article 10(1) which require land ownersthemselves to work the land over which their right exists, a hak sewa is onlyavailable for structures. A hak sewa on agricultural land is transient (and wastherefore supposed to have been abolished in accordance with Article 53 of theLaw).

Hak sewa is not available over State land.19

1.5.6 Apartment Ownership Right (Hak Milik atas Satuan Rumah Susun)

The apartment right is regulated in Law No 16 of 1985 Re Right of Ownership ofApartments and approximates to the strata title right in common law jurisdictions.However, unlike the common law jurisdiction where strata title is a mereelaboration of the fee simple tenure, the apartment right in Indonesian law istreated as a distinct tenure. It is not necessary for present purposes to furtherdetail this right.

1.5.7 Security Right (Hak Tanggungan)

This right was created by Law No 4 of 1996 Re Security Title on Land and Land-Related Objects. Prior to the enactment of this law, mortgage law governed by thecolonial legislation concerning what was called hipotheek (hypothecation) whichwas the only part of the Indonesian Civil Code relating to land which was notexpressly revoked by the Basic Agrarian Law. The security right on land and land-related objects corresponds to the mortgage interest in common law jurisdictions.It is not necessary to elaborate this right for present purposes. Further briefanalysis of hak tanggungan is in the separate Chapter III on the land market (infra).

1.5.8 Right of Management (Hak Pengelolaan)

The right of management is a right on State land which confers authority on thegrantee to plan the supply and use of the land the subject of the right, to use the

18 Articles 44-45 Basic Agrarian Law.19 Per elucidation of Article 44 Basic Agrarian Law.

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land for the requirement of the implementation of the holder’s duties and o grantto third parties a right of use with a term of 6 years over the land which is subjectto the right of management.

The right of management may only be granted to government departments andofficial or corporate entities appointed by the government. It is said to be a rightwhich emanates from the State’s general right of control (as to which see infra).

The right of management has not been created in accordance with an Act, asrequired by the Basic Agrarian Law, but by a mere ministerial regulation; that is,Regulation of the Minister for Agrarian Affairs No 9 of 1965 Re Hak Pengelolaan. Tothat extent, there must exist uncertainty about the validity of this right.

1.5.9 Right to Clear Land and Right to Collect Forest Produce (HakMembuka Tanah dan Hak Memungut Hasil Hutan)

The Act does not provide much detail about the right to clear land (hak membuka-tanah) and the right to collect forest produce (hak memungut hasil hutan) other thanthe following:

w A hak membuka-tanah and a hak memungut hasil hutan can be acquired only byIndonesian citizens and shall be regulated by way of a GovernmentRegulation.

w Using a hak memungut hasil hutan legally does not necessarily mean acquiring ahak milik (right of ownership) to the land in question.20

The elucidation states only that the right to clear land and the right to collect forestproducts are land rights under adat law and that these rights need to be regulatedby way of a government regulation in the interests of the public “which arebroader than the interests of the individual or those of the adat-law community inquestion.”

20 Article 46 Basic Agrarian Law.

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1.5.10 Right to Use Water and Right to Cultivate and Catch Fish (Hak Guna Airdan Hak Pemeliharaan dan Penangkapan Ikan)

The hak guna-air is the right to obtain water for a certain purpose and/or to flowwater above another person’s land. The right to use water and the right to cultivateand catch fish are to be regulated by way of a Government Regulation.21 Suchregulation does not yet exist.

1.5.11 Right of Use of Airspace (Hak Guna Ruang Angkasa)

The right to use airspace (hak guna-ruang-angkasa) provides its holder with thepower to use the energy and other elements existing in the airspace for theimplementation of efforts at maintaining and developing the productivity of soil,water, and natural resources contained therein and for other purposes related tosuch efforts.22 It too is supposed to be further regulated but no such regulationpresently exists.

1.6 Security of Indonesian Tenures

It was noted above that the basic tenures under English land law can not revert tothe State except in the most limited and rare circumstance that the owner dieswithout leaving a will or heirs. In this regard, common law tenures enjoy theutmost legal security. The tenures are not liable to forfeiture to the State in anyother circumstance; neither on the basis of abandonment nor failure to use the landin accordance with the nature, condition or characteristics of the right. Land may,in principle, be used for any purpose. Use is regulated by laws but none of thoselaws provide that the tenure will be extinguished and the land revert to the Statefor failure to comply with the use laws. Other penalties such as fines andinjunctions by the courts are provided to ensure compliance with planning anduse laws. The existence of the common law tenures does not depend on the use towhich the land is put.

There are no limitations on the amount of land which may be owned and land cannot revert to the State by reason of a transfer of ownership to non-citizens. Controlof ownership by non-citizens is implemented through immigration and capitalinvestment laws in the common law jurisdictions. By contrast, as the followinganalysis demonstrates, Indonesian tenures are use-related and are extinguished ifthe land is not used in accordance with the use for which a right has been granted.This is most evident in relation to the right of exploitation/cultivation, the right to 21 Article 47 Basic Agrarian Law.22 Article 48 Basic Agrarian Law.

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use buildings and the right of use but even the fullest right of ownership may belost to the State through several provisions of the law.

In stark distinction to the legal security of the English common law tenures,Indonesian land tenures are not secure from the legal perspective because of themany ways in which tenures become liable to forfeiture to the State. The extensiveand pervasive State control and intervention in land tenure ownership andallocation mean that the tenures can not be considered as legally secure. Thisanalysis will examine the ways in which Indonesian tenures are subject to Statecontrol, extinguishment and reversion to the State in unique ways. This is thereason why Indonesian tenures are not secure.

Before turning to a detailed examination of the provisions of the Basic AgrarianLaw which result in insecurity, it is instructive to consider the fundamental natureof the land law system introduced by the Basic Agrarian Law because theinsecurity of tenure is closely related to a more general uncertainty whichcharacterises Indonesian land law. This uncertainty has been allowed to prevailfor four decades notwithstanding that the uncertainty which was brought about bythe Basic Agrarian Law could have been addressed or at least substantiallyreduced if governments had taken the opportunity to enact the implementingregulations contemplated by the Basic Agrarian Law.

1.7 The Origins of Legal Uncertainty in Indonesian Land Law.

Prior to the enactment of the Basic Agrarian Law, Indonesian land law wasregulated by numerous colonial Decrees, Ordinances and the Civil Code. TheBasic Agrarian Law, among other things, explicitly revoked the central tenets ofthe colonial land law including:

w the Agrarian Act of 187023;

w all of the regulations establishing State land rights (domeinverklaring)24;

w the agrarian property right (agrarische eigendom) contained in Royal Decree of1872; and

23 Agrarische Wet (S. 1870-55), Article 51 of the Act on the Polity of the Nederlands 1925 (Wet opStaatsinrichting van Nederlands Indie).24 Agrarian Decree (Domeianverklaring in Agrarisch Besluit) (State Gazette 1870 No 118) and Declarations ofState Property for Sumatera 1874, Manado 1877 and South and East Borneo 1888.

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w most of Book II of the Civil Code (only the provisions on hypothek (mortgage)were expressly retained).25

In addition to the express revocations, other regulations were implicitly revoked.Article 58 provides that the old regulations which are not expressly revokedcontinue to be in force but only so long as they are not contrary to the spirit of theBasic Agrarian Law. An example of a colonial regulation which is considered tocontrary to the spirit of the Basic Agrarian Law is the Prohibition on LandAlienation according to which indigenous Indonesians were forbidden to alienateadat land to non-indigenous Indonesians. Being based on the colonial racialcategorisation of the population rather than the concept of nationality contained inthe Basic Agrarian Law and being also based on the colonial land law’s distinctionbetween Western and Indonesian rights on land which was abolished by that law,the Prohibition on Land Alienation Ordinance is to be considered to be contrary tothe spirit of the Basic Agrarian Law and therefore revoked.

As is apparent from Article 58, not all of the colonial legislation was repealed bythe Basic Agrarian Law . The problem created by Article 58 is that there were vastnumbers of regulations promulgated by the colonial State and it is difficult todetermine with certainty which have been invalidated by the Article and whichones continue to be in force. The compilation of the list of colonial regulationswould be an enormous task in itself let alone determining which are contrary tothe spirit of the Basic Agrarian Law. There is no legal mechanism or authority todetermine a complete compendium of the colonial land laws. Nor has anyauthority been constituted to determine whether and why they are contrary to theBasic Agrarian Law.

Thus, the first major source of uncertainty in Indonesian land law arises.

1.8 The Abolition of the Colonial Dualistic Land Law and the Unification ofIndonesian Land Law – More Legal Uncertainty

Apart from the revocation of the basic principles of the colonial land law, the mostfundamental change effected by the Basic Agrarian Law was the abolition of thedualistic system in which Western rights on land were governed by the writtencolonial law and Indonesian rights based upon adat law. With the enactment of theBasic Agrarian Law, all Western as well as indigenous adat rights were convertedinto a single system of new rights based on adat law. But it is not the original adat 25 These provisions of the Civil Code concerning credietverband (State Gazettes No 540 of 1908, No 586 of1901 and 584 of 1909) and the provisions concerning hypothec in Book II of the Indonesian Civil Code in so faras the exertion of security titles to rights on land and land-related objects were revoked in 1996 with theenactment of the Law No 4 of 1996 Re Security Rights on Land and Land -Related Objects Article 29.

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law of Indonesia but an adat law which was radically altered by the principles ofthe Basic Agrarian Law. Not all of the colonial law was revoked by the BasicAgrarian Law. The provisions of Book II of the Indonesian Civil Code regulatingmortgages were expressly retained pending the enactment of the mortgagelegislation.

With the revocation of Book II of the Civil Code, rights which were formerlyregulated by written law became governed by the unwritten adat law or, wherethey were formally converted to the statutory rights in the Basic Agrarian Law,subject to the non-specific and incomplete provisions of those rights. The legalcertainty achieved by the written Code disappeared and was replaced by theuncertainty of a system of unwritten and incomplete adat law.

The drafters of the Basic Agrarian Law realised that further positive law wasnecessary to augment the new land law system and provided in the Basic AgrarianLaw that the creation and transfer of rights according to adat law were to be thesubject of further implementing regulations. But 40 years after the enactment ofthe Basic Agrarian Law, these critically important implementing regulations stilldo not exist. The continuing failure to enact the implementing regulationsmandated by the Basic Agrarian Law concerning the creation and transfer of adatland rights means that a second major source of legal uncertainty prevails. Howand, indeed, whether new rights on land can come into existence in accordancewith adat law and if, they can come into existence according to local adat, howthey may be transferred remain unclear questions. This uncertainty iscompounded by the very nature of adat law as an unwritten law and the fact thatthere has never been an attempt made to codify ascertainable adat principles andrules concerning land.

The introduction of the Basic Agrarian Law and its declaration of adat law as thebasis of all rights in land, water and air meant that uncertainty was bound tofollow; a peculiar outcome considering the repeated and express emphasis in thebasic purposes of the Basic Agrarian Law of the abolition of legal insecurity andits replacement by legal security. The uncertainty which was intended to beaddressed was the uncertainty of the land rights of the indigenous populationunder colonial law according to which all land in respect of which it could not beestablished that there existed eigendom (the Dutch right of ownership) was Stateland. But in doing so, the legislature of the independent State of Indonesiasubstituted one kind of insecurity for another “in the hope eventually doing awaywith legal insecurity altogether”.26

26 Gautama S. Indonesian Business Law 1995 Bandung PT Citra Aditya Bakti at page 151.

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It is to be further noted that not all of the rights proclaimed by Basic Agrarian Lawwere known in the adat law.27 Hak guna usaha and hak guna bangunan bearremarkable similarity to the Dutch colonial rights of erfpacht and opstal. Theelucidation of Article 16 states that “hak guna usaha (the right to cultivate) and hakguna bangunan (the right of use of structures) have been created to respond to theneeds of modern society in the current era.”

Hak tanggungan is also unknown in adat law. The institution of hak gadai was usedfor the purposes of securing loans but it involved a transfer of the ownership ofthe land.28

Furthermore, some adat rights have no corresponding statutory right; for examplehak terdahulu (the right of pre-emption) and hak menikmati (right of enjoyment – aright to cultivate granted to outsiders which terminates upon harvest).29

In view of all of the foregoing, it is impossible to maintain that adat is either thepractical or philosophical basis of the Basic Agrarian Law. The articulation of adatas the basis of the national land law turns out to be mere rhetoric which is notsubstantiated by the Basic Agrarian Law itself or its implementation.

1.9 Insecurity through Failure to Enact Implementing Regulations of theBasic Agrarian Law

Acknowledging the insecurity which was inevitably to follow with the enactmentof the Basic Agrarian Law which was not a complete system of land law but a setof fundamental propositions and principles, numerous implementing regulationswere anticipated. This was also an acknowledgment that adat itself was notsufficient to full in the details of the new rights on land.

Pending the promulgation of such implementing regulations, a period ofadditional uncertainty was also inescapable. Incredibly, this uncertainty hasendured for nearly forty years. Many significant implementing provisions of theBasic Agrarian Law are yet to be enacted including the following:

w the government regulation on the creation of the right of ownership accordingto adat law as specified in Article 22;

27 Also per interview with Mr Herman Soesangobeng ILAP Socio-Economic Adviser ILAP and former NationalLand Law Adviser 22 September 1999.28 Per Reinhart A National Land Law Adviser interview 16 December 1999.29 Per Ter Haar B Asas-Asas dan Susunan Hukum Adat trans. Soebakti Poesponoto 1960 Eleventh Printing atpp. 69-70.

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w the government regulation on transactions according to adat law intended totransfer the right of ownership mandated in Article 26(1);

w the law concerning further provisions on the right of ownership mandated inArticle 50(1);

w the imposition of areal limitations on non-agricultural land in accordance withArticle 17;

w the government regulation on the right to clear land referred to in Article 46(1);

w the government regulation on the right to collect forest products referred to inArticle 46(1);

w the government regulation on the right to use water referred to in Article 47(2);

w the government regulation on the right to cultivate and catch fish referred to inArticle 47(2);

w the regulation of the right on the use of airspace in accordance with Article 48;

w the legislation on the right of lease of land for structures specified in Article50(2); and

w the abolition of temporary rights in accordance with Article 53.

Article 50(2) also states that further regulations concerning the rights ofexploitation, right of building, right of use and right of lease shall be regulated byway of legislation. This regulation, Government Regulation Re Hak Guna Usaha,Hak Guna Bangunan and Hak Pakai was not enacted until 36 years after theenactment of the Basic Agrarian Law. The Act specified in Article 51 on haktanggungan (security right) also took 36 years to appear.

1.10 The Reinforcement of Uncertainty- Further Modification of Adat LandLaw

While uncertainty arises from the provisions of the Basic Agrarian Law discussedabove, uncertainty was further compounded by the provision that while the newagrarian law is adat law, that is only to be so as long as it was not contrary to:

1. the interests of the State and nation based on national unity;

2. Indonesian socialism;

3. the provisions of the Basic Agrarian Law itself or other prevailing legislation;or

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4. stipulations based on religious law.30

These qualifications have never been elaborated to establish just what parts of theadat law are rendered invalid by the provisions of the Basic Agrarian Law. Part ofthis difficulty is the problem of ascertaining exactly what the adat rules themselvesare. That has never been attempted in a systematic and thorough way.

When the Bill for the Basic Agrarian Law was introduced, the Minister stated that,“in this bill…adat law is the main foundation because only that foundation is inaccordance with the identity of the Indonesian nation. We also realise, however,that the adat law which we now know is really the result of development whichhas been influenced by colonial politics so that it reality, there are several aspectsof that adat law which have quietly benefited certain small groups in the adatcommunity itself and created contradictions in our midst which are not inaccordance with the basic goals of the struggle of the Indonesian nation. For thatreason, then, the adat law which is the foundation of this Basic Agrarian Law is notthat which has been made decrepit and inoperable by colonial politics but an adatlaw which is based on gotong-royong, which has the potential for developmentwhich is consistent with the principles of religious law and modified to thedemands of the future”.

There follows an analysis of the principles to which adat is made subject to by theBasic Agrarian Law.

1.11 Conflicts between Adat Law and the Basic Agrarian Law

The potential conflicts between adat law and the principles mentioned in the BasicAgrarian Law are not comprehensively articulated in the elucidation. Theelucidation merely states that “since most Indonesian people adhere to adat law,the new agrarian law will also be based on the provisions of adat law…improvedand adjusted to the interests of the people of a modern nation state which connectsthe international community as well as to Indonesian socialism.”31 Thus, contraryto the unqualified assertions made by some observers that adat law in the basis ofIndonesian agrarian law, in fact, “the Basic Agrarian Law creates its own uniquehybrid system which is perhaps as different from traditional adat law as it is fromWestern law.”32

30 Article 5 of the Basic Agrarian Law .31 Elucidation Part II (1).32 Gautama op. cit. page 154.

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1. Adat Law Subjugated to the National Interests of the State based on NationalUnity

Perhaps the most controversial illustration of this principle is in regard to hakulayat. Hak ulayat is the historical and philosophical cradle of adat land rights andyet even it is subjected to the national interest. The problems created for hakulayat by the Basic Agrarian Law are discussed in detail in a Chapter IV.

While the Basic Agrarian Law does away with one type of pluralism, it substitutesanother, even more complex legal plurality. This provision demonstrates afundamental conflict within the Basic Agrarian Law. Adat law is the law of thenumerous traditional social formations which existed throughout Indonesia priorto colonisation. Van Vollenhoven identified 19 so-called “law areas”. In one sense,the existence of the many diverse and independent adat law communitiespredicates legal pluralism.

Legal pluralism predicates the coexistence of different systems of law; somethingwhich is the antithesis of the nation state and its omnipotent and singularpositivist conceptualisation and manifestation of law which tolerates no otherlegal authority other than that which emanates from the State in the form oflegislation enacted by its legislative organs or case law developed by its judicialorgans (as well as a carefully proscribed arena of executive law-making processeswhich have been ordained by the legislature and scrutinised by the judiciary).

The existence of legal pluralism within the unified nation State thereforerepresents a fundamental dilemma.33 This was probably realised by the framers ofthe Basic Agrarian Law when they imposed the far-reaching qualifications on thearticulation of adat law as the basis of the new land law contained in the BasicAgrarian Law. It may also explain the State’s refusal to expressly and properlydeal with the contradictions and problems which were consequential upon theapparent adoption of adat land law as the basis of the land law. It has also beenobserved that the drafters of the Basic Agrarian Law adopted and adaptedadat/ulayat principles in order to enshrine two major objectives which reflected thepolitics of the day – the State as controller (socialism – see below)) and an imposedform of top-down national unity in which legal plurality could not be tolerated.34

33 It is sometimes said that legal pluralism exists in other spheres of Indonesian law; for example, in marriagelaw. But that so-called pluralism is generally limited to private law and not to public law (see also Gautama op.cit. at pp. 1-7). It is not pluralism in the sense of this discussion; that is, a pluralism which grows out of severalsources of legal authority. While different rules apply in family law matters, the authority for all of those rulesemanates from the central state and not from independent sources of legal authority.

34 Evolutionary Change in Indonesian Land Law Traditional Law (Adat) Perspectives Final Report Part C LandAdministration Project at p. 10-2.

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In the first instance, then, the subjection of adat land law to the national interestbased on the unity of the nation means that adat authority must crumble wheneverit came into conflict with the exercise of authority by the central State because theState can not tolerate any other source of legal authority other than its own.Further elucidation of this problem appears in the discussion of hak ulayat inChapter IV. The interrelationship between the legal authority arising from themultitude of traditional social structures and the authority of the central State hasnever been the subject of land law jurisprudence and adds complexity to andconfusion over the state of the land law.

The elimination of the conflicts which arise from attempting to force traditionallegal structures into spheres of operation such as the modern nation state wherethey are dysfunctional - is a compelling reason in itself for the review of the BasicAgrarian Law.

2. Adat Law May not Contradict Indonesian Socialism

Indonesian socialism is mentioned in Article 5 where it states that adat must not becontrary to Indonesian socialism. Article 14 also states that “…the Governmentshall – within the context of Indonesian socialism – devise general plansconcerning the supply, allotment, and use of the soil, water and aerospace…..”.But it is nowhere made clear what Indonesian socialism is. It is certainly not aprescription for the ownership and control of the means of production in theMarxist sense. Marxist theory predicates the destruction of private propertyownership and social ownership of the means of production and that is clearly notcontemplated by the Basic Agrarian Law which permits private land ownershipand has no other real expression of socialism as it was understood in the 1960’snot as it is understood now.

At the same time, the law appears to confer a high degree of State control overland which one would more likely have found in the communist States of thetwentieth century. Perhaps this control, which is further discussed infra, is the realmeaning of Indonesian socialism in the sphere of land affairs. But even thisanalysis does not fully explain the State’s dominance in land affairs because it ismaintained by bureaucrats that the State does not actually own the land butmerely controls it. This fiction allows the State to avoid the problems created bythe assertion of the domain declaration by the colonial state but does not preventthe State from acting as if it were the owner of land when it grants rights on Stateland or assumes control over privately held land when the rights on it expire byreason of the land law and it reverts to State control.

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The failure to clearly articulate what Indonesian socialism is means that furtheruncertainty was implanted into the land law.

The only other guidance on the principle of Indonesian socialism is to be gleanedfrom other provisions in which it is said that the idea of socialism is implicit. Forexample, Article 6 provides that all rights on land have a social function. Landmust not be used only for the benefit of the owner but also in such as way as tobenefit the people. Article 15 states that every land right holder is obliged to takecare of the land, to prevent if from being damaged and to increase its fertility. Theexplanatory memorandum emphasises the importance of maintaining harmonybetween individual interests and general interests “in order to achieve the goals,prosperity, justice, and happiness of the people.”35 But these are not expressionsof socialism but general statements about the nature of land ownership whichcould apply to any system.

According to Gautama36, the principles of Indonesian socialism are most evidentin Article 7 which prohibits excessive land ownership and possession to preventharm to the public interest; Article 10 which obliges land right holders to work theland themselves; and Article 17 which authorised the government to set areallimitations on land ownership. Areal limitation was first introduced prior to theBasic Agrarian Law through Law No 1 of 1958 Re Abolition of Partikelir Landwhich was subsequently confirmed in Government Regulation (in lieu of an Act)No 56 of 1960 concerning the Fixing of Area of Agricultural Land) and Law No 1 of1961 and Government Regulation No 12 of 1961. These limits apply only toagricultural land and not to other land.37 Presumably, where adat law placed nolimits on the quantity of land which may be owned by any particular entity, thatadat law is invalid.

The imposition of areal limits on land ownership is not an expression of theclassical concepts of socialism.

Having regard to the political history and fate of the Indonesian Communist Partyin 1965-1966, it is difficult to understand how any expression of socialism has beenretained in the basic law. Gautama notes that land reform, under the New Orderregime, “was regarded as no longer popular and a program of the leftistinfluence.”38 Consequently, no effective or substantial land redistribution has 35 Part II(4) Elucidation.36 Gautama op. cit. at pp158-159.37 Although there is presently draft legislation to impose limits on the ownership of non–agricultural land aswell.38 Ibid. p. 160.

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been undertaken and so even “Indonesian socialism” as expressed in the BasicAgrarian Law has not been realised in any concrete way. Yet it remains a principleof the Law.

This is even more surprising when regard is had to the contents of the speech bythe Minister for Agrarian Affairs concerning the issue of land reform when heintroduced the bill. The Minister stated in his speech to the House that “landreform can not be separated from the Indonesian National Revolution; a landreform program which has the following purposes:

w to implement a just division of the land resources for the livelihood of farmersalong with the revolutionary structural reformation of land affairs to achievesocial justice;

w to implement the principle of “land for the farmers” so that land will notbecome an object of speculation and exploitation;

w to strengthen and widen the right of ownership of land as the strongest rightfor every Indonesian citizen, for men and women which is individual andinheritable but which also has a social function;

w to end the landlord system and to abolish unlimited land ownership byimplementing maximum and minimum limits for each family with the resultthat the liberal capitalist system over land is gradually eroded away andprotection is given to economically-weak groups; and

w to increase national production and promote intensive cooperative farming inthe form of cooperatives and other gotong royong groups to achieve prosperitywhich is strong and just and accompanied by a system of credit especially forthe farmers.”

After 40 years, more than 80 million Indonesian citizens still live below thepoverty line while incalculable wealth has been accumulated by certain smallgroups of the ruling political and military elite. There is no just division ofresources. Land reform programs which began in the mid-1960’s were abandonedfollowing the elimination of the Communists and there has been no substantialeffort to implement this objective of the Basic Agrarian Law. After a period of self-sufficiency, rice now has to be imported. Cooperatives have not flourished. Thelandlord system has not been abolished and a form of capitalist economicdevelopment (commonly referred to as crony capitalism) flourished under theNew Order government. The rights of the Indonesian people to their land are notstrong but continue to be subject to the control of the State, interference and unjustacquisition by the State and the State’s private sector companions. Conflicts overland constitute an enormous social problem.

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Another expression of socialism is the vast State control over land which isconferred by the Basic Agrarian Law. In the “classical” socialist/communist States,State control extended to every aspect of life in much the same way as theleviathan Indonesian State totally dominated the public and private life of thenation and its citizens during the New Order. The State’s domination in landaffairs has been yet another dimension of such domination.

There seems to be no purpose to the continued articulation of socialism of anykind in the basic land law.

3 (a) Adat Law Subject to other Provisions of the Basic Agrarian Law

An example of possible conflict between adat law and the Basic Agrarian Lawarises from the adat law of the Minangkabau in West Sumatera39 where, throughthe matrilineal system of social organisation, only women inherit and own land.Article 9(2) of the Basic Agrarian Law , however, provides that every Indonesiancitizen, be it male or female, has equal opportunities to acquire a land right and toobtain benefits and yields thereof…”. This is an obvious conflict between adatland law and the Basic Agrarian Law. If the gender-equality provisions of theBasic Agrarian Law were to be enforced over the adat law of the Minangkabaupeople, it would mean the complete breakdown of the Minangkabau socialsystem as it presently exists. The implementation of gender-equality provisions ofthe land law must take account of such problems and can not be enforced in anunqualified way in the Indonesian context. Thus, the provision of the BasicAgrarian Law which recites gender-equality in relation to access to land needs tobe tempered in its application rather than being an unqualified assertion as anuncompromising legal principle.

Adat law also permits the use of land by persons other than the owner through theinstitution of share-cropping.40 Article 53 of the Basic Agrarian Law, however,provides that “the provisional (temporary) rights as meant in Article 16(1)(h)of….hak usaha-bagi-hasil (right of output-sharing endeavour), hak menumpang (rightof transient occupancy), and hak sewa tanah pertanian (right of lease of agriculturalland),….shall be regulated in order to put restrictions on their characteristicswhich contradict this Act while efforts shall be made to nullify the existence ofsuch rights within a short time.”

39 See Benda-Beckmann The Minangkabau of West Sumatera An Anthropological Study.40 See Ter Haar’s detailed description of perjanjian paruh hasil tanam (agreements to share land produce) atpages 102-105 of Asas-Asas dan Susunan Hukum Adat.

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In this regard, it is to be noted that while certain provisions have been imposed onshare-cropping by Law No 2 of 1960 Re Share-cropping Agreements (AgriculturalLand), no efforts have been made to abolish this institution. Indeed, share-cropping is still very widely practised. The failure to abolish share-cropping iscontrary to the provisions of Article 53 of the Basic Agrarian Law. The continuingpractice of share-cropping is also in conflict with the Article 10 of the BasicAgrarian Law which states that owners must work the land themselves.

There seems to be little point in retaining provisions of the Basic Agrarian Lawsuch as Article 53 which directs that efforts be made to abolish legal institutionsrelating to land, such as share-cropping, when, in reality, such institutionscontinue to exist and operate on a significant scale. That is a further ground forreviewing this aspect of the Basic Agrarian Law.

3 (b) Adat Law must not contradict Other Legislation

Article 5 provides that another of the things which adat law must not contradict is“other legislation”. This is also a broad basis upon which adat law may beannulled. An example of other legislation which is contrary to adat land law isGovernment Regulation No 24 of 1997 Re Land Registration.

ILAP is implemented under this regulation which contains the rules which mustbe complied with before a right of ownership is acknowledged by the State andmay therefore be registered. One of the rules in that the present right holder or, thepresent right holder and his/her predecessors, must have been in actualpossession for an uninterrupted period of twenty years before s/he is entitled tobe recorded as the owner.41

This provision seems to be applicable even within areas where hak ulayat still exists. To theextent that this regulation conflicts with adat principles whereby the creation of a hak milik doesnot require 20 years possession and which does not admit successive occupations and uses bypredecessors in possession as a basis for the creation of a hak milik, it is in conflict with the adatlaw because hak milik adat can come into existence after only one or two harvest seasons.42 TheGovernment Regulation No 24 of 1997 has precedence over the adat rules becauseadat may not contradict “other legislation” as prescribed by Article 5. Oneargument which flows from this is that hak milik adat may not come into existence

41 Per Article 24(2) Government Regulation No 24 of 1997 Re Land Registration.42 Ter Haar op. cit. at p. 68.

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in accordance with any rule other than that government regulation and that it indirect conflict with adat being the basis of the land law system.

It is also in open conflict with other provisions of the Basic Agrarian Law which direct thegovernment to enact legislation concerning the creation and transfer of hak milik according toadat. The failure of successive governments to enact the regulation referred to inArticle 22 of the Basic Agrarian Law concerning the creation of the right ofownership according to adat law, together Government Regulation No 24 of 1997Re Land Registration which sets out rules contrary to adat land rules, adat law onthis important aspect has been invalidated. The same analysis applies to the otherrules of evidence mentioned in Article 24 of Government Regulation No 24 of1997.

The other bases upon which a right may be registered are:

w written evidences which establish the existence of the right as at 24 September1960 (the date of enactment of the Basic Agrarian Law) together with writtenevidences of the transfer of the right to the present right holder where the rightholder who owned the right as at that date transferred the right.; or

w a statement by a witness or the party in question “provided that the truth of thestatement..can be evaluated as reliable by the Adjudication Committee”.43

Both of these methods of establishing a right of ownership are not in accordancewith adat land law procedures and, to that extent, they also render the adat landlaw nugatory. Practically no adat system used formal written evidence of the typespecified in the elucidation of Article 24 of Government Regulation No 24 of 1997.The creation of the right of ownership according to adat law is described by TerHaar and it is completely different to the methods in that regulation forestablishing the creation of a right of ownership.

The elucidation of Article 24 of Government Regulation No 24 of 1997 opens withthe words: “Basically, what is meant by evidence of ownership is the evidence ofownership on behalf of the right holder which already existed at the time the BasicAgrarian Law came into effect…”. This implies that no rights of ownership otherthan those which are granted on State land are able to be created after the date ofenactment of the Basic Agrarian Law. That is also in conflict with the continuedoperation of adat land law in accordance with the Basic Agrarian Law. 43 Article 24 Government Regulation No 24 of 1997 and its elucidation.

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To the extent that “other legislation’ has so far rendered the fundamental tenets ofadat land law concerning the creation and transfer of the right of ownership, thisother legislation has left adat law as a dead letter and again demonstrates thatwhat is needed is not a variable unwritten uncertain land law based on adat butone which is positive and comprehensive and founded upon a new basic landlaw.

4. Adat Must Not Contradict Religious Law

It may only be speculated what the practical consequences of this provision are.One possible contradiction arises from the differences in the inheritance rulescontained in Islamic law and adat law; particularly in relation to the distribution ofthe estate between heirs where the heirs include both males and females.Generally, adat law does not make distinctions between the rights of female andmale heirs whereas Islamic law does; with the latter stipulating that male heirsreceive a greater share of the estate that females.

This problem is further complicated by the existence of 5 official religions inIndonesia– Islam, Catholicism, Protestantism, Buddhism and Hinduism. Thearticulation of religious law is an additional confounding factor in theinterpretation and application of the Basic Agrarian Law.

1.12 An Explanation of the Articulation of Adat Law in the Basic AgrarianLaw

With such emasculating provisions of the Basic Agrarian Law which have theeffect of making a myth out of the principle that adat is the basis of Indonesianland law, attention ought to be given to the question why this myth continues inthe legal system and the ideology of the land law.

The endurance of the existing land law is said to be based on its claims to be adat-based. However, rather than having been developed into a clear written land lawsystem since the enactment of the Basic Agrarian Law, the amorphous adat rulesand philosophy have been manipulated as an ideological tool by those in power.This ideology finds expression in the Basic Agrarian Law as well as in itsapologists who argue that since adat can not be understood by outsiders, any onewho is not a member of the culture can not understand or criticise land law.

Because adat is inherently flexible, unwritten and community-based, it enables themodern State to justify what it does in relation to land by referring to “adatprinciples and philosophy” which arose out of small agrarian societies, had the

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implicit consent of the people and the unchallengeable motive of pursuing theirprosperity.”44

Adat principles function perfectly well in their traditional environments. In landlaw, the influence of adat is strong and the result is mystification. By using adatwhich, in its traditional form is based on an oral tradition, is vague and crypticand required interpretation by the adat chiefs, the new State was assured the roleof interpreter of the law to manage its inherent unworkability and lack ofexplicitness. Adat can answer any problem but it can not do so is a systematic way.

In the final analysis, adat can not operate on the national scale because it is theunknowable unwritten way small communities traditionally operate. It can notexplain or justify the activities of a nation state. Adat is not a legal system which isnecessary for the existence of a nation state and outside its sphere of legitimateoperation in the traditional communities, it is not a normative system.45 It is notcapable of addressing the fundamental problems attaching to land affairs inmodern Indonesia.

The conclusion which is compelled from the foregoing is that it is imperative toreview the Basic Agrarian Law from a realistic and practical perspective focussedon the needs which are relevant to this point in the development of Indonesia.

1.13 Why Indonesian Land Tenures are Insecure

According to the Report entitled Indonesian Land Law and Tenures Issues inLand Rights, the tenures which exist under the Basic Agrarian Law are, ascommodity rights, fundamentally flawed.

Legally, the insecurity factors are overwhelming.

Where certainty is most needed in the law governing land rights, it is leastavailable. The discretion of the State to extend, renew or terminate the tenuresmeans that security may only be obtained from extra-legal sources which are“ultimately political or bureaucratic patronage”46 because the rights which existon land do not exist as of right as they ought to but on the non-legal exercise of theState’s executive discretion. Legal security of land tenures is not granted by theland law system. Rather, uncertainty is entrenched by the Basic Agrarian Law. It is 44 Per Indonesian Land Law and Tenures op. cit at page 1-8.45 Ibid.46Final Report Indonesian Land Law and Tenures Issues in Land Rights Indonesian Land AdministrationProject Part C Support for Development of Long-Term Land Management Policies at pp 7-25 - 7-26.

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said that State powers to annul titles are extensive and discretionary. It is thereforeproposed to examine the principle rights on land to determine whether and whythis is the case.

The General Elucidation of the Basic Agrarian Law states that the colonial agrarianlaw did not guarantee legal certainty for the indigenous population and that, inthat regard, there is a need for a new agrarian law which is simple and whichguarantees legal certainty for the whole Indonesian community. The reference tothe guarantee of legal certainty is stated repeatedly throughout the elucidation.However, a closer examination of the fundamental provisions of the BasicAgrarian Law and its implementing laws demonstrate a bewildering degree ofgeneral uncertainty in the land law (as shown above) as well as in its tenures as weshall now see.

1.14 Extinction of Hak Milik – The Basic Agrarian Law

Hak milik (the right of ownership) is described in the Basic Agrarian Law as “thestrongest and fullest right which may be owned by a citizen”. However, it isincontestable as a matter of legal principle that this most basic right of ownershipis not secure from extinguishment and forfeiture to the State in ways which are farbeyond the usual prerogative of the State to acquire private property rights in thepublic interest and upon payment of just compensation.

Article 27 of Basic Agrarian Law provides that the right of ownership is annulled ifthe land is destroyed or the land reverts to the State because of:

w the revocation of the right based on Article 18 (compulsory acquisition in theinterest of the nation and State or the common interest of the community);

w voluntary transfer by its owner;

w the land is abandoned/neglected; and

w the provisions of Articles 21(3) and 26(2) (foreign acquisitions).

Resumption by the State of land ownership is not in principle objectionableprovided that it is implemented with just compensation. No State can be deniedthe power of resumption. In this regard, Article 18 of the Basic Agrarian Lawprovides that rights on land may be annulled in the public interest by thepayment of proper compensation.

Nor is voluntary surrender of rights to the State problematical.

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The abolition of the right if it is transferred or devolves to a foreigner if thatforeigner does not voluntarily transfer it to a citizen is part of the generalprohibition on foreign ownership which is discussed in further detail in ChapterIII.

1.15 Abandonment

The most interesting of the bases upon which hak milik is annulled and reverts tothe State is abandonment (Article 27a.3).

“Abandonment” means not only physical abandonment but also use which is notin accordance with the “conditions or characteristics and purposes of the right”. Bycontrast, under Anglo-Australian law as noted earlier, this can never occur. A feesimple can never be lost to the State by “abandonment” or “use which is not inaccordance with the conditions, characteristics or purposes of the right”.Ownership of the basic tenure in common law jurisdictions is only forfeited to theState if there are no heirs following the death of an owner who fails to leave a will– a circumstance which is extremely rare in any society.

According to the common law, physical abandonment coupled with physicalpossession by another for a specified period of time, land may become theproperty of someone other than the owner where the land is possessed adverselyto an owner by someone else for the necessary period of time and the owner failsto exert his right and seek to evict the adverse possessor. But it will never becomeState land by virtue of abandonment. The process of adverse possession whichresults in the extinguishment of an owner’s title is clearly regulated in the lawwith the circumstances under which it may occur and the necessary time periodsclearly specified. It does not depend in any way at all on the exercise of theexecutive discretion of the State, as the loss of rights by abandonment are manifestin Indonesian land law, and the tenure itself does not become extinct.

Misuse of land is regulated in the common law jurisdictions not through thetenure or land law system but through other regulatory mechanisms such asenvironmental law and planning and use laws; breaches of which do not result inthe extinction of the fee simple but which result in other penalties such as fines orcourt injunction and damages awards.

1.16 Time Period of Abandonment

Perhaps the most remarkable omission from all of the Indonesian legislationconcerning the extinction of rights by abandonment, and one which compoundsthe hazardous nature of Indonesian tenures, is the failure to specify the period of

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time during which abandonment will result in the loss of the right. The lack of aclear time period for the processes of abandonment to operate is another area ofuncertainty in the land law.

Articles 27, 34 and 40 of the Basic Agrarian Law which deal with theextinguishment of the principal rights of hak milik, hak guna usaha and hak gunabangunan and their elucidations do not mention any time period. Nor do theprovisions of the Government Regulation No 40 of 1996 Re Hak Guna Usaha, HakGuna Bangunan and Hak Pakai47 or their elucidations specify any time period (seeinfra).

In the absence of the specification of the period of time during which a right mustbe abandoned in order to result in its extinguishment under the provisions of theBasic Agrarian Law and Government Regulation 40/1996, the only other guidanceis the adat law. But this does not assist because adat does not contain such timeperiods.48

In his seminal work on Indonesian adat law, Ter Haar discusses the effect of timeon rights; particularly rights on land according to adat. According to adat law, thereare no definitive time periods set for the determination of abandonment. A rightmay disappear “when the signs of land use have disappeared and the land isagain covered by forest”. Rights in respect of trees vanish if the marks which havebeen cut into the bark have been recovered by the growing tree bark. Preferentialrights are lost when the prohibitive signs have disappeared. Phrases in locallanguages to denote the time period which is requisite for a right to be lostthrough the effluxion of time include “that the time has happened too long in thepast” and “it has faded because it happened too long in the past”.

According to adat law, rights on land can disappear “because of the abandonmentof the rights for a long time, or new rights created because of the real situationwhich has happened for a long time which situation is in conformity with theimplementation of a certain rights. In adat law, the course of time and what hashappened during the time will always be calculated – after appropriateconsideration has been made; and no calculation is made on the exact number ofyears.

Ter Haar observes that the assumption that limitation has in fact existed in the adatlaw has caused a misunderstanding as if the time of limitation of thirty years or

47 See Articles 17, 35, and 55 of Government Regulation No 40 of 1996.48 Per Herman Soesangobeng interview 16 November 1999.

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ten or five years has been known as a public institution of the Indonesian peoplein a certain legal environment.”49

In the context of a contemporary nation state, such principles do not assist inachieving legal certainty in a concrete way. The application of adat law in amodern city, for example leads only to more uncertainty. On the other hand, anyadoption of set periods of time in State legislation would contort the adatprinciples so as to render them unrecognisable. This again demonstrates theinadequacies of adat law as a basis for a modern land law and the need to moveaway from adat in this area of the law.

What is also unsatisfactory about this aspect of the land law is that thedetermination of whether or not a right has been lost through abandonment is thatthere is no due process. Rather, it is a determination by the executive and withoutjust compensation. The land becomes State land and available for further disposalby the executive without any intervening judicial process. There are no provisionsconcerning appeals for judicial review of the administrative determinations ofland abandonment. Presumably, appeals to the State Administrative Court wouldbe possible but access the courts is impossible for most Indonesians and theindependence of the courts from the executive has been compromised throughoutthe greater part of Indonesian history.

1.17 Government Regulation No 36 of 1998 Re Control and Utilisation ofAbandoned Land

This regulation governs in further detail abandoned land which is the subject ofhak milik, hak guna usaha, hak guna bangunan, hak pakai or hak pengelolaan (the right ofmanagement) as well as abandoned land “the basis for possession of which hasbeen obtained but a right on which has not been obtained in accordance with theapplicable legal provisions”.50 It implements the provisions of the Basic AgrarianLaw referred to above which establish the principle of the loss of rights on land byabandonment and the reversion of the land to the State. This regulationdemonstrates the unusual degree of control over land by the State and is anothersource of fundamental insecurity of tenure of rights on land in Indonesia.

49 Per Ter Haar Asas-Asas dan Susunan Hukum Adat trans. K. Ng. Soebakti Poesponoto Pradnya ParamitaJakarta 1994. in Chapter 12 The Influence of the Passage of Time.50 This latter class of land seems to include land in respect of which an izin lokasi has been granted and theland has been acquired from the previous right holders but in respect of which the izin lokasi holder has notsought the grant of the necessary right.

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There follows an overview of the main provisions of the regulation. Aspects of theregulation which appear to be problematical or which expand the degree ofcontrol beyond that which is granted to the State by the Basic Agrarian Law will beincluded in this overview. Those latter provisions are beyond power andexemplify not only the expansion of the State’s control but also a disregard for therule of law as contained in the Basic Agrarian Law itself which is apparent in otheraspects as well (such as failure to enact implementing provisions concerning thecreation of hak milik in accordance with adat land law, the failure to enactimplementing provisions concerning the transfer of adat rights and the failure toabolish share-cropping).

It is instructive to note, firstly, that while express articles of the Basic Agrarian Lawprovide that hak milik, hak guna usaha, and hak guna bangunan are cancelled and theland reverts to State land by abandonment (Article 27.a.3 (hak milik), Article 34.e(hak guna usaha), and Article 40.e (hak guna bangunan))51, there is no expressprovision in the Basic Agrarian Law for hak pakai to be cancelled on this basis. Thatprovision only exists in this regulation and therefore appears to be contrary to theArticle 18 of the Basic Agrarian Law which states that rights can only be annulledby an Act. Even so, hak pakai is included along with hak milik, hak guna usaha, andhak guna bangunan in Article 3 which sets the criteria for determining when suchrights are annulled under the principle of abandonment.

Article 3 provides that land parcels with the status of those rights can be declaredas abandoned land where the land is “wilfully52 not used by the right holder…inline with its condition or with the nature and purposes of the right in question or ifit not properly taken care of. The precise meaning of the words “condition…ornature and purposes of the right” are not explicitly defined. Ordinarily, onewould expect to find definitions of these critical words in the legislation and theomission of clear definitions further opens the door of executive discretion. Thisleads to more uncertainty.

The addition of the words “or it not properly taken care of” takes this provisionbeyond the Basic Agrarian Law in which the elucidation only states that the land is

51 See Government Regulation No 40 of 1996 Re Hak Guna Usaha, Hak Guna Bangunan and Hak Pakai Articles17(1).e (hak guna usaha), Article 35(1).e (hak guna bangunan) and Article 55(1).e (hak pakai)52 The land will not be deemed to be wilfully not used if the non-use is due to the economic circumstances ofthe right holder in which case the Head of the Land Office shall “supervise” the right holder to help him use it(Article 11) What supervision means is not clear. The “wilful non-use” criterion will also not apply where theland has been sequestered in the course of a dispute (per Elucidation of Article 11).

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abandoned if it is wilfully not used in accordance with its condition or with thenature and purposes of the right. The additional words are not a mere elaborationof the previous phrases but purport to give an additional ground upon which theland can be considered to be abandoned. This is also inconsistent with Article 18of the Basic Agrarian Law to the extent that it purports to result in the extinction ofa right pursuant to a law-making instrument which is not an Act.

Article 4 provides an additional basis upon which the rights can be treated asabandoned in the case where land which is not intended to be subdivided is “notused in accordance with its allotment as determined in the Spatial Use Plan whichwas applicable at the time of the use of the land in question or the physicaldevelopment of the land in question started.” Similar objections to this provisionas beyond power may also be raised because this ground does not appear in theBasic Agrarian Law. Moreover, spatial use plans may be reviewed and changedfrom time to time and so the opportunity is opened by this provision for thegovernment to introduce new bases upon which rights may be lost throughabandonment.

Article 5 states another ground upon which land with the status of hak guna usahacan be declared as abandoned; viz. where the land is not being cultivated inaccordance with the criteria concerning proper cultivation of agricultural land asstipulated in the applicable regulations.

Similarly, Article 6 provides that land with the status of hak guna bangunan or hakpakai which is meant to be subdivided….within the context of its utilisation…canbe declared as abandoned if it has not been subdivided for developmentpurposes. As a matter of principle, that private property rights might beextinguished merely because no subdivision is effected after approval from thesubdivision authorities has been given is an extraordinary result. Practically, itraises extra legal risks for developers which compound the market risksassociated with land development.

1.18 Procedure for Controlling and Utilising Abandoned Land

As noted above, further uncertainty arises from the lack of a clear time period inthe legislation during which a parcel of land must be abandoned before it can bedeclared “abandoned”53. This depends on executive determination and thediscretion is given to the Minister. So while Article 9(4) states that for identification

53 See also discussion of this issue supra .

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of abandoned land, it is necessary to take into consideration the time lapsebetween the time of the acquisition of the right and the time of the identificationprocess which is regarded as reasonable for the identification process to proceedfurther, paragraph (5) states that the time lapse shall be determined by theMinister. As at the date of writing, this time period has not yet been specified.54

This again confers wide powers on the executive government which compoundstate control and injects further uncertainty into the land tenure system.

Article 9(1) assigns this activity to the Land Office “either on its own initiative orupon order of the Minister or the Head of the Provincial Office or on the basis of areport from another government institution or from the people”. The Minister isdirected to establish an Assessment Team with the Head of the Land Office as itsleader and with representatives from the institutions related to the use of the landparcel in question as its members. The Team is therefore entirely comprised ofmembers of the administrative agencies of the government; none of which can beconsidered to be independent.

Once the determination is made that the land has been abandoned, a series ofadministrative warnings is issued that the right holder must, within a certainperiod, start to use the land in line with its condition or with the nature andpurposes of the granting of the right.

The administrative warnings, of which there are three, give the right holder aperiod of one year in each warning to utilise the land in accordance with itscondition or the nature and purposes of the right or to take proper care of it.55 Ifthe right holder fails to respond in the necessary way to the third warning, theHead of the Provincial Land Office makes a proposal to the Minister that the landbe declared as abandoned.56

Article 14 then allows the Minister to make the declaration but before doing somust provide the right holder with an opportunity to transfer the land throughpublic auction within three months. If that does not happen, Article 15 thenconfirms that a land parcel which has been declared as abandoned shall becomeland which is directly controlled by the State.

54 Per Mr Anton Reinhart, National Land Law Adviser Interview 23 November 1999.55 Article 12.56 Article 13(4).

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1.19 Compensation for Extinction of Rights on Abandoned Land

Article 15 provides that a right holder shall be paid compensation but thecompensation is only equivalent to the price which, on the basis of the relevantevidence available, the party paid when it acquired the right. Whereimprovements have been made, the amount of money which has been spent by theright holder on “physical infrastructure or structures” shall be counted indetermining the compensation. The compensation must be paid by the partywhich the Minister declares as the new right holder of the right on the land parcelin question57.

The elucidation of Article 15(2) states that “any escalation has to be determinedusing normal calculations but that “it must be kept in mind that the calculation ofcompensation is intended to serve as a sanction”; as if the loss of the right and theintervention of the State were not sufficient sanctions in themselves! Thecompensation scheme established by this regulation in relation to abandoned landcan not be described as just compensation. It is explicitly articulated as intendedto be punitive. There is no independent valuation. There is no clear articulation ofthe factor of value appreciation or of the extra value added by the improvementsto the land which usually exceeds the actual cost of the improvements.

The elucidation of Article 15(1) states another coercive action by the State: “Theformer land-right holder..is no longer entitled to use it and must surrender it tothe party who has been designated by the Minister as the new right-holder.” Thisextraordinary provision entails another wide and powerful discretion in theexecutive agent of the State which should properly be exercised by the judiciary.The extinguishment of legal rights, particularly property rights, in democraticsocieties, is generally assigned to the judiciary which is independent of theexecutive law enforcement and administration agencies of the State.

Article 11 provides that where the results of the identification show that the landparcel in question is owned by an individual who is not capable of using it in linewith its condition, nature and purposes, because of economic constraints, theHead of the Land Office shall propose that the individual be given somesupervision to help him utilise the land parcel in the land in question. This is thebasis of another administrative discretion to determine whether a person is

57 Article 15(1), (2).

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incapable because of economic constraints. “Economically incapable” appears inthe elucidation but there is no elaboration on the meaning of this important term.

There are no provisions in the legislation in relation to appeals from thedeterminations of the Assessment Committee or the Minister’s decision so it canonly be assumed that the right holder may, if he can, pursue his remedies throughthe State Administrative Court. Having regard to the condition of the Indonesianjudiciary, the judicial system and the inaccessibility to the courts by the people, itis highly unlikely that there would be an independent judicial review adverse tothe executive’s decisions.

The conclusion from the foregoing examination of this law is that the uncertaintyprinciple in Indonesian land tenures is further entrenched and significantlyelaborated by this government regulation.

1.20 Loss of Hak Milik and Reversion to State Control under other Laws

There are other provisions of the land law which extinguish hak milik and cause theland to revert to the control of the State. Two regulations are of particularnotoriety. They are ministerial regulations which purport to implement some ofthe conversion provisions of the Basic Agrarian Law; Regulation of the Ministerfor Agrarian Affairs No 2 of 1960 Re The Implementation of Some of the Provisionsof the Basic Agrarian Law and Regulation of the Minister for Agrarian Affairs No 2of 1962 Re Confirmation of Conversion and Registration of former IndonesianRights on Land.

1.21 Regulation of the Minister for Agrarian Affairs No 2 of 1960 Re TheImplementation of Some Provisions of the Basic Agrarian Law

This regulation deals with the rights on land which existed under the colonial landlaws.58 Under this regulation, land owned under colonial legislation reverted tothe State for failure to comply with the provisions of this regulation. Indonesiancitizens who had only Indonesian citizenship as at 24 September 1960 whopossessed land with the Dutch right of ownership (hak eigendom) were obliged,within 6 months of that date to attend the Land Office and give clarification abouttheir citizenship. If the owner did not so attend or did attend but was unable to

58 Namely, hak eigendom, hak opstal and erfpacht, hak gebruik and vruchtgebruik , hak agrarischeeigendom, hak gogolan, pekulen or sanggan, hak concessie and sewa and “other rights”.

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prove citizenship, then the hak eigendom was automatically converted into a hakguna bangunan with a period of twenty years.59

Similar provisions applied to religious and social organisations,60 and hak eigendomowned collectively by persons or corporate bodies. Although the regulation doesnot expressly say so, the land, at the end of the term of the hak guna bangunan, fallsback to the State.

This regulation is still in force.61

1.22 Regulation of the Minister for Agrarian Affairs No 2 of 1962 ReConfirmation of Conversion and Registration of former IndonesianRights on Land

Until its repeal by Regulation of the Minister for Agrarian Affairs No 3 of 1997, hakmilik could also be lost and the land revert to the State by the operation ofRegulation of the Minister for Agrarian Affairs No 2 of 1962 merely because theholder failed to seek registration of the right.

Article 4 of this regulation provided that where there was a transaction with a righton land, then an application for confirmation of conversion and registration had tobe submitted through the relevant land deed official to the head of the LandRegistration Office together with the deed which evidences the transaction. If thetransaction occurred through an auction, then the application had to be submittedthrough the Head of the Auction Office.

Article 8 then provided that “in the case where a legal action as meant in Article 4takes place in an area in which the implementation of Government Regulation No10 of 1961 has started and no application for confirmation of conversion in madefor the legal action in line with the provisions contained in this regulation, theright in question shall be regarded as a hak pakai having a validity of at most 5years following the enactment of the Basic Agrarian Law, upon expiry of which theland parcel in question shall become state land”.

While the validity of this regulation is questionable having regard to Article 18 ofthe Basic Agrarian Law which provides that rights on land may only be annulled“in the public interests, including the interests of the Nation and State as well as 59 Articles 1-4 of PMA No 2 of 1960.60 Article 6 PMA 2 of 1960.61 It was not repealed by PMNA3/1997. Confirmed in interview with Mr A Reinhart National Land Law Adviseron 30 November 1999.

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the common interests of the people….with due compensation and according to aprocedure laid down by Act”, it will never be known how many of the people’s rightswere considered and treated as extinguished by the administration during itsoperation. One may reasonably assume that it was not a few.

1.23 State Control of other Land Under the Conversion Provisions of theBasic Agrarian Law

Control of other lands was also assumed by the Indonesian State either assuccessor to the colonial State or as the successor to rights owned by non-indigenous entities. This included land which was the subject of hak erfpacht for thelarge-scale plantation companies which was converted to a hak guna usaha with aduration not exceeding 20 years. Hak erfpacht was the most complete right underthe Civil Code which could be acquired in someone else’s land and was like fullownership except for its reversion after a period of years.

It was pursuant to the erfpacht regulations that the colonial state granted suchrights of 75 years to private foreign entrepreneurs in total disregard of the rights ofthe indigenous owners of the land. Just as the Dutch ignored the rights of theindigenous people in such circumstances, the new State, instead of returning theland to its original indigenous owners, assumed control of it under theseconversion provisions. Where the owners of underlying rights of ownership fromwhich these lesser rights derived were not Indonesian citizens, any ownershiprights which they had before the enactment of the Basic Agrarian Law wereinvalidated. The same observations apply to hak erfpacht and hak opstal in thefollowing paragraph.

Hak erfpacht for small-scale agricultural undertakings was cancelled upon theenactment of the Basic Agrarian Law which meant that such lands immediatelybecame State lands.62 Concession and lease rights for large scale plantations wereconverted to hak guna usaha with a period not exceeding 5 years.63 Hak opstal 64orhak erfpacht for residential complexes were converted into hak guna bangunan witha term not exceeding 20 years. Again, upon the expiry of such rights, the landreverted to the State instead of to the original owners or their heirs.

62 Article III of the Conversion Provisions of the Basic Agrarian Law.63 Article IV of the Conversion Provisions.64 Hak opstal was the right to build and possess buildings on someone else’s land.

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1.24 More Uncertainty for Hak milik

Article 22 of the Basic Agrarian Law provides that the creation of hak milikaccording to adat law shall be regulated by Government Regulation. Theelucidation states that an example of the way in which hak milik is createdaccording to adat law is “pembukaan tanah” (the clearing of land)65. The methods ofcreation of the right shall be regulated so that there will not arise matters whichare detrimental to the interests of the state or the public.

After 40 years, the government regulation still does not exist leaving a vacuum asfar as the creation of hak milik according to adat law is concerned.

Article 50(1) provides that further provisions about hak milik shall be shall beregulated in an Act and Article 50(2) provides that further provisions about hakguna usaha, hak guna bangunan, hak pakai and hak sewa untuk bangunan shall beregulated in further legislation. While there has been a recent governmentregulation on hak guna usaha, hak guna bangunan and hak pakai66, there is yet nofurther provision on hak milik or hak sewa; again resulting in a legal vacuum andfurther uncertainty in relation to these rights.

While Article 56 provides that “as long as the Act about hak milik referred to inArticle 50(1) is not enacted, then the provisions of the local adat law and otherprovisions about rights on land which confer authority as or similar to the thatreferred to in Article 20 (hak milik) apply as long as they are not in conflict with theprovisions of this Act”, whether or not a particular adat law right on land is inconflict with the provisions of the Basic Agrarian Law can not be known unlessthere is an authoritative and comprehensive examination of the relevant adat landlaw which in turn must be itself be established followed by a comparison with theprovisions of the Basic Agrarian Law to determine any conflict and so the result isstill uncertainty.

1.25 Hak Milik on State Land

To acquire a hak milik on State land, an application must be made to the NationalLand Agency in accordance with Regulation of the Minister of Home Affairs No 5of 1975 Re Granting of Rights on State Land. The application must containinformation on, among other things, the evidential documents (if any) showing thestatus of the land before it became State land, and be accompanied by the fee(entry money). 65 This contradicts the elucidation of the pembukaan tanah right referred to in Article 16of the Basic AgrarianLaw which states that the clearing of land does not result in a right of ownership.66 Peraturan Pemerintah No 40 Tahun 1996 Re Hak Guna Usaha, Hak Guna Bangunan and Hak Pakai

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If the application is refused by the authorised official, then an appeal can be madeto the Minister. Ultimately, therefore, everything depends on the exercise of theadministrative discretion of the State. Even then if a grant of hak milik is made itwill revert to the State for abandonment which includes not just physicalabandonment but also use which is not in accordance with its character andpurpose discussed earlier. In addition, a right-granting decree will also becancelled for the reasons discussed below.

1.26 Cancellation of Decree Granting Hak Milik on State Land

If a decree granting the hak milik is granted, it specifies several obligations whichmust be fulfilled by the grantee67. The decree states that “all consequences,expenses, debts and damages which arise from the granting of this right, as well asall actions for the possession of the land are the total responsibility of the granteeof the right”. This is so even though the State receives substantial fees for thegranting of the right and acts as if it were the actual owner of the land by grantinga right on it. The grantee must pay the State land “entrance fee” and theregistration fees68. Boundary marks must be installed and maintained by thegrantee in accordance with the relevant regulation.69

The land must be used and put to good use in accordance with its allotment andnature as well as the purpose for which the grant was made. Tax for theacquisition of rights on land and buildings70 must be made at the latest within 9months from the date of the grant.

Failure to fulfil any of the obligations set out in the right-granting decree willresult in its cancellation whereupon the land will fall back into the control of theState. The decree will also be “revised as necessary” if it is subsequentlyestablished that there is a mistake or error in the determination.71

67 See Surat Edaran Menteri Agraria/Kepala BPN No 500-2165-DIII 27 Mei 1999 Tentang Penyeragaman Bentukdan Naskah SK Pemberian Hak dan Pemberian Perpanjangan Hak Atas Tanah Dicta Three and Four ofAnnexure 1.68 The right is deemed to come into existence as from the date of registration at the Land Office Dictum 5 ofSEMA 500-2165-DIII Annexure 1 op. cit. supra.69 Formerly, PMA No 7 of 1961 Re Land Registration Administration now PMNA No 3 of 1997 Re Provisionsfor the Implementation of Government Regulation No 3 of 1997 Re Land Registration.70 Undang-Undang No 21 of 1997 Re Bea Perolehan Hak Atas Tanah dan Bangunan.71 Dicta 6, 7 and 8 SEMA 500-2165-DIII op cit supra.

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It is not clear what happens in this regard where the land has been transferred to athird party and the failure of the law to deal with this question is alsoproblematical.

1.27 Cancellation of Hak Guna Usaha, Hak Guna Bangunan and Hak Pakai

1.27.1 Hak Guna Usaha

Government Regulation No 40 of 1996 reiterates the nature of hak guna usaha. It isa right which may only be granted by the State on State land and is limited in time.Extensions and renewals are dependent on the exercise of discretion by the Statethrough the National Land Agency. Article 3 of that Regulation imposesrestrictions on the area of land which may be the subject of the right. Theminimum area is 5 hectares. The maximum which can be granted to an individualis 25 hectares while the maximum which may be granted to a body corporate isentirely at the Minister’s discretion “with due observance of the considerations ofthe competent official in the business sector concerned bearing in mind the extentrequired for the implementation of the most efficient enterprise in the sectorconcerned”. Conditions may be imposed72 which, if not complied with, result inthe forfeiture of the right so that the land reverts to unencumbered State land73.Extensions and renewals are dependent on the further conditions the land is“exploited properly in accordance with the conditions, nature and objective of thegranting of the right”74. The right holder is obliged to:

w conduct an enterprise in agriculture, plantation, fishery and/or livestockbreeding in accordance with the conditions as stipulated in the decree grantingthe right;

w use the right himself “properly in accordance with the business feasibilitybased on the criteria stipulated by the technical agency”75;

w develop and maintain the existing environmental infrastructures and landfacilities in the environment of the right;

72 Article 6(2) Peraturan Pemerintah No 40 Tahun 1996 Re Hak Guna Usaha, Hak Guna Bangunan and HakPakai.73 Article 17 PP40/1996.74 Articles 8 and 9 PP40/1996.75 Article 12(1) oPP40/1996.

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w maintain the fertility of the land and prevent the destruction of the naturalresources and safeguard the preservation of the environmental capabilities inaccordance with the applicable regulations; and

w not delegate the exploitation of the land to another party except in cases whereit is allowed in accordance with the applicable regulations. 76

The right may be encumbered with the security right but the security right is voidif the right is terminated for failure to comply with any of conditions77 whichleaves the security right holder in a rather vulnerable position.

If the right is void for failure to meet any of those conditions and is not extendedor renewed, the former holder must, at his own expense demolish the buildingsand objects on the land and surrender the land and plants existing on it to theState.78

Some of the provisions of this regulation seem to rely on Article 28(2) of the BasicAgrarian Law which provides that, where the area of land granted with a hak gunausaha is 25 hectares or more, then it is granted on the condition that “adequateinvestment shall be made and good corporate management techniques shall beadopted, as appropriate, given the current developments in time”. These arerather vague criteria and may change from time to time.

The conduct of a business on land with a right which is subject to such discretionsof the State and potential forfeiture adds considerably to the business risks.

1.27.2 Hak Guna Bangunan

Similar provisions apply to hak guna bangunan.79 The holder of a hak guna bangunan“is entitled to control or use the land “for a certain period” or erect or have abuilding for private purposes or for their business”80. The holder of the right must:

w use the land in accordance with the designation there of and the conditionsstipulated in the decree or agreement on the granting of the right;

76 Article 12(2) PP40/1996.77 Article 15 PP40/1996.78 Article 18 PP40/1996.79 Articles 19 – 38 PP40/1996.80 Article 31 PP40/1996.

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w properly maintain the land and the buildings and ensure environmentalconservation; and

w resurrender the land…to the State (or the hak milik/hak pengelolaan holder if theright has been granted under such rights) after the hak guna bangunan hasbecome void.

The right will be invalidated if the holder has not met these obligations.81

The use of hak guna bangunan for residential or business purposes is alsoproblematical and does not assist in the achievement of incentives for long-terminvestment and sustainable land use. The expectation that a holder of such alimited right to invest a lifetime of savings or capital into land, the right overwhich is both limited in time and subject to the peculiar conditions noted above,defies both economic equity and logic.

The right holder can not be secure in the reality that the efforts of a lifetime ofstruggle or enterprise which are more often than not in the form of real propertywill benefit his/her descendant generations. The nature of these rights,particularly when they exist on State land, also opens opportunities for officialcorruption as right holders must return to the State and seek the extension orrenewal of their right. Extensions or renewals can only be made once and aresubject to the discretion of the “authorised official”. The right does not existperpetually or “as of right” as such a right ought.82

Some attempts have been made by the State to facilitate the transformation of hakguna bangunan which has been granted for residential purposes (but not forbusiness purposes) into a hak milik but only for the limited classes of:

w simple and very simple houses (up to a value of approx. US$4500);

w houses purchased by public servants from the government; and

w land which has been granted with a hak guna bangunan or hak pakai forresidential purposes owned by Indonesian citizens the area of which is 600 m2or less. 83

81 Article 35 PP40/1996.

82 The same problems exist in relation to hak pakai. See Articles 39-58 PP40/1996.83 KMNA No 9 Th 1997, No 15 Th 1997 No 1 Th 1998 Tentang Pemberian Hak milik Atas Tanah Untuk RumahSangat Sederhana dan Rumah Sederhana; KMNA No 2 Th 1998 Tentang Pemberian Hak milik Atas TanahUntuk Rumah Tinggal Yang Telah Dibeli oleh Pegawai Negeri dari Pemerintah dan Instruksi Menteri NegaraAgraria No 4 Tahun 1998 Tentang Percepatan Pelayanan Pendaftaran Hak milik Atas Tanah Untuk Rumah

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These efforts are merely in the form of administrative law-making instrumentswhich may be withdrawn at any time by the Minister and do not address thefundamental problems described above. Application must still be made to theland registration authority and the usual fees paid.84

Fees for the granting of the rights on State land are also at the discretion of theMinister for Agrarian Affairs and the Minister for Finance85. Where the rights areterminated for failure to comply with the conditions, the fees which have beenpaid for the right are also forfeited to the State and are not refundable.86

1.27.3 Hak Pakai

Hak pakai is governed by similar provisions.87

1.28 Conclusion Re Government Regulation No 40 of 1996

The main conclusion which is compelled by the foregoing analysis of theIndonesian rights on land is that they are uniquely structured and involve a highlevel of insecurity. The powers of the State to annul tenures and titles areextensive and discretionary. Failure to use the land as required, failure toadequately invest or “adopt good management techniques in accordance with thedevelopments in time”, failure to subdivide, failure to comply with spatial uselaws, etc. will all result in the extinguishment of the right.

Such a system requires considerable revision and substitution by a rationalisedsystem which is more suited to modern times and in which the basic right on landand derivative rights can not revert to the State except where there is no heir or nowill. Consideration of the introduction of an absolute ownership right along withthe dissolution of the rights of hak guna usaha, hak guna bangunan and hak pakai andhak sewa untuk bangunan into a single and clear ownership or leasehold without thepeculiarities of these existing tenures are essential to overcome the problemswhich flow from the existing system.

Tinggal; Keputusan Menteri Negara Agraria No 6 of 1998 Tentang Pemberian Hak Milik atas Tanah UntukRumah Tinggal.84 See, for example, Article 1 KMNA 6/1998.85 See, for example, Articles 11(2) and 28(2) PP40/1996.86 See Article 50(3) PP40/1996.87 Articles 39-58 PP40/1996.

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1.29 State Control Entrenched in the Basic Agrarian Law

The discretionary nature of entitlements to land rights in Indonesia is anexpression of the predominance of the State in land allocation. This predominancealso proceeds from an interpretation of the provisions of the Basic Agrarian Law,namely, Article 2, which provides as follows:

(1) On the basis of the provisions contained in Article 33(3) of theConstitution and of the things meant in Article 1 of this Act, the soil,water and aerospace, including the natural resources contained therein,are, at the highest hierarchical level controlled by the State in its capacityas all the people’s organisation of powers.

(2) The State’s right of control as meant in paragraph (1) of this Articleprovides the State with the following powers:

(a) the power to regulate and administer the allotment, use,appropriation, and maintenance of the soil, water, and the aerospace;

(b) the power to determine and regulate legal relationships betweenpeople on the one hand and the soil, water, and aerospace on theother hand;

(c) the power to determine and regulate relationships among people aswell as legal acts concerning the soil, water, and aerospace….

Several subsequent Articles of the Basic Agrarian Law refer to this provision as theirbasis. Article 4 states that it is on the basis of the State’s right of control as meant inArticle 2 that the State determines the types of rights to the surface of the soil,which is called tanah (land) that can be granted to people…and corporate bodies.Article 16 proceeds to further implement Article 4 by setting out the types oftenures discussed earlier in this paper. Articles 20 – 48 are also based on thepower of the State’s control over land.

Article 8 also states that it is on the basis of the State’s right to control as meant inArticle 2 that it regulates the acquisition of the natural resources which are foundin the soil, water and airspace. Pursuant to this provision, legislation has beenenacted in relation to mining and forestry under which concessions to mine andtake timber are granted. Articles 9, 11, 13, 14, 17 also refer expressly to theprovisions of Article 2. A total of 36 of the Basic Agrarian Law’s 58 provisionsrelate directly or indirectly back to Article 2. From those provisions, particularlyArticles 27, and 34 and 40 concerning the extinction of hak milik, hak guna usaha andhak pakai through abandonment and the consequent reversion of the land to theState’s control, there is an extraordinary level of State control over land.

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This power is further explained in the General Elucidation which, amongst otherthings, states that:

“The State’s power..concerns all the soil, water and aerospace including partsof them which are already possessed by individuals under certain rights. TheState’s power over land which is already possessed by an individual under acertain right is defined by the contents of the right..and this means that theState’s power…ends at the point to which it gives the individual in questionauthority to execute the right….The State’s power over land which is notpossessed under a certain right by an individual or another party is broaderand full…The State can grant such land to an individual or body corporatewith a certain right…”.

The State’s control continues to be extensive over all of the rights which are lesserthan the right of ownership because they are limited in time and their nature andextensions and renewals must be continually sought from the State. Even the“fullest and most extensive right” of ownership, can be lost to the State throughmechanisms other than expiry by effluxion of time.

The problem of the State’s right of control is further manifest in certain legislativedefinitions of “State land” and “land directly controlled by the State”. Forexample, Article 1(1) of Government Regulation No 24 of 1997 defines “State landor land directly controlled by the State” as “land which is not possessed under acertain land right”. “Land right” is further defined as “the rights mentioned inArticle 16 of the Basic Agrarian Law”. It seems not unreasonable to conclude thatrights which have not been formally converted to the statutory rights under theBasic Agrarian Law are to be treated as no rights at all. So land upon which existadat rights will be treated as State land. At least two ministerial regulations,PMA2/1960 which is still in operation and PMA 2/1962 which operated for 35years, treated unregistered adat hak milik rights as lost or converted to lesser rightsof set periods upon expiry of which periods that land was treated as State land(see discussion of these regulations earlier). Unregistered or unconverted adatrights will be ignored for the purposes of that definition of State land. That meansthat the expanse of State land was been vastly extended because, again, most landowners did not seek registration.

It has been noted that “if this is the definition of state land (that is, as defined inGovernment Regulation No 24 of 1997 (PP24/1997)), this means that a land parcelwhich does not have a right on it is state land. What is regulated in Article 1(3) ofPP 24/1997 is substantively not different from the principle of domein as meant inArticle 1 of Agrarisch Besluit 1870. As may have been known, the principle of domeinstipulated that unless it had a proven right on it, a land parcel was the domein

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(belonging) of the State. It is this principle of domein which the Basic Agrarian Lawseeks to do away with.”88

A definition of state land is also found in another regulation, namely, GovernmentRegulation No. 8 of 1953 Re The Control of State Land, which reads in its Article1(a) that “State land is land which is directly controlled by the State.” Thisdefinition does not really explain what is meant by “land which is directlycontrolled by the State” but merely replicates what is said in the Basic AgrarianLaw. The failure to clearly define the concepts of “State land” or “land which isdirectly controlled by the State” leads to additional uncertainty in the land law;although in practice, it means that the State acts as owner of most land.

There is a curious argument which is articulated in the elucidation of the BasicAgrarian Law as well as regulations and their elucidations dealing with thegranting of rights over State land that the State is, through its direct control, not theowner of the land. But one does not have to be the owner in order to act as if itwere the owner. Whatever the confounding effect of this legal fiction is, the factremains that the State does act as the owner of the land over which it grants rightsand it receives valuable consideration when it does so; although this is referred to“uang pemasukan” (entry money”) or recognitie rather than consideration for the saleof the right.

If equitable and efficient land markets are ever to develop in Indonesia,accelerated registration of rights on land will not suffice. The predominance of theState must be abandoned in favour of far more secure and rationalised tenuresand market allocation of land. The State’s control must be whittled back to allow aconventional land market to operate and to achieve security of tenure.

1.30 Why Security of Land Tenure is Indispensable – EconomicDevelopment and Protection of Indigenous Land Tenure

Insecure property rights are said to inhibit use and investment in both rural andurban land. They “hinder good governance and the emergence of….civilsociety”.89 Without effective access to property, economies are unable to progressand sustainable development can not be realised. Better defined property rightslead to more efficient and sustainable use of land resources and improvement in

88 Reinhart A ILAP National Land Law Adviser Annotations on Government Regulation No. 24 of 1997 Jakarta1999. See also the revocation provisions of the Basic Agrarian Law.89 Bathurst Declaration on Land Administration for Sustainable Development Report of the Workshop on LandTenure and Cadastral Infrastructures for Sustainable Development United Nations International Federation ofSurveyors Bathurst October 1999 at p. I.

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the definition of those rights is achieved through improvements in the land tenuresystem and in the dissemination of information on those rights. Land isincontrovertibly an asset for economic development. As an object with securerights, it has the capacity to underwrite and accelerate economic developmentthrough the utilisation of interests in land as marketable commodities. Thecapacity of land, or, more strictly, rights and interests in land, to generate wealth,to attract capital investment and for creating opportunities for the development ofthe financial sector are critical to sustainable economic and social development.

However, to stop there in the analysis of the problem is to look at only one side ofthe problem. The commoditisation and individualisation of land rights may notsupport sustainable development in pre-capitalist societies but threaten theirexistence. In that social context, treating land rights merely as a prima faciecommercial commodity and imposing that conceptualisation from above may notbe acceptable to those societies. These two dimensions of sustainabledevelopment clearly generate conflict and it is the fine balancing of these twocompeting conceptualisations of land which must also attend the centralcontemporary debate on land reform issues.

In Western societies, the balance between the demands of the market economy forcommoditised land rights and the rights of indigenous peoples in relation to landhas only recently been addressed in a just and equitable way. It was only aftercenturies of denial, genocidal policies, legal lies and cultural prohibitions that theAustralian polity finally addressed the past injustices perpetrated upon theAustralian indigenous peoples by acknowledging their just claims to rights onland which had existed since time immemorial and which had been systematicallydenied for two centuries. The rights of the Australian indigenous people inrelation to their land are now enshrined in the common law and national and statelegislation.90

The recent Bathurst Declaration on Land Administration for SustainableDevelopment calls for a commitment to providing effective legal security oftenure and access to property for all men and women, including indigenouspeoples and those living in poverty.91 The lack of security of tenure and the failureof policy and law-makers to protect the land rights of indigenous people areidentified as two of the most serious problems facing the relationship betweenland and people.92

90 Mabo v The State of Queensland (No 2) (1992) 66 CLR 186, Native Title Act 1993 (Commonwealth),Aboriginal Land Rights Act 1983 (New South Wales), Native Title Act 1994 (New South Wales)91 Bathurst Declaration op. cit. at p. II.92 Bathurst Declaration op. cit. at p.2

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Governments all over the world have committed themselves to the resolution ofthese problems. The vision of land administration systems is to provide securityof tenure. Historically, land administration systems have not dealt with or havenot properly dealt with geographical areas under which customary land tenure orwhere informal land tenure arrangements have existed. Customary land tenure isa legal tenure system based on customary law. Informal tenure is frequentlyconsidered to be illegal in that it is not recognised by either statutory State law orcustomary law. Land administration systems must be developed to reflect theserealities always bearing in mind the goal of security of tenure. The question of thesecurity of the rights of Indonesia’s indigenous peoples is the subject of ChapterIV.

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2. CHAPTER II - REGISTRATION OF LAND RIGHTS AND SECURITY OFTITLE

It was noted at the beginning of this analysis that there is a difference betweentenure and title. The foregoing analysis of the Basic Agrarian Law focused on thetenures which exist according to that law from the perspective of the degree oflegal security which they have from interference and forfeiture to the State. Apartfrom the importance of the legal security of land tenures, it is also necessary toconsider the impacts of the title registration system on the issue of security of title.

The Indonesian title registration system is a negative registration system; althoughthe provisions of Article 19 of Basic Agrarian Law do not necessarily compel thisconclusion. Such an assertion is based upon beguiling reasoning. The conclusionthat the system is a “negative publication system” is based on the words in Article19(2)(c) which provides that registration includes “[t]he issue of certificates ofrights on land, which will be valid as a strong evidence.” It is argued that becausethe certificate is only strong evidence, then the system can not be a positivesystem. Such a conclusion flows from a misunderstanding of the nature andfunction of a certificate in a land registration system. It is also inconsistent with therepeated claim in the Basic Agrarian Law of legal certainty.

No probative value attaches to a certificate. It is a document which is outside thecontrol of the land registration administration system; being handed over to anowner or other person entitled, by law, to the physical possession of it. It is therecords of the registration authority (in the Indonesian case, the buku tanah), andnot the certificate, which proves ownership. Even in a positive system, thecertificate can never be conclusive evidence of anything. The conclusion that thesystem is negative simply because the certificate is only strong (and therefore notconclusive) evidence ignores the opening words of the Article which are: “In orderto guarantee legal security, the government shall conduct land registration…” Themeaning of the words “[I]n order to guarantee legal security” are fairly clear intheir natural and ordinary meaning and are consistent with the nature of a positivesystem not a negative one. The Part C Report “Indonesian Land Law and TenuresIssues on Land Rights” notes that “usually, registration of land is a phraseassociated with positive registration systems”. 93

93 At page 4-20 op. cit.

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Furthermore, the elucidation of Article 19 of the Basic Agrarian Law states: “Thatthis law seeks to provide legal certainty concerning land rights is evident from theprovisions in it which regulate land registration. Articles 23, 32 and 38 (whichimpose an obligation on right holders to seek registration of their rights) areintended to enable them to obtain legal certainty concerning their rights”.94

2.1 Alternatives to Negative Title Registration System

In order to compare the alternatives which are available for registration, it isinstructive and necessary to consider the fundamental features of the varioussystems.

2.2 Types of Registration Systems

There are two essential types of registration systems: deeds registration and titleregistration. Registrations systems are also divided into systems with negativeeffect wherein registration does not provide any guarantee for the registered title(and in some systems such as Indonesia’s, only provides “strong evidence” oftitle) and systems with positive effect. In the latter case, the administrative act ofregistration confers “a higher degree of security of title and protection againstadverse claims or, as in the case of the Torrens system, creates and protects thetitle absolutely”95. Whereas deeds registration can be positive or negative, titleregistration is always positive.

2.3 Deeds Registration Systems

In deeds systems, the deeds themselves are the source of the title and its transferand registration is not essential but only for convenience although, in developeddeeds systems, the benefit of registration is that the registered deed prevailsagainst unregistered or later registered deeds. Conveyancing is complicated and atransaction requires investigation of the historical chain of deeds and the officialregistration records. This historical investigation was theoretically required totrace back to the original grant from the state but eventually was limited to what isdescribed as a “good root of title”.96

94 Per the General Elucidation Part IV.95 Save where the registered owner has participated in a fraud.96 A good root of title is a deed evidencing a transaction made between the then purported owner with anunrelated party for the market value of the land which has been accompanied by a thorough investigation ofthe title at the time of that transaction and all subsequent documentary devolutions of the title up to the timeof the present transaction.

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The deed operates to transfer title to a new owner who has rights enforceableagainst third parties. Registration enhances the legal consequences of the deed asthe deeds system usually includes complex rules to determine priorities betweencompeting interests. But registration does not otherwise cure defects arising fromfraud, forgery or mistake.

2.4 Priority Rules in Deeds Registration Systems

The establishment of a secure title is not of itself sufficient to address the criticalissues associated with the acquisition of title to land. In addition, rules of lawknown as priority rules were also developed to determine disputes betweencompeting interests in the same parcel of land. If two or more interests are grantedin the one parcel of land, how is priority between them determined? In the absenceof rules developed by the judicial system, legislation is necessary to enablepriority between competing interests to be determined, generally, by the order inwhich the instruments embodying those interests are registered.

A comprehensive priority rules structure does not exist in the Indonesian land lawsystem. One might have reasonably expected to find some rules about priorities inGovernment Regulation No 24 of 1997. However, that regulation is silent on thisissue. There is some attention to the priorities problem in Law No 4 of 1996 ReSecurity Rights on Land and Land-Related Objects. Article 5(2) provides that, inthe case where a security title object is encumbered with more than one securitytitle, the degree of importance of each security title shall be determined accordingto the date of its registration with the relevant Land Office. However, Article 5(3)further provides that, in the case where more than one security title on the sameobject are registered on the same date, the degree of importance of each of thesecurity titles in question shall be determined according to the date of the makingof the deed on security title conveyance. Where the deeds are made on the sameday, then the elucidation states that their priority is determined on the basis of theserial number of the respective security right conveyance deed.

In the absence of a comprehensive structure for priority rules, there is a clear needfor legislation which should be embodied in a new basic land law or a revisedgovernment regulation on registration.

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2.5 Relevance of Registration in Deeds Registration System97

The deeds registration legislation does not require registration as a conditionprecedent to the validity of the deed.

However, registration may give an interest priority over a competing interest.Prior to the introduction of the legislative scheme concerning priorities accordingto the order in which competing interests are registered, the rule was that, where aland owner sold land to one person and then later purported to sell the same landto another person, then the person to whom the first sale had been made wouldgain priority and therefore protection under the law in a competition between thetwo competing purchasers. The principle here was that the transfer to the secondpurchaser failed because “he that does not have can not give”98.

That priority rule was modified by the legislation so that if the second purchaserregistered his deed before the first purchaser and did not have notice of the firstsale, then his interest would prevail over the earlier one. Thus, in conferringpriority, registration may give a deed an operation it would not have apart fromregistration. Under the original priority rule, the second conveyance would havebeen ineffective to transfer title. Under the rules as modified by the deedsregistration legislation, the second conveyance, if it is registered first and is nottainted with fraud or notice, is effective to pass the legal title.

Except for priority purposes, however, the legislation does not give a registereddeed any greater efficacy that it otherwise would have. So, registration will notrender operative a deed impugned for fraud, mistake or forgery. Such deeds areliable to be set aside by the court consistent with the negative nature of the deedsregistration system.

2.6 Title by Registration – The Torrens System

By contrast to deeds registration systems, in title registration systems, title to theland derives not from the execution of the document to be registered but from theevent of registration itself. Title rests upon the act of the state registration officialin registering an instrument evidencing a transfer of title or the creation of aderivative interest rather than upon the act of the party executing the instrument. Itis not the parties who effectively transfer the land but the state.99

97 Per Butt P Land Law Op. Cit. pp. 648-673.98 In English common law, this rule is known as the nemo dat rule (nemo dat quod non habet).99 Per Butt op. cit. at pages 692-696.

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Priorities in Title Registration SystemsRegistration also determines priority between registered dealings. Their priorityis determined by their order of registration not by the date of execution. Order ofregistration is determined by the sequence in which the documents are lodged oflodgment with the registration authority in a form which entitles the instrument tobe registered (registrable form100).

2.7 Indefeasibility

The foundation of the Torrens system is the principle of indefeasibility of title. Anindefeasible title is one which can not be set aside on the ground of a defectexisting in the title before the interest was registered. The following illustrates theprinciple. A is the registered owner of a right. B steals the certificate of title and,posing as A, sells the land to C, forges A’s signature to a transfer and hands to Cthe certificate of title and transfer. C, who is ignorant of the fraud, then becomesregistered as the owner. Upon registration, C acquires a title that A can not setaside. In contrast, if the land had been governed by the deeds registration system,A could have set aside C’s title and registration would not have cured the forgery.

The indefeasibility provision of the New South Wales Real Property Act 1900 issection 42 which provides as follows:

42 Estate of registered proprietor paramount

(1) Notwithstanding the existence in any other person of any estate orinterest which but for this Act might be held to be paramount or tohave priority, the registered proprietor for the time being of anyestate or interest in land recorded in a folio of the Register shall,except in case of fraud, hold the same, subject to such other estatesand interests and such entries, if any, as are recorded in that folio,but absolutely free from all other estates and interests that are not sorecorded except:

100 Section 36(6)(b) Real Property Act 1900 (New South Wales). “A dealing shall be deemed not to be inregistrable form:

(i) if, notwithstanding anything done under section 39 (3), the dealing requires a material correction, alterationor addition,

(ii) unless the Registrar-General has authority to use, for the purpose of registering the dealing, the relevantcertificate of title, or

(iii) unless the dealing is in the approved form....”

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(a) the estate or interest recorded in a prior folio ofthe Register by reason of which anotherproprietor claims the same land,

(a1) in the case of the omission or misdescription ofan easement subsisting immediately before theland was brought under the provisions of thisAct or validly created at or after that time underthis or any other Act or a Commonwealth Act,

(b) in the case of the omission or misdescription ofany profit à prendre created in or existing uponany land,

(c) as to any portion of land that may by wrongdescription of parcels or of boundaries beincluded in the folio of the Register or registereddealing evidencing the title of such registeredproprietor, not being a purchaser or mortgageethereof for value, or deriving from or through apurchaser or mortgagee thereof for value, and

(d) a tenancy whereunder the tenant is in possessionor entitled to immediate possession, and anagreement or option for the acquisition by sucha tenant of a further term to commence at theexpiration of such a tenancy, of which in eithercase the registered proprietor before he or shebecame registered as proprietor had noticeagainst which he or she was not protected:Provided that:(i) The term for which the tenancy was

created does not exceed three years, and(ii) in the case of such an agreement or

option, the additional term for which itprovides would not, when added to theoriginal term, exceed three years.

(iii) (Repealed)

(2) In subsection (1), a reference to an estate or interest in land recordedin a folio of the Register includes a reference to an estate or interestrecorded in a registered mortgage, charge or lease that may bedirectly or indirectly identified from a distinctive reference in thatfolio.

In addition, unlike the deeds registration system where notice of an earlier interestwill disentitle the holder of an registered interest to deny an earlier interest, even a

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person who has notice of an unregistered interest and who registers with theintention of destroying that interest is safe. Notice is not fraud. The system permitsthe holder of unregistered interests to freeze the register by the lodgment of acaveat which prevents registration without the consent of the person lodging thecaveat.101

A feature of the Torrens system is that registration is not compulsory. No where inthe legislation is there any obligation to register. The system is not based uponcompulsion or punishment for failing to register. But if the owner of an interestdoes not register, he does not obtain the benefit of indefeasibility and his interestwill be defeated by a later registered interest. In short, it is pure folly not toregister. Indeed, compulsion can never be a sound basis for achieving the goals ofregistration system maintenance. It is presently the only basis upon whichmaintenance is sought to be achieved under the Basic Agrarian Law andGovernment Regulation No 24 of 1997 Re Land Registration. Compulsion hasfailed to achieve maintenance even where the threat has been the extinction of theright in respect of which registration was not sought such as that contained inRegulation of the Minister for Agrarian Affairs No 2 of 1962 (see discussion supra).

2.8 Registration in the Indonesian System

The title by registration system offers real and complete security of title andprotection from claims from persons who are not recorded on the Register. Deedsregistration systems vary in the effect they give to registration because, essentially,the deeds are effective to pass the title before registration102. As noted above, theland title registration system mandated by the Basic Agrarian Law is a negativesystem. The Supreme Court of Indonesia has also confirmed that the provisions ofthe government regulation on land registration are merely administrative andcompliance with them is not necessary for a valid land conveyance103. TheSupreme Court thereby confirmed the validity of adat transactions which do notrely at all on formal registration structures. This, of course, has rather drastic andobvious consequences for the administration of land right ownership record.Registration is not required in order that title legally pass to the transferee, and, ifa transaction is registered, it does not confer any real additional security on theright holder.

101 Indonesian Land Law and Tenures Issues in Land Rights op. cit. at page 4-11.102 Ibid at p. 4-13.103 Decisions of the Mahkamah Agung 16 June 1976 No 1082/K/Sip/1976; 19 September 1970 No123/K/Sip/1970, 12 June 1976 No 952/K/Sip/1974.

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This problem has been realised since before the substantive commencement ofILAP. In the discussion in the Project Preparation Report104, it is noted that theobjective to register has not been facilitated by the Indonesian courts which holdthat the absence of registration does not make a transaction invalid and that thelegal validity of the transaction depends on its requirements; that is, the paymentof cash in the presence of a suitable witness in accordance with adat.

It was further noted in the ILAP preparation report that an obvious means ofovercoming this problem is to legislate “to defer the passing of title to the momentof registration” but that “a measure of that nature would be in direct conflict withadat law” and would therefore “present too great a quantum leap to gainacceptance”. What that argument fails to recognise is that adat has already been somodified by the Basic Agrarian Law and, where the Basic Agrarian Law doesmake provision for the implementation of adat, successive administrations havefailed for forty years to implement the very clear directives in the Law such asArticles 22 concerning the government regulation on the creation of hak milik byway of adat law and Article 26 concerning the government regulation ontransactions with hak milik in accordance with adat that this argument is specious.

In any event, the Project Preparation Report went on to recommend a structurewhich was supposed to capture transactions with land by forcing parties to resortto an overly formal and monopolistic mechanism in the form of the Land DeedOfficial105 which is also in clear contradiction to the tenets of adat. GovernmentRegulation No 24 of 1997 Re Land Registration institutionalised this mechanism106

which, rather than ensuring capture of transactions with the millions of rightswhich will be registered under this project, its demonstrable result has been quitethe opposite; failure to achieve system maintenance.

2.9 Incentives to Seek Registration

It has been noted that “all registration schemes must contain strong incentives toachieve a universe of registration of transactions” and “a registration systemwhich fails to track…transactions..will fail”107. If legal title passes withoutregistration, as it does in the existing system in Indonesia, then there is no realincentive to register. 104 At p. 275. Annex 8 Land Law.105 Ibid. at pp. 275-276.

106 See Articles 37-40 Government Regulation No 24 of 1997 and the implementing regulations concerningLand Deed Officials: Government Regulation No 37 of 1998 Re Regulation of the Position of Land DeedOfficials and Regulation of the Minister for Agrarian Affairs No 1 of 1996 Re Formation of Land Deed Officials.107 Indonesian Land Law and Tenures Issues in Land Rights op. cit. at page 4-13.

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In positive systems of registration, the incentive to register is the incentive tobecome the legal owner. Without registration, a person who takes a transfer is notrecognised as the legal owner of the land.

By way of illustration, the New South Wales Real Property Act 1900, in addition tothe indefeasibility provisions, contains the following:

41 Dealings not effectual until recorded in Register

(1) No dealing, until registered in the manner provided by thisAct, shall be effectual to pass any estate or interest in any land underthe provisions of this Act, or to render such land liable as security forthe payment of money, but upon the registration of any dealing inthe manner provided by this Act, the estate or interest specified insuch dealing shall pass, or as the case may be the land shall becomeliable as security in manner and subject to the covenants, conditions,and contingencies set forth and specified in such dealing, or by thisAct declared to be implied in instruments of a like nature.

(2) Repealed.

The indefeasibility provisions and these provisions comprise the central pillar ofthe positive system as embodied in the Torrens legislation in New South Wales.They system is further enhanced by the following provision which bars recoveryof land registered under the Real Property Act 1900:

124 Registered proprietor protected against ejectment except in certaincases

(1) No proceedings in the Supreme Court or the District Courtfor possession of any land, or other proceedings or actionfor the recovery of any land shall lie or be sustainedagainst the person registered as proprietor thereof underthe provisions of this Act, except in any of the followingcases, that is to say:(a) The case of a mortgagee as against a mortgagor in

default.(b) The case of a chargee or covenant chargee as against a

charger or covenant charger in default.(c) The case of a lessor as against a lessee in default.(d) The case of a person deprived of any land by fraud as

against the person registered as proprietor of such landthrough fraud, or as against a person deriving

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otherwise than as a transferee bona fide for value fromor through a person so registered through fraud.

(e) The case of a person deprived of, or claiming, any landincluded in any folio of the Register for other land bymisdescription of such other land, or of its boundariesas against the registered proprietor of such other landnot being a transferee thereof bona fide for value.

(f) The case of a registered proprietor claiming under afolio of the Register created before a subsequent folioof the Register was created, in any case where the twofolios were created for the same land.

And in any case, other than as aforesaid, the production of the folio of theRegister, if it is a manual folio, or the production of a computer foliocertificate, relating to the folio, if it is a computer folio, shall be held inevery Court to be an absolute bar and estoppel to any such proceedings oraction instituted before the production of the folio, if it is a manual folio, orbefore the time specified in the computer folio certificate, if it is a computerfolio, against the person named in that folio or certificate as seised of or asregistered proprietor or lessee of the land therein described, any rule of lawor equity to the contrary notwithstanding.

In addition to the near-absolute security afforded to registered title holders by thepositive system, the Torrens system also provides compensation from the Sate forlosses caused by the principles contained in the above provisions as well as forlosses caused by errors in the register caused by the officials of the registrationauthority.

126 Compensation for party deprived of land

(1) Any person deprived of land or of any estate, or interest in land:

(a) in consequence of fraud, or

(b) through the bringing of such land under the provisions of thisAct, or

(c) by the registration of any other person as proprietor of such land, estate,or interest, or

(d) in consequence of any error, omission, or misdescription in the Register,

may bring and prosecute in any Court of competent jurisdiction anaction for the recovery of damages.

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(1) An action under subsection (1) shall, in any case in which the landto which the action relates has been included in two or more folios of theRegister created under Part 3, or a folio of the Register has otherwiseincorrectly been created under Part 3, be brought and prosecutedagainst the Registrar-General as nominal defendant and, in any othercase, shall, subject to subsections (3), (4) and (5), be brought andprosecuted against the person:

(a) upon whose application the land was brought under the provisions ofthis Act,

(b) upon whose application the erroneous registration was made, or

who acquired title to the land, or the estate or interest therein, through thefraud, error, omission or misdescription.

(3) In every case in which the fraud, error, omission, or misdescriptionoccurs upon a transfer for value, the transferor receiving the value shall beregarded as the person upon whose application the transferee was recordedas registered proprietor in the folio of the Register.

(4) Except in the case of fraud or of error occasioned by any omission,misrepresentation, or misdescription in the person's application, or in anyinstrument executed by the person, the person upon whose applicationsuch land was brought under the provisions of this Act, or such erroneousregistration was made, shall, upon a transfer of such land bona fide forvalue cease to be liable for the payment of any damages which might havebeen recovered from the person under this section.

(5) In any of the following cases, that is to say:

(a) where such person ceases to be liable for the payment of damages asaforesaid, or(b) when the person liable for damages under this section is dead,bankrupt, or insolvent, or cannot be found within the jurisdiction,such damages with costs of action may be recovered out of the TorrensAssurance Fund by action against the Registrar-General as nominaldefendant.

127 When actions may lie against the Registrar-General as nominaldefendant

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(1) Any person sustaining loss or damages through any omission, mistake,or misfeasance of the Registrar-General or any of the Registrar-General'sofficers or clerks in the execution of their respective duties under theprovisions of this Act, or by the registration ….. of any other person asproprietor of land, or by any error, omission, or misdescription in theRegister, and who by the provisions of this Act is barred from bringingproceedings in the Supreme Court or the District Court for possession ofthat land, or other proceedings or action for the recovery of such land,estate, or interest or to whose claim every such proceedings or actionwould be inapplicable may, in any case in which the remedy by action forrecovery of damages as hereinbefore provided is inapplicable, bring anaction against the Registrar-General as nominal defendant for recovery ofdamages.

2.10 Deferred Indefeasibility v. Immediate Indefeasibility

In the history of the development of the concept of indefeasibility by the courts ininterpreting the positive legislation implementing the Torrens system inAustralian jurisdictions, two theories have struggled for predominance. The firstis “immediate indefeasibility”. The other is “deferred indefeasibility”. Generally,the theory of immediate indefeasibility has ultimately prevailed

An illustration of the way in which the positive title registration system operatesto confer indefeasibility is as follows. A is the registered proprietor of the land. Bsteals A’s certificate of title and, posing as A, sells the land to C. B forges A’ssignature to a transfer of the land to C and hands the certificate of title to C alongwith the forged transfer. C, who is ignorant of the fraud, then becomes theregistered proprietor. Upon registration, C acquires a title that A can not set asideby seeking an order from the court. C’s title is immediately indefeasible. Incontrast, if the land had been under a deeds registration negative system, A couldhave C’s title set aside by the court. Registration of the deed would not have curedthe forgery. The result of immediate indefeasibility may seem harsh towards A,who loses the land; but it is a necessary consequence of the theory of immediateindefeasibility. A is left only with a personal action against B or, if the positivesystem is accompanied by a compensation provisions and certain circumstancessuch as if B is dead, bankrupt, can not be found in the jurisdiction, a right tocompensation from the assurance fund.

The assurance fund mitigates this otherwise harsh effect of the positive system.But it should be remembered that the positive system need not necessarily beaccompanied by a compensation scheme. As noted above, the negative systemalso has the harsh effect of the innocent purchaser’s registered title being set asiderather than the extinguishment of the defrauded previously registered owner’s

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title. But that harshness is not exclusive to the Torrens system. It also exists in thenegative system which casts the burden of losses caused by fraud on the innocentregistered owner who loses both title to the land as well as the valuableconsideration which was paid to the fraudster and the defrauded party has noremedy or compensation unless he carried title insurance.

An objection raised to the theory of immediate indefeasibility is that it effectivelygives operation to a transfer which, because of the fraud, ought not to be giveneffect to. An earlier theory developed just after the introduction of the Torrenssystem showed a reluctance by the judiciary to accept the consequences ofimmediate indefeasibility and the theory of deferred indefeasibility wasadvanced. Under the theory of deferred indefeasibility, A could seek the court’sorder to set aside C’s registration in the circumstances described above. A wouldnot lose the right to have his name restored to the Register as proprietor until bothC had become registered and a third party (D), acting on the existing state of theRegister (showing C as the registered proprietor) had purchased bona fide forvalue from C and become registered, C’s title, though not itself indefeasible,would form the basis of an indefeasible title in D. Essentially, where title wasclaimed under an instrument that was void or voidable, registration of theclaimant as proprietor did not overcome the defect. Indefeasibility of title wasdeferred until the next proprietor was registered.108

The modification of the theory of immediate indefeasibility by the deferredindefeasibility theory may be more suitable as a transitional step towards animmediate indefeasibility system as it permits recovery of the land where itsalienation from the true owner has been effected through a forgery and the titlehas not been passed on to another innocent purchaser.

2.11 Indemnity and Assurance – The Torrens Positive System

It is important to note that the positive system of registration can not, at the initialstages, be accompanied by title assurance or title insurance because the systemwould be quickly bankrupted by claims109. Insufficient time has been provided foran in-depth analysis of this problem. It has been analysed in the Part C Report andthe conclusions in that report are respectfully adopted.

What is important to note is that “security of title should not be confused with titleassurance or insurance. Insurance is not a substitute for security of title.Registration could theoretically offer title security without an insurance system. 108 Per Butt op. cit. pages 695 – 698.109 Indonesian Land Law and Tenures Issues in Land Rights op. cit. at p 4-28.

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No Torrens system does this, for the good reason of seeking a reasonable balancebetween the high level of certainty of interests on the register and compensationfor losses caused by the high level of security afforded to registered and laterregistered interests”.110

2.12 Registration and Law Reform

The Part C Report Indonesian Land Law and Tenures – Issues in Land Rightsnotes that “a good registration system aims at creating information about land forthe State and information about titles for the public for land use and land trading”but “that a focus on mechanical registration is too narrow. Good governancerequires a systemic and fair balance between the powers of the State over land andthe rights of owners.” 111Even if an exact record of land ownership is initiallycreated, security of ownership only comes about when land registration iscombined with land law which delivers tenures “producing the comfort necessaryfor a civil society, whether or not it encourages local and foreignmarkets…Registration without meaningful rights is self-defeating and costly. Thatreport concludes that “the drive behind registration should be the establishmentof a balance between rights of owners and the state that is capable of deliveringgood governance and civil peace”. 112 113

The fundamental problem with the Indonesian registration system is thatregistration does not confer a better proprietary right than is obtained withoutregistration. So long as registration is only evidentiary and not proprietary, registrationitself is not a sufficient incentive for owners to seek registration.114 In addition, as thepresent analysis of Indonesian land tenures under the Basic Agrarian Law shows,the rights on land are not secure from arbitrary termination by the State.

In an earlier report by the writer115, it was noted that one of the central concerns ofregistration is the maintenance of the initial register created following theimplementation of systematic land registration. A scrutiny of the provisions ofGovernment Regulation No 24 of 1997 concluded that the regulatory structurepertaining to the maintenance of the system tended to failure in this critical area.

110 Ibid.111 At p 4-13 – 4-14 op. cit.112 Ibid.113 The principle of good governance was recently articulated in Indonesian Law No 28 of 1999 Re StateOrganiser Which is Clean and Free from Corruption, Collusion and Nepotism.114 Ibid. op. cit. at page 4 -21.115 LASA Report on the Review of Government Regulation No 24 of 1997 dated 9 September 1999.

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In addition to the deficiencies in this regulation in relation to maintenance, severalother factors which also suggest that initial registration is not followed up byregistration of derivative transaction registration. Those factors include the taximposed on transfers of land116, avoidance of laws imposing limits on the quantityof land ownership117 and the avoidance of the restrictions on absenteelandownership118.

The failure of the present registration system to capture derivative transactionshas recently been confirmed by an empirical study funded by the World Bank,119

as well as by studies by the ILAP socio-economic adviser.120

The incentives for owners to seek registration are less compelling than is usual indeeds registration systems. While registration might “guarantee rights ofindividuals on land by enabling third parties to ascertain easily whether or not acertain rights existed and by facilitating the creation of security interests”121 theseresults are “the trite and inevitable results of any registration system” and are notsufficient to secure registration in the contest of competing rights. “To equate withmodern schemes, registration must confer a better property right than is obtainedwithout registration. According registration only an evidentiary and not aproprietary impact ensures that registration..is not an attractive proposition for anowners.”122 Thus the necessity for a system which is based solely on compulsionand potential threat of criminal sanctions contained in Article 52 of the BasicAgrarian Law for failure to comply with the obligations to register contained inthe Government Regulation referred to in Article 19. That Government Regulationis PP24/1997 (formerly PP10/1961) which imposes the obligation “to Register”transactions with land.123

116 Undang-Undang No 21 Tahun 1997 Tentang Bea Perolehan Hak Atas Tanah dan Bangunan117 Undang-Undang No 56 Tahun 1960 Tentang Penetapan Luas Tanah Pertanian118 Peraturan Pemerintah No 224 Tahun 1961 Tentang Pelaksanaan Pembagian Tanah dan Pemberian GantiRugi.119 World Bank A Social Assessment Study of the Land Certification Program The Indonesian LandAdministration Project esp. Chapter 6 Sustainability Part A The Recording of Transactions.120 Soesengobeng H Social Assessment Impact Study 1 November 1999 Land Administration SystemsAustralia Pty Limited Jakarta 1999.121 See also the General Elucidation of Government Regulation No 24 of 1997 Re Land Registration.122 Per Indonesian Land Law and Tenures Issues in Land Rights op. cit. p. 4-21123 See, for example, Article 36(2) of PP24/1997 “The right holder..shall register with the Land Office thechanges in [the physical or juridical data]”and Article 42 “…the recipient of the bequeathed land shallsubmit..[the evidence necessary for] the registration of a right transfer resulting from a bequest….”.

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The critical proposition of the recommended reforms advanced by the Part CReport in this regard and from the perspective of the registration system inIndonesian which is the present basis of ILAP, is that “[i]t is essential to convertIndonesia’s registration into a positive system”. That conclusion is respectfullyendorsed. Registration alone can not overcome the inherent limitations of theBasic Agrarian Law and without substantive land law reform, registration will notimprove the economic functions of land and land titles.124

Furthermore, without effective limitation laws, claims can continue to exist fromgeneration to generation giving rise to yet another source of uncertainty in theregistered titles. Consequently, any steps towards a positive system must beaccompanied by the enactment of the necessary limitation laws. Attention is alsoredirected to the fundamental insecure nature of the land tenures themselvesdiscussed above which must also be addressed in any future land law reformprogram.

New priority rules are also essential.

2.13 The First Faltering Step towards a Positive System in Indonesia

The introduction of a positive system would not necessarily be a remarkablydramatic change because, although the existing system is negative, a positiveelement was introduced in Article 32 of Government Regulation No 24 of 1997which provides that:

“In the case of a land parcel for which a certificate has been legally issuedon behalf of a certain individual or a corporate body that has acquired theland parcel in question in good faith and has in reality been possessing it,any other parties think they have rights thereon can no longer claim forthese rights in the case where, within five (5) years following the issuance ofthe said certificate, they never raised their objections in writing to theholder of the certificate and to the Head of the relevant Land Office andnever filed a law suit with the court over the possession of the land parcelin question or the issuance of the said certificate.”

The enactment of this provision has been described as the introduction of apositive element into the negative system. However, this provision isproblematical for several reasons and does not address the problem associatedwith the uncertainty of registered title which is inherent in the negative systemand which is compounded by the uncertain nature of the tenures themselves. 124 Indonesian Land Law and Tenures Issues in Land Rights op. cit. at p. 4-28.

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To begin with, the vehicle for this provision is a government regulation whereasthe negative system is entrenched by the Basic Agrarian Law is an Act. Thehierarchical structure of law-making instruments in Indonesia in which an Act is ahigher-level legislative instrument than a government regulation means that in theevent of inconsistency or conflict between an Act and a government regulation, theinconsistency or conflict must be resolved by regarding the Act as prevailing overthe government regulation. Consequently, Article 32 can not be considered as alegal provision whose validity is beyond question.

The elucidation of this provision also raises problems and again demonstrates theinadequacies of adat law as the basis of the national land law system and the needfor new central State legislation to deal with the problems posed by the existingsystem. It states that:

“One shortcoming of the negative publication system is that the party whosename is recorded as the right holder in a land book and certificate is alwaysfaced with the possibility of a claim from another party who thinks s/he ownsthe land parcel. Generally, this shortcoming is overcome by using the so-called“acquisitieve verjaring” or “adverse possession” institution. Our land law, whichis based on adat law can not use this institution because our adat law does notrecognise it. However, in our adat law, there is an institution which can be usedto overcome the said shortcoming of the negative publication system, namely,the so-called “rechtsverwerking” institution. Under our adat law, one who hasleft his/her parcel idle for a certain period of time, after which the land parcelin question is acquired in good faith and worked upon by another party shalllose his/her right to make a claim for the land parcel in question. The BasicAgrarian Law provisions on the nullification of land rights due toabandonment (Articles 27, 34 and 40) are in line with this institution.”

Thus, what is stipulated in this paragraph in not a new legal provision; ratherit is an application of a legal provision which has existed in adat law, which hasnow become part of Indonesia’s National Land Law, and – at the same time – itis a concrete way of applying the Basic Agrarian Law provisions concerningabandonment.”

Article 32 of Government Regulation No 24 of 1997 can not properly be describedconsistent with the provisions of Basic Agrarian Law concerning abandonment.Article 27 of the Basic Agrarian Law provides that the right of ownership isannulled if the land falls back to the State because the land is abandoned.Abandonment of the land means that the right is cancelled and the land becomesState land. A new right on state land can not be acquired by possession of anylength of time. Similarly, Article 34 concerns the extinguishment of hak guna usaha

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which is a right which can only be granted on State land. So, if it is neglected, thenthe land reverts to unencumbered State land and, again, possession in good faithcan never be the basis for the acquisition of a right on State land under theexisting law.

This provision is another instance of what Gautama describes as a law which is asdifferent to traditional adat as Western law is. Under adat law, if land isabandoned, it reverts to the full control of the community and any new rights mustbe acquired in accordance with the local adat. It does not result in the automaticcreation of a new right by someone in actual possession. Article 32 can not beproperly described as founded upon adat.

The emphasis on the certificate in Article 32 is also problematic. Nothing shoulddepend on the certificate. All emphasis must be placed on the land book.

2.14 Article 32(2) and The Civil Code

The provisions of the Civil Code may also impact on the validity of Article 32(2).Article 1963 provides that an individual, who in good faith acquires an immovableobject…with a possession of twenty years shall acquire a hak milik on the saidobject by way of limitation. Further, Article 1967 provides that all legalclaims…shall become null and void because of limitation with the lapse of 30 yearperiod. These provisions appear to be still a part of Indonesian law and directlyrelevant to the determination of the validity of Article 32(2).

However, the issue of the application of the limitation law to land requires furtherclarification and elucidation. The two provisions cited above contain conflictingperiods of time.

What is apparent from the foregoing discussion of Article 32 of GovernmentRegulation No 24 of 1997 Re Land Registration is that it is not a panacea for themulti-faceted problems of the negative system of registration which has beenimplemented under the Basic Agrarian Law. Rather, what is required is the reviewof the Basic Agrarian Law itself.

2.15 Some Issues Associated with the Introduction of a PositiveRegistration System

One objection raised to the proposal to move from a negative system to a positivesystem is that persons who have been wrongfully deprived of their land will notbe able to recover it because registration confers indefeasibility of title. What thisdelusive argument fails to realise is that under either system, some one will loseout where there has been a wrongful deprivation.

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Under the negative system, a defrauded land right holder can always apply to thecourt for the return of the land even where the currently-registered owner has paidvaluable consideration and acquired the right in good faith. Without insurance,the innocent registered owner whose title is upset and returned to the defraudedowner and who can not recover from the fraudster, must bear the loss. In apositive system, in the absence of insurance or assurance, the innocent ownerkeeps the land and the defrauded owner must, if he is unable to recover from thefraudster, bear the loss.

The change from a negative registration system to a positive one simply movesthe burden of losses from the innocent purchaser to the innocent defrauded owner.Neither system is capable of accommodating both the innocent purchaser and theinnocent prior owner unless the State intervenes and provides compensation.There is no real reason why a person who has lost his land through fraud shouldbe treated any differently from the innocent purchaser for value. Both have thebeen the victims of crime. But where the positive system of title registration (ortitle by registration as the Torrens system has been described) is augmented withthe State guarantee and compensation for losses caused by the operation of theprinciples of the positive system, then is there achieved a perfect world ofregistration

2.16 The Positive System and “Land Theft”

It might also be argued that positive registration will protect so-called “landtheft”. Indefeasibility does not protect fraudulently acquired title while it is still inthe hands of a fraudster. Deferred indefeasibility will also not protect an innocentpurchaser who has acquired the title pursuant to a fraudulent instrument.

If someone is alleging that a title has been acquired through the process of landtheft, it will be necessary for them to adduce evidence to establish that. If thatevidence is found and presented and the theft established, then what remains tobe determined by a court is the remedy. The remedy in a negative system is thereturn of the land. In a positive system, the remedy is converted into monetarycompensation in the form of a damages award but the land can not be returnedfrom an innocent purchaser, subject to the doctrine of deferred indefeasibilitydescribed above.

Of course, damages will only be an effective remedy if the fraudulently party canbe found and has assets against which execution of an order to pay damages may

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be made. If that is not the case, then only compensation provided by the State willoffer an effective remedy.

In the end, if the State is unable or unwilling to provide compensation, then theloss of the land must be borne by the person from whom the land has been“stolen”. In this case, then it must be admitted that the ultimate result will be thatthe loss will have to be suffered by the defrauded person. But that is not a peculiarsituation as far as the law in respect of such issues concerning theft of assets otherthan land. This disadvantage may fall heavily on the persons who have lost theirland through “land theft” but this disadvantage is far outweighed by theadvantages which the positive system creates and which are discussed herein.

One substantial benefit which flows from positive registration which can never beachieved by the negative is that there is an effective incentive to register thusensuring the universal goal of registration systems – maintenance. In addition tothe legal security conferred on a registered owner by the positive system, theRegister is able to function as an effective tool for the implementation of othergovernment policies which are dependent on a reliable record of land ownership.Furthermore, disputes are taken outside the registration system. These additionaladvantages along with the essential legal mechanism which attracts holders ofrights to seek registration alone justifies the change to the positive system. Butthere are many other benefits which flow from positive registration which arediscussed further below.

2.17 Advantages of Registration of Title to Developing Countries

In the developed economies which adopted the Torrens system, registration oftitle was introduced for the purpose of simplifying the conveyancing process.Conveyancing of interests in land was greatly simplified by this system with itsuse of simple forms and the abolition of the need to investigate the history of aregistered owner’s title. It has been described as essentially a device designed tobenefit private land owners rather than in terms of social benefit or benefit to theState. The benefits which have accrued to the State in the form of increasedrevenues as well as more rational decision making in policy formulation havebeen coincidental but have now become an enduring feature associated with thesystem. Furthermore, the creation of an indefeasible title has meant that investorsand lenders can act confidently in relation to their decisions about the land. Theinchoate benefits of positive title registration systems such as rational decisionmaking and resource allocation are often not seen or acknowledged but theyundoubtedly flow from the positive register and they transcend the financialaspects of the system.

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In addition, the process has remedial effects because upon first registration,defects in the title which in unregistered or non-registration of title systems are thesubject of repeated investigation every time the land is dealt with, arepermanently remedied by registering the title as absolute with the proviso for theinterface of a provisional title which will eventually be transformed into anabsolute title.

The third advantage described by Rowton Simpson is the provision of an accurateplan based upon the latest revision of the survey record identifying the land andthe fourth is the issue of a certificate containing a facsimile of the register and ofthe plan (although this fourth advantage is a dispensable one and in theory oughtnot to exist as the register is the only source of proof of title). The simplification ofthe land transfer and derivative right creation is another advantage achievethrough the provision by this system of simple forms and procedures for effectingsuch conveyances of land rights and interests.

Registration of title not only obviates the investigation of title but also enables anycontract to be limited to current issues affecting the enjoyment of the rights inquestion because the seller does not have to deal in the contract with issues suchas special stipulations as to past title and the identity of the land nor does thebuyer have to assume the risk of past defects which impugn the integrity of thetitle and hinder the subsequent dealing with the land whether by way of transferor mortgage or lease. A bonus of all of this is greatly reduced costs and errors canbe more readily detected and rectified upon examination by the registrationauthority while the parties to the present transaction are readily available. In othersystems, errors may not be detected for years when it is too late to rectify asbetween the relevant parties.

The unambiguous and brief definition of the land is an advantage which does notrequire much further elucidation. Only, it should be remembered that this, and allother benefits of registration of title will only avail if the system is self-sustaining amatter about which there has been much discussion in this course.

These advantages will not be achieved by any other system and reforms which fallshort of the prescriptions of the registration of title system contain within them theseeds of their own destruction and we can reasonably expect those projects whichhave failed to come to terms with these issues will also fail generally and have tobe abandoned.

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Rowton Simpson also asserts that registration of title is also a means of improvingthe land law system125. It contains a relatively simple substantive land lawstructure compared to systems which require title and boundary investigation.Here, the reforms of the nature advocated by Rowton Simpson, contain thepotential to render existing land law obsolete and implies that there must also bea radical review of the existing substantive land law. In all of the contemporaryreforms, such substantive reform has not been contemplated or implemented. InIndonesia, the review of the substantive land law and the effect of registration asconferring only strong not conclusive evidence of rights to land was not thesubject of the necessary analysis to determine whether, in the absence of such asubstantive land law reform, the implementation of systematic registration wasworth pursuing unless such reforms were undertaken.

2.18 Precis of Main Benefits of Title By Registration

The main benefits which title by registration confers, when it is “competentlyestablished and efficiently operated” are further discussed briefly hereunder.

An inspection of the record shows at all time the legal situation of the land so anyperson dealing on the evidence of the register can do so with confidence. Theabolition of the constantly repeated relatively expensive and sometimesinconclusive examination of title every time a transaction occurs and thesubstitution of one final and authoritative examination by the State. As a result ofthis examination is the formation ….of a record of proprietors of land with a titlegood against the whole world, subject only to such mortgages and other burdensas are set out in the Register or…which are declared by the legislation to beoverriding interests.

The registered title needs no further investigation because the law provides thatthe register shows the state of the title up to date and complete at all times (exceptfor interests which are expressly excepted in the actual legislation itself or insubsequent legislation). It is only this provision of the law which confers on theregister that special quality which distinguishes the title by registration fromregistration of deeds. No other system enables title to be presented with the

125 Rowton-Simpson Land Law and Registration at p 168.

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continuous finality which is the unique characteristic of title by registration.126 It isthis continuous finality which reduces disputes and litigation.

All transactions with land can be effected with security, simplicity andaffordability (simplification of conveyancing). The acquisition and retention ofland by small proprietors is greatly facilitated.

A registered proprietor can borrow money more easily and cheaply. The registerat all times shows the legal definition of the land and its ownership as well asderivative rights thereby abolishing the retrospective investigation of title. It isthis feature of certainty of title which makes the land reliable security for loans ofmoney. The loan will still depend on the value of the land and the availability ofcredit and to a large extent on the capacity of the land owner to repay the loan. Butthe loan will not be withheld because of unsoundness of title. In recent literature,it is asserted that land registration will undoubtedly lead to the availability ofcredit by the land being made available as secure collateral but it must beremembered that registration alone is not a sufficient condition for the provisionof credit to land owners. Once registered, absolute security is given to themortgagee.

The register of title can be utilised in tax collection, land reform, and land use.127

Indeed, “the administration of every public service and every branch of national activityconnected with land is greatly assisted in the execution of its work by the existence of an up-to-date unimpeachable map and record of landed property throughout the country.”

As West notes,“[a]s an institution a system of land registration must stand or fallon the service it provides to the state, to the local community and to the individualland-owning member of society. The idea that it is a sterile and technical exercisemust be dispelled. Instead, it must be recognised as a social and economic service,part of the administrative infrastructure so necessary for the developing of anincreasingly complex economy.

It may be argued that experience to date in introducing registration of title todeveloping countries has not been encouraging; that existing systems are falteringand do not warrant the expenditure they entail; or that a titles register is too

126 Rowton Simpson op. cit. Chapter 9.127 See Rowton Simpson op. cit. pp 169-170.

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sophisticated an institution for operation in a developing country at the presenttime.

But what alternative do we have, except confusion in land affairs?…We must not be toodiscouraged by past failures but must learn from bitter experience. In our present state ofknowledge, registration of title is the best we can do to provide stability, security and clarityin land ownership and a basis for the structural and physical planning of the future”128.

The question is not whether registration of title can be afforded but whether anycountry which recognises private ownership and allows dealing in land can affordto do without it because there is no other system which “when competentlyestablished and efficiently operated makes the creation and transfer of interests inland so simple, quick, cheap and certain or which if such be the policy makespossible the control of transfer and other dealings. This is incontrovertible”.129

128 West D. “The Role of Land Registration in Developing Countries” 102 Chartered Surveyor November 1969212

129 Rowton Simpson op. cit. at pp 173-174.

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3. CHAPTER III - ILAP, THE MARKET AND THE BASIC AGRARIAN LAW 1960

3.1 Introduction

The main objective of ILAP is “to foster efficient and equitable land markets andalleviate social conflicts over land through acceleration of land registration…andimprovement of the institutional framework for land administration…”130 ILAP issupposed to “foster more efficient and equitable land markets in terms of: moreefficient and transparent land transactions, less risk in land-related investment,mobilisation of financial resources through the use of land as collateral; andprovisions for longer-term investment towards more sustainable land use”.131 It isstated in the World Bank Staff Appraisal Report that “[e]fficient and equitable landmarkets are an important basis for modern economic development since theywould quickly and flexibly accommodate changes in land use, allow fair landtransactions, and mobilise financial resources through collateral arrangements. Acomprehensive, accurate and efficient land registration system is a sine qua non indeveloping such markets since it enables land to be freely traded, by reducing oreliminating the risk perceived by purchasers and vendors of land”.132

However, contrary to such analyses, registration, while it is a universal feature ofmarket economies and is a necessary condition of a functioning land market, it isnot sufficient for the operation of a land market. The land market in Indonesia isdysfunctional for far more fundamental reasons than the lack of comprehensiveregistration and the review of the land registration legislation was a totallyinadequate response to the problems with the land market. Unless these problemsare properly addressed, it is fairly certain that the main objective of this project asexpressed in the Staff Appraisal Report can not be realised. Reforms to the landregistration alone are entirely insufficient. Tenures must also be freed from thestrictures of pervasive State control.

3.2 The Market and the Basic Agrarian Law

The principle cause of land market dysfunction in Indonesia is the Basic AgrarianLaw itself. There are numerous provisions in this law which either inhibit the

130 Staff Appraisal Report Indonesia Land Administration Project 16 August 1994 World Bank Report No12820-IND Agriculture Operations Division Country Department III East Asia and Pacific Region p. 10.131 Ibid. page i.132 Ibid. at page 2.

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development of an open and free land market or which are in direct contradictionto the dictates of the land market. It is proposed to examine these provisions andto determine how they conflict with the stated objective of ILAP.

The provisions of the Basic Agrarian Law in this regard are:

Article 6: All rights on land have a social function.

Article 7: In order not to harm the public interest,excessive ownership and control of landare not permitted.

Article 9: Only Indonesian citizens may have thefullest relation with the earth, water andairspace….

Article 10(1): Every person and every corporate bodyhaving a certain right on agricultural landis in principle obliged to cultivate or toexploit it actively her/himself whileavoiding extortionate methods.

Article 17(1): With due regard to the provisions ofArticle 7 and in order to achieve the aimmeant in Article 2(3), the maximumand/or minimum area of land which maybe owned by a family or corporationunder any right mentioned in Article 16,shall be regulated. (Law No 56 of 1960 ReDetermination of the Area of AgriculturalLand)

Article 17(3): The land in excess of the maximum limitmeant in paragraph (1) of this Article shallbe taken by the government againstcompensation and shall be furtherdistributed among the people who need itaccording to provisions provided byGovernment Regulation.

Article 21(1): Only an Indonesian citizen may have the

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right of ownership.

Article 24: The use of land with the right ofownership by someone other than theowner shall be restricted and regulated bylegislative regulation.

Article 26(2): Each sale and purchase, exchange, gift,bequest by will and other acts which aremeant to transfer the right of ownershipdirectly or indirectly to a foreigner, to anational possessing a foreign nationalityin addition to his Indonesian nationality orto a corporation, except those which havebeen determined by the government asmeant in Article 21(2) are cancelled for thesake of law and the land falls back to theState with the provision that rights ofanother party incumbent thereon remainvalid and that all payments which havebeen received by the owner may not bereclaimed.

Further legal obstacles to a free land market and interests in land exist in otherland-related laws such as the notorious izin lokasi legislation133 and the SecurityTitle Act.134

3.3 The Social Function of Rights on Land

Article 6 of the Basic Agrarian Law states that “all land rights have a socialfunction”. This is not really a statement of law but a statement of fact. Land rightsin any society have a social function. That is their essential nature.

The elucidation of this provision does not clarify the legal meaning of this Article.The General Elucidation of the Basic Agrarian Law states that what this means isthat “whatever land right one has, it is not justifiable for the individual..to use ornot to use his land exclusively for his own interests, much less so if this

133 Presidential Decrees Nos 97 of 1993 and 41 of 1996, Regulation of the Minister of State for Agrarian AffairsNo 2 of 1993 Re Procedures for Companies Wishing to Invest Capital to Obtain Location Permits and LandRights.134 Undang-Undang No 4 of 1996 Re Hak Tanggungan on Land and Land-Related Objects.

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disadvantages the people. Rights on land can not be used for individual purposesonly but are subordinate to the higher interests of the community and the State.Land must be used in accordance with the character of the right…Due to its socialfunctions, it is only appropriate that land should be well taken care of so as toimprove its fertility and to prevent it from damage.”

This provision is the basis for the subsequent provisions in the Basic AgrarianLaw which prohibit absentee ownership and the use of land as a commercialcommodity or as an object of investment or speculation.135136 It also seems to be abasis for the provisions of the Basic Agrarian Law which extinguish land rightsthrough abandonment and legislation such as Government Regulation No 36 of1996 discussed above.

3.4 Prohibition on Absentee Ownership and Limits on Areal Quantities

The provisions concerning the restrictions on absentee ownership, the requirementfor personal use of agricultural land and the limits on ownership of agriculturalland have, according to some analysts, failed to prevent the exploitation of landand labour and, more importantly, have diminished the land market. In addition,they threaten the accuracy of the land ownership record as people seek to avoidtheir provisions.137

These “blunt and unworkable tools” are also indefensible on economic grounds.According the Part C Report Indonesian Land Law and Tenures Issues in LandRights, the theory behind requiring personal use and limits on ownership is theassumption that absentee ownership is equivalent to speculation while in aproper market, absentee land ownership and land accumulation are “effectiveallocators because they tend to price land at the opportunity costs and yieldpotential”.

Ownership of large amounts of land is not necessarily “bad ownership” and, infact, can serve desirable social and economic purposes138. Large-scale agriculturalproduction is the norm in developed economies. It is the nature of the use of the

135 “Evolutionary Change in Indonesian Land Law Traditional Law (Adat) Perspectives” Final Report ArcadisEuroconsult 7 April 1999 Land Administration Project Part C Support for Long Term Development of LandManagement Policies Topic Cycle 4 National Development and Planning Agency and National Land Agencyat p. 4-2 citing Harsono B 1997 Hukum Agraria Indonesia: Sejarah Pembetukan Undang-Undang PokokAgraria, Isi dan Pelaksanaannya Jakarta Djambatan p pp. 263-268.136 Speculation is a salient feature of a land market.137 See Indonesian Land Law and Tenures op. cit. at p. 7-17.138 Ibid.

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land and not its quantity which determines whether massive land ownership isexploitative or not.

As the Part C Report concludes, “to the extent that the system fails to admitabsentee owners, it denies Indonesians the capacity to create markets in landinterests, arguably the greatest land market available”139. This is a consequence ofthe State assuming that it, rather than the market, can efficaciously allocate land.The untenable nature of such central command-orientated economic planning, inview of the collapse of such economic principles as the century draws to a close,does not require further elucidation here.

3.5 Prohibition on Corporate Ownership of Hak milik

Comparative studies show that Indonesia is virtually alone in regard to the issueof ownership of land by corporations140. Under Indonesian land law, only alimited class of corporations may own hak milik. This is a consequence of Articles 9,21(1),(2) and 26(2) of the Basic Agrarian Law. The implementing regulationpursuant to those Articles is Government Regulation No 38 of 1963 ReDesignation of Legal Bodies Which May Own Hak Milik which allows only statebanks, agricultural cooperatives, religious bodies and social bodies to own hakmilik.

Consequently, corporations may only obtain the lesser rights of hak guna usaha(Article 30(1)(b)), hak guna bangunan (Article 36(1)(b)), hak pakai (Article 41c) or haksewa untuk bangunan (Article 45b). The corporations must also have beenincorporated in accordance with Indonesian law and be domiciled in Indonesia.

These rights are far more limited than the hak milik and more prone to terminationand reversion to state control as is evident from the description and discussion ofthem earlier.

The Basic Agrarian Law, by denying corporations the right of ownership, deniessubstantial opportunity to undertake investment and land development. Apartfrom forcing entities to resort to artificial mechanisms to overcome the limitationsimposed by the restricted nature of the rights on land which corporations mayacquire, the most dire consequence is that “the Indonesian public is not allowed tocollect together to obtain and develop land through the most influential andsuccessful method of capital acquisition and development ever invented – the

139 Ibid.140 Indonesian Land Law and Tenures op. cit. pp. 7-20 – 7-21.

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corporate organisation which limits liability, allows share transfer and hasperpetual life”.

Allowing corporations to own hak milik would have be an immediate stimulus tothe land market and, “more importantly, it would allow [Indonesians] the sameopportunities for capitalisation that are available to market economies everywherein the world”. 141

Another consequence of the prohibition of the ownership of hak milik bycorporations is that the hak milik which is owned by an individual and is to beacquired by a corporation for its own uses or for the purposes of furtherdevelopment is that the hak milik must be surrendered to the State and anapplication made to the State for the grant of one of the rights to which acorporation is entitled to own such as hak guna usaha or hak guna bangunan. Thisalso reinforces the State’s control.

3.6 Restrictions on Foreign Ownership

Articles 9, 20, 21, 26, 30, 36, 46, 54, 55 of the Basic Agrarian Law and Articles I andII of the Conversion Provisions all deal with or mention the issue of foreignownership and demonstrate the obsessive opposition to foreign ownership of landin Indonesia at the time of the drafting of the Basic Agrarian Law.142 Having regardto the 350 years of colonial domination, ruthless exploitation of the land andviolent oppression of the Indonesian people by the Dutch, it is hardly surprisingthat such sentiments were pivotal to the post-colonial State’s policies, laws andideology.

However, in the present day, the restrictions in the Basic Agrarian Law on foreignownership have drastic consequences for the land market and the economy ingeneral. In Indonesian, the land law is the primary mechanism to controlinvestment in land by foreigners. Other legal mechanisms such as foreignexchange controls, investment approval systems, zoning legislation and land taxcan achieve the same results. The restrictions on foreign ownership constitute asignificant obstacle to foreign investment and, in the era of economic globalisation,

141 Ibid.142 These prohibitions are duplicated in Government Regulation No 40 of 1996 Re Hak Guna Usaha, Hak GunaBangunan and Hak Pakai – see Articles 3, 20 in relation to hak guna usaha and hak guna bangunan so thatif any of those rights devolve or are transferred to a person who is not an Indonesian citizen or a corporationwhich has not been incorporated according to Indonesian law and is domiciled in Indonesia and that person orentity fails, within one year to transfer the right to an Indonesian citizen or corporation, then the right is voidand, if the land is State land, the land reverts unencumbered to the State.

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impede capital flows and thereby destroy economic opportunities for thenation.143 Capital will move to places where these restrictions do not exist.

Nationalist groups within Indonesia assert that the admission of foreignownership of land is tantamount to the loss of sovereignty and control. But thathas not occurred in jurisdictions which have permitted foreign ownership of land.It has been noted elsewhere that, while foreign ownership may cause someproblems, for example, Japanese investment in the USA in the 1980’s or northernEuropeans purchasing Mediterranean residential properties, it is important torecall that these phenomena are cyclical when excess capital is generated in thedynamic economies. The Japanese suffered heavy losses and retreated from theirUS purchases and the trend noted in Europe diminished. The essential fact is thatland is immobile. While ownership may change, no one can physically take theland away and it is more likely to be used for productive purposes by foreignerswho seek to maximise their capital.144

Amongst the objectives of ILAP as stated in the World Bank Staff Appraisal Reportis the encouragement of foreign investment. Foreign capital demands security inrelation to the land upon which it operates. So long as the prohibition of foreignownership is embedded in the law, capital will relocate to other jurisdictionswhich do not have such restrictions. The hasty flight of foreign capital in times ofeconomic or political crises is made easier because the foreign corporations do nothave permanent rights of ownership on the land. The movement of foreign capitalout of Indonesia since the 1997 economic crisis continues to be a critical factor inIndonesia’s recovery. Some reports estimate that, as at November 1999, approvedforeign investment is negative 76%.145

In his speech to the Indonesian House of the People’s Representatives by theMinister for Agrarian Affairs upon the introduction of the Bill, the Minister statedthat: “The struggle to reform national agrarian law is closely linked to the historyof the struggle of the Indonesian nation to free itself from the grip, influence andremnants of colonialism; particularly the struggle of the farmers to free themselvesfrom the restraints of the feudal system over land and exploitation by foreigninvestors.” The first operational part of the Basic Agrarian Law thereforeimmediately revokes the principle bases of the colonial land law imposed by theDutch which is discussed in some detail in Chapter I. So long as such sentiments

143 Indonesian Land Law and Tenures op. cit. at p. 7-22.144 Per Land Acquisition and Development Controls Final Report Part C Land Administration Project at p. 7-2.145 Asian Wall Street Journal 24 November 1999 page 5 Thompson Global Markets. Approved domesticinvestment in negative 51.2%

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are expressed in the law, it will not be surprising if the goal of encouragingforeign investment is not optimally achieved.

It is also worth noting the observation made in the Part C Report Indonesian LandLaw and Tenures Issues in Land Rights that “Unlike other countries, Indonesiauses its tenures as primary social and economic policy tools to prevent corporateand foreign ownership of land, to limit the amount of land available to anindividual and to prevent ownership by groups and this has deterred theemergence of a civil society.

The unfortunate reality is that a tenure system can not answer the fears of landconcentration, land grabbing and abuse of power. By focusing on tenures ratherthan taxation, planning and investment controls and allocations, distortions in thedistribution pattern are further entrenched and opportunities for enduring andreasonable land allocations are lost. Land transfers are inhibited, changes inownership are concealed and other mischiefs are apparent.146

3.7 Further Issues for the Land Market - Law No 4 of 1996 Re SecurityTitles on Land and Land-Related Objects

A cursory examination of this important law, which implements Article 51 of theBasic Agrarian Law, reveals that it too poses significant issues for the market. ThePart C Report on Indonesian Land Law and Tenures – Issues in Land Rights notesthat this law does not give effective remedies to a mortgagee which are “familiarin the commercially developed systems of land mortgage”.147 It does not entitle amortgagee upon default by the borrower to sell the land by private treaty. Privatetreaty is only possible with the agreement of the borrower and where doing sowill increase the price of the said object to the maximum to the benefit of allinterested parties148. Nor does it confer on the mortgagee the right to possession ofthe land, the right of foreclosure or the right to appoint a receiver.149

146 Op. cit. at pp. 7-28 – 7-29.147 Ibid. at p. 7-25.148 Article 20(1), (2) Law on Security Titles149 c.f. Conveyancing Act 1919 (New South Wales) Section 109 Powers of mortgagees and certain chargees

(1) A mortgagee and a chargee shall by virtue of this Act have the following, namely:

(a) A power to sell or to concur with any other person in selling the mortgaged or charged property, or anypart thereof, either subject to prior charges or not, and either together or in lots, in subdivision orotherwise, by public auction or by private contract,

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The immediate right to possession is not only the greatest incentive to avoiddefault by the borrower but entitles the mortgagee to the rents and profits of themortgaged land and the mortgagee can continue the borrower’s business inpreparation for any sale of the land.150 The right to appoint a receiver is importantfor commercial securities. A receiver may demand and recover all the income ofthe property exercise any powers which may have been delegated by themortgagee. The right of foreclosure is not available to the mortgagee.

The critical deficiencies of the Law on Security Rights have obvious and profoundimpacts on the security market and require substantial revision to permit creditorseffective remedies when borrowers default on loans.

Additional problems for security right holders arise from the insecure nature ofthe tenures which may be the subject to the security right. Article 4 of the Actprovides that hak milik, hak guna usaha, hak guna bangunan and hak pakai onState land may be the subject of a security right. In the discussion of those tenuresin Chapter I, it was noted that those tenures are not legally secure because theymay be nullified and the land revert to the direct control of the State for variousreasons. Neither the Law No 40 of 1996 Re Hak Guna Usaha, Hak Guna Bangunanand Hak Pakai nor Government Regulation No 36 of 1998 Re Control andUtilisation of Abandoned Land deal with the position of security right holderswhen the right which is encumbered with the security right vanishes and the landreverts to the State. Law No 40 of 1996 indeed confirms that upon cancellation ofthe right, the security right is also cancelled.151

Law No 4 of 1996 Re Security Rights provides that “the nullification of a securityright as a result of the nullification of the land right which is encumbered with thesecurity right shall not result in the nullification of the debt guaranteed with thesecurity right in question”.152 That is cold comfort to the creditor who has, uponcancellation of the land right, lost the only effective means of recovering the

(b) A power at any time after the date of the instrument to insure..against loss or damage by fire any buildingor any effects or property of an insurable nature whether affixed to the freehold or not being or formingpart of the mortgaged or charged property,...

(c) A power to appoint a receiver of the income of the mortgaged or charged property

(d) A power, while the mortgagee or chargee is in possession, to cut and sell timber.

(e) A power to sever and sell fixtures apart from the balance of the mortgaged or charged property.150 Indonesian Land Law and Tenures op. cit. at p. 7-23.151 See Articles 15(2), 33(2) and 53(2) of Law No 40 of 1996.152 Article 18(4) of Law on Security Rights on Land and Land-Related Objects

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money lent to the right holder. Furthermore, the rights, apart from hak milik, arelimited in time and that again increases the risk for the lender.

These deficiencies in the land law and security law systems need to be redressed.If the Law of Security Rights is not revised and the insecurity of tenures removed,then those laws will continue to inhibit one of the stated goals of ILAP; that is, themobilisation of financial resources through the use of land as collateral.153

153 Staff Appraisal Report at p. 2.

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4. CHAPTER IV - HAK ULAYAT AND THE BASIC AGRARIAN LAW

4.1 Introduction

Further compelling reasons for the reform of the Basic Agrarian Law arise from theissue of hak ulayat which can not be admitted as a right over land in either the BasicAgrarian Law or the registration scheme constructed by Government RegulationNo 24 of 1997.

The earlier part of this paper examined the lack of security of Indonesian landtenures. Legal security of tenure is also a critical issue for indigenous peoples. Itis therefore now proposed to briefly examine Indonesian land law from thisperspective.

Hak ulayat is usually described as the customary right of local indigenouscommunities to manage the land within their traditional territories. Early Dutchscholars described this concept as the “right of disposal” and “sovereignty” overthe land.154 Many traditional communities continued to exercise rights over theland within their territories.

In modern times, as in the past, much conflict between the traditional communitiesand the State has been generated as the State sought to exploit the vast naturalresources within the traditional territories. Such exploitation takes the form of thegranting by the State to private capital of forestry and mining concessions, rightsof exploitation for the establishment of plantation cultivation and theimplementation of transmigration policies and laws. The exploitation of landwhich is the subject of hak ulayat has been implemented without a just settlementwith its indigenous peoples. The assertion of the superior authority of the State,administrative failures in law enforcement and a general political disregard ordenial of the traditional rights of those people has resulted in cultural destruction,social displacement and environmental degradation.

4.2 Hak Ulayat in the Basic Agrarian Law

It is claimed that hak ulayat is recognised and protected in the Basic Agrarian Law.But a closer examination of the provisions of this law shows that hak ulayat doesnot enjoy any substantive recognition and protection under this law. Hak ulayat

154 Van Vollenhoven in Indonesian Adat Law (beschikkingsrecht); Ter Haar (hak pertuanan) op. cit. at p.78.

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must, under the present legislation, crumble along with the traditional socialorganisations in the face of the superior legal and executive forces of the State.

Article 3 of the Basic Agrarian Law provides as follows:

“In view of the provisions contained in paragraphs (1) and (2) of Article 2,the implementation of the ulayat rights and other similar rights of adat-lawcommunities – as long as such communities in reality still exist – shall besuch that it is consistent with the nations interests and the interests of theState based on national unity and shall not contradict the laws andregulations of higher levels.”

The General Elucidation of the Basic Agrarian Law states that “This provisionrests on the new agrarian law’s recognition of the existence of hak ulayat..which hasnever been officially recognised in law. The lack of recognition has resulted in thefact that during the period of colonisation, the implementation of agrarianregulations frequently neglected the existence of hak ulayat. The fact that hak ulayatis mentioned in the Basic Agrarian Law basically means that the said right isrecognised. Therefore, in principle, hak ulayat will be taken into consideration aslong as the said right in reality still exists in the law community n question.”

The elucidation gives the example that, in the granting of a land right (such as theright to cultivate (hak guna usaha)), the relevant law community will first be heardand given some recognitie (recognition) to which they are entitled in their capacityas holder of the hak ulayat in question.

However, the elucidation goes on to state that “it would not be justifiable for anadat community….to reject a plan on large-scale clearing of forests on an on-goingbasis” which is required for the implementation of projects for food production orrelocation of people. Experience shows that regional development is impeded byproblems related to hak ulayat. The interests of the adat community should besubordinated to the broader interests of the nation and of the State and theimplementation of hak ulayat should also be consistent with the broader interests.”

Nor would it be justifiable, according to the elucidation, for an adat community toadhere to “the contents and implementation of their hak ulayat on an absolute basisas if the law community in question were disengaged from other adat communitiesand other regions in the current atmosphere of the State as a unity”.

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The qualifications in the actual provision of the Basic Agrarian Law and itselucidation result in only nominal recognition of hak ulayat. While it is said that hakulayat is recognised by the Basic Agrarian Law, in reality, this recognition istokenistic and superficial. The adat community may continue to exercise its rightof disposal only so long as the government does not dispose of the land. Once thegovernment plans to dispose of the land, the adat right of disposal must yield tothe national interest of the State.

There are numerous contemporary schemes which recognise and protect the non-individualistic rights of indigenous peoples to land. Despite attempts to mystifyhak ulayat and claims that it is uniquely Indonesian and something which isbeyond the comprehension of outsiders, it is fairly clear that hak ulayat and theproblems which the modern world pose for Indonesia’s indigenous peoples areno different from the problems faced by indigenous communities any where in theworld.

The central problem posed by the Basic Agrarian Law for the rights of theindigenous is the focus on individual ownership and the lack of protectionafforded to hak ulayat and the subjugation of hak ulayat wherever it conflicts withthe exercise of power by the central State. Hak Ulayat is not recognised in juridicalterms.

Another difficulty posed for hak ulayat by the Basic Agrarian Law is as follows. Aperson who has acquired a hak milik according to the local adat may, in principle,apply for the registration of the right as a statutory hak milik under the BasicAgrarian Law. Once a hak milik is registered, it can not return to the jurisdiction ofits original adat law. Upon extinction of the right through abandonment, the landwill revert to the control of the central State and not back to the adat community.This is a consequence of Article 27a.3 of the Basic Agrarian Law. Through suchprocesses, the original territory of the adat community will be diminished untileventually it disappears.

This process is acknowledged in the Regulation of the Minister for AgrarianAffairs No 5 of 1999 discussed below where it provides in Article 4 that “thepossession of land parcels which are included in ulayat land as meant in Article 2by an individual and a body corporate can be carried out by a member of the adatlaw community concerned with the right of possession according to the provisionof the existing adat law which, id demanded by the right holder, can be registeredas the right on land which is in line with the provision of the Basic Agrarian Law.”

It is clear, therefore, that the threat posed by the registration under the BasicAgrarian Law of hak milik which has come into existence in accordance with local

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adat law requires considerably more substantial consideration. If the legal securitywhich is sought for hak ulayat is to materialise in legislation, then this issue mustalso be resolved.

4.3 Government Regulation No 24 of 1997 Re Land Registration and HakUlayat

Government Regulation No 24 of 1997 Re Land Registration does not include hakulayat as a right which is capable of registration.155 Furthermore, the definition ofState land in that regulation does not admit the existence of hak ulayat. It definesState land as “land which is not possessed under a certain land right”. Land rightsare defined in that regulation as the rights as meant in Article 16 of the BasicAgrarian Law. It follows from these definitions that any land upon which it can notbe demonstrated that a statutory right exists is State land. Such land thereforeincludes land governed by hak ulayat. This is essentially the same definition of thecolonial State’s domein. The problems relating to hak ulayat are related to the controlby the State over all land in Indonesia.

4.4 Regulation of the Minister for Agrarian Affairs No 5 of 1999

There has been a recent departure from the previous policy adopted by theNational Land Agency towards hak ulayat. The regulation is Regulation of theMinister for Agrarian Affairs No. 5 of 1999 Concerning Guidelines for theSettlement of Hak Ulayat Issues of the Adat Law Community which was signed bythe Minister on 24 June 1999.

Article 5(1) provides that the investigation and determination that ulayat stillexists..shall be conducted by the Regional Government with the participation ofadat law experts, the adat law community, non-government organisations and otherinstitutions involved in the management of natural resources. Paragraph (2)further provides that the ulayat land of the adat law community …shall be statedon the land registration base map by giving a cartographic mark and, if possible,by drawing the boundaries and recording them in the land register.

The regulation specifies a role for the Regional Government in the process ofsettling hak ulayat and indeed, it seems that the full implementation of theregulation relies on the enactment of Regional Government regulations. Article 3 155 Article 9 lists the objects of land registration as land parcels having the status of hak milik, hak gunausaha, hak guna bangunan, hak pakai, hak pengelolaan, wakaf, hak milik atas satuan rumah susun, haktanggungan, and state land (tanah negara ).

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provides, for example, that hak ulayat can no longer be exercised on land parcelswhich, at the time of the enactment of the Regional Regulation as meant in Article6 have already been possessed by an individual or a corporate body with a certainright according to the Basic Agrarian Law or land parcels which have already beenacquired by a government institution, body corporate or individual in accordancewith the existing provisions and procedures.

Article 6 provides that further stipulations concerning the implementation ofArticle 5 shall be regulated by a regulation of the Region concerned. Theelucidation states, in relation to this Article, that if the boundaries of the land canbe provided according to the boundary marking procedure in the implementationof land registration, the said boundaries can be drawn on the land registrationbase map and recorded in the existing land register (daftar tanah not the bukutanah). All of this should be arranged in a Regional Regulation in line with thecondition of the respective regions as meant in Article 6.

The elucidation further states that:

“In the meantime it can be confirmed that at the time of the issuance of theRegional Regulation regulating hak ulayat there will be land parcels whichhave already been possessed by individuals or corporate bodies with acertain right on land in line with the Basic Agrarian Law or alreadyacquired in line with the existing provisions and procedures although theright has administratively not been acquired.”; and

“Further arrangement on the above matters (criteria and determination ofhak ulayat and the authority of the adat law community) is delegated to theRegions according to existing laws and regulations (Article 6), in line withthe purpose of Law No 22 of 1999 RE Regional Government and thus theywill be able to absorb more aspirations of the local community”.

The implementation of this regulation requires further Regional Governmentregulation. The elucidation states that the investigation of the existence of thethree elements of hak ulayat; namely, the existence of the adat law community, theexistence of the ulayat area of land and the existence of the relationship betweenthe community and the territory are to be conducted by the Regional Government.

The question whether or not communal rights exist is a difficult one involvingissues of proof and evidence; for example. how and by whom can traditionalclaims to areas of land conclusively be justified in terms of statutory law. This is

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particularly problematical for shifting agriculturists in forest and miningconcession areas.156

The assignment of the determination of the existence of hak ulayat to the regionalgovernment is also problematical. The regional government is a politicalorganisation. The determination of legal rights should not be left to agents whoare susceptible to political influences. An independent and specialised judicial orquasi-judicial body should be constituted with the power to determine the criticalaspects of hak ulayat. Further provision is required in relation to agreementsbetween the community and outside commercial interests concerning the use ofthe land, the resolution of disputes and the constitution of bodies corporate asrepresentatives of the community and the operation of those bodies.

The regulation is neither adequate in itself to deal with the problem of hak ulayatnor does it apply in non-forest areas which are outside the jurisdiction of theNational Land Agency.

There is a debate about whether hak ulayat is a right on land or a mere right tomanage the land. The focus on the nature of hak ulayat as a relationship with theland rather than an enforceable land right inhibits efforts to secure the rights ofindigenous people in Indonesia. This semantic debate distracts attention from thecentral issues which are the security of the rights of the indigenous communitiesto their land, the right to make decisions about its use by members and non-members, compensation when hak ulayat is extinguished according to acquisitionlaws or intruded upon through the past and future grants of mining, forestry,plantation concessions or other uses in the public interest, and its surrender tooutsiders. None of these issues is dealt with in the existing regulation.

What is required is an Act of the Indonesian Parliament to deal comprehensivelywith hak ulayat. Until that occurs, the difficult issues associated with hak ulayat willcontinue. As Sumardjono notes, “some explicit clarification is…required aboutwhat is meant by recognition of ulayat rights and such clarification needs to bestated in a piece of legislation that can serve as a fair basis for settling the existingcases of ulayat land and for managing ulayat rights.

156 See Evolutionary Change in Indonesian Land Law Traditional Law (Adat) Perspectives Final Report Part CLand Administration Project pp. 10-1 – 10-2.

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If neglected, the ulayat right issue will be a time bomb that is ready to explodeanytime”.157

4.5 ILAP and Hak Ulayat

During the first five years of the implementation of ILAP, areas in which hak ulayatexisted were avoided or, where it was found in selected areas, it was left outsideproject implementation. This was a wise decision. Following the WorldBank/AusAID mid-term review mission in November 1999, a decision was madeto abandon this policy.

It is now proposed to implement pilot projects with the express purpose ofconfronting and dealing with the “problem” of hak ulayat in the second phase ofILAP. Arguments are presented that this be done in the name of efficiency (toensure completeness of cadastral maps) and to secure legal security for traditionalcommunities.158 It said that “the purpose of registration of communal land is torecord in the land register in a conclusive and authoritative way the rights of thecommunity over land that is collectively used and over which the community..hasacquired the right of use or the right of ownership.”

This proposal is fraught with considerable difficulties in light of the manyelemental deficiencies in the existing legislation. The arguments upon which thisproposition are based are illusory.

Hak ulayat is not presently regarded as a right on land, either in the broad juridicalsense under the Basic Agrarian Law nor under the land right registrationlegislation. The authority to administer hak ulayat is vested in the community. Thehak ulayat of the community is not a hak milik or a hak pakai. Confusion between thehak ulayat and a hak milik acquired by a communal group159 must be disposed of.Where a non-individual entity has acquired a hak milik over particular parcels ofland used for specific communal purposes, that might be registered, subject to theprohibition of corporate entity ownership of such rights which presently denysuch registration.

Furthermore, under the existing laws, no corporate entities may own land rightssave for those specifically designated by Government Regulation No 38 of 1963.

157 Sumadjono M Land Policy Reforms Kompas 25 September 1998.158 Developing a Strategy for Registration of Communal Systematic Paper by Registration Systems AdviserILAP 13 December 1999 Land Administration Systems Australia Pty Limited Jakarta 1999159 See the discussion of this in Ter Haar op. cit. at p. 68.

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An adat community enjoys no legal status under existing law let alone beingrecognised a corporate entity capable of owning land rights.

As Slaats has noted, “it may be questioned whether registration of land will add totheir security if the rights granted to them through registration do not coincidewith the traditional system..”160

No proper mechanism exists for the determination of the existence of hak ulayat.Registration under Government Regulation does not provide legal security of anyrights; even those acknowledged as rights on land under the Basic Agrarian Law.Proposals that its existence be determined by the Adjudication Committeeconstituted under Government Regulation No 24 of 1997 are inappropriateespecially having regard to the anticipated role of the Regional Governments inthis process.

Any proposal to bring hak ulayat within the registration system must first resolve amultitude of issues, not the least of which is what is to happen in relation toindividualised rights within a hak ulayat area once the hak ulayat area is broughtwithin the registration system. The current proposal is to register suchindividualised rights but that is in direct conflict with the continued existence andprotection of hak ulayat.

It might also be reasonable anticipated that there will be opposition to what mightbe perceived as intrusion into the hak ulayat areas. In the recent past, there hasbeen vigorous opposition to the registration of hak ulayat.161

Consequently, it is recommended that attempts to deal with hak ulayat, in view ofthe many legal issues identified above, ought to be abandoned until there is acomprehensive legislative scheme which addresses those issues.

160 Slaats H Adat Land: A Socio-Anthropology of Law Approach” paper presented at Seminar “Tanah Adat”Research Centre Universitas Kristen Atma Jaya and Research Centre National Land Agency Bogor September1996 at pp. 2-3 cited in Memoranda KPA Keempat Mengenai Proyek Administrasi Pertanahan “Tidak UntukPendaftaran Tanah Komunal Konsortium Pembaruan Agraria Bandung 1997 at p. 2.161 For example, Memoranda KPA Keempat Mengenai Proyek Administrasi Pertanahan “Tidak UntukPendaftaran Tanah Komunal” Konsortium Pembaruan Agraria Bandung 1997

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5. CHAPTER V - AUXILLIARY OBSERVATIONS AND CONCLUSIONS

5.1 Possession

The Basic Agrarian Law (Article 19) provides for the registration of land rights tobe implemented throughout Indonesia. Pursuant to this Article, GovernmentRegulation No 10 of 1961 was enacted but did not achieve the objective ofregistering all land in Indonesia during the 36 years of its operation; mainlybecause of the huge number of land parcels but also because the necessary fundswere not allocated by successive governments. This regulation was replaced byGovernment Regulation No 24 of 1997 which is the current legal basis for theimplementation of systematic and sporadic registration of land rights.

An earlier report by the writer analysed some of the problems associated with thatlegislation including the requirements to establish entitlement to registration asowner of a hak milik. One of the bases upon which a right holder might beregistered is 20 years possession; either by the present right holder or by thepresent right holder and his/her predecessors.

However, possession is only acknowledged for the purposes of registration ofrights and it otherwise does not have any legal effect. Given that ILAP anticipatesat least 25 years before all land rights will be registered, the land law also requiresreview in order to admit possession of land as constituting a legal title to landwhether or not it is registered under Government Regulation 24 of 1997.

This issue is substantially considered in the Report by Part C referred toelsewhere in this paper and entitled “Indonesian Land Law and Tenures Issues inLand Rights” at Chapter 2. The recommendations made in that report arerespectfully adopted for the purposes of this report. Careful consideration of theapplication of the principle of possession must be given in the context of landwhere hak ulayat exists.

5.2 Review of Punitive Provisions

The punitive provisions of the Basic Agrarian Law and the authority granted bythe Basic Agrarian Law for implementing regulations to impose punitiveprovisions provide that the maximum penalties which may be so imposed areimprisonment for a maximum of three (3) months and/or a fine of Rp 10 000.

While these limits on penalties may have been appropriate when the law wasenacted, a fine of Rp10 000 nowadays would not dissuade breaches of obligationsimposed by the Basic Agrarian Law or any of its implementing regulations.

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In particular, if the recommended introduction of the positive system isimplemented, there will be no need to threaten criminal sanctions for breachingobligations to seek to register. Such obligations should be omitted from anysubsequent land law or land right registration government regulation. The historyof land right registration demonstrates the failure of coercive mechanisms asattempts to ensure registration is sought by right holders.

5.3 Involvement of Private Sector in Land Registration

Article 19 of the Basic Agrarian Law provides that “To guarantee legal security,the Government shall administer land registration throughout the whole territoryof the Republic of Indonesia.” It seems fairly clear from this provision that landregistration must be implemented by the Government as opposed to the privatesector. Government Regulation No 24 of 1997 confirms that registration is to beimplemented by the National Land Agency through it Land Offices.162

However, certain ministerial regulations permit the engagement of private sectorsurveyors in the surveying and mapping activities of land right registration; viz.,Article 45 of PMNA 3 of 1997 Re Implementing Provisions of GovernmentRegulation No 24 of 1997 Re Land Registration. Regulation of the Minister forAgrarian Affairs No 2 of 1998 regulates Licensed Surveyors.

There are certain proposals to involve the private sector in activities beyond thetechnical activities of surveying and mapping to include right determination.

It is unfortunate that the decision to involve the private sector was not submittedto a higher law-making authority than the Minister. It is, in principle, notobjectionable that purely technical activities of land right registration be delegatedto the private sector but that is an important policy decision which ought to havebeen submitted to the legislature (the DPR).

In any review of the Basic Agrarian Law, consideration should also be given tothis question.

162 Article 5 Government Regulation No 24 of 1997 Re Land Registration.

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5.4 Registration Outside Cities

The Elucidation of the Basic Agrarian Law states that “registration will beimplemented by taking into account the interests and condition of the State and itspeople, the needs for socio-economic movements, and the possibilities open interms of personnel and equipment. In view of this, the cadastre will beimplemented first in cities and subsequently, on a gradual basis, throughoutIndonesia.”163 Land registration to date has not focussed solely on the cities. Thispractice is in direct conflict with the elucidation. So that this contradiction isremoved, the law requires amendment to enable registration to focus on the poor,the greatest number of which live in rural areas.

5.5 Calls for Review of the Basic Agrarian Law from within Indonesia

The view that the land law confers wide administrative discretions on the agenciesof the State is also being expressed within Indonesia. In a State where theexecutive power is stronger than the judiciary and the legislature, the right ofcontrol over land as stipulated in the Basic Agrarian Law can easily turn intoarbitrariness on the part of the government. This has been evident in the growingdiscrepancy in the ownership of land as a productive asset, the lack of recognitionand protection for the people’s rights on land, the government’s unclear attitudetowards hak ulayat, the people’s access to land and their weak bargaining positionin the settlement of land disputes. The State’s right of control over land should belimited by law. This means that the Basic Agrarian Law needs to be revised.164

There has also been recent developments within the government to generate areform process. Presidential Decree No 48 of 1999 Re Team of Policy andRegulation Review for Land Reform Implementation was issued on 27 May 1999.The ambit of the decree went beyond the mere land reform provisions of the BasicAgrarian Law and extended to a review of the regulations concerning land affairsgenerally165.

It has also been said “that it is the right time for us to develop a new Land Law asa replacement for the Basic Agrarian Law, more so because the considerationsgiven for the establishment of the Basic Agrarian Law --which were made inreference to Presidential Decree No. 5 of 1959 and to the Political Manifesto of the

163 General Elucidation Part A (IV).164 Per Prof. Lutfi Nasution Bogor Institute of Agriculture reported in Kompas 29 October 1999.165 Article 3 of the Decree stated the tasks of the Land Reform Team as including the “review of the regulationsconcerning land affairs”.

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Republic of Indonesia as stated in Presidential Address dated 17 August 1960--are no longer relevant now.”166

The pressures for reform of land policy generally have been identified aspopulation growth, the shrinking supply of land, the deterioration of its quality,the shift in land functions, the mounting seriousness of conflicts over land use,poverty, unemployment, unequal distribution of access to land and themarginalisation of the rights of adat-law communities.167

5.6 General Conclusion

The general conclusion from the foregoing analysis of the provisions of the BasicAgrarian Law which relate to land tenures and title registration, those whichimpact on the development of the land market and those dealing with traditionalrights of indigenous peoples is that, on all three counts, radical review of that lawand its main implementing provisions is essential to remedy the multitude ofproblems caused by excessive State control of tenures and their basic legalinsecurity, legal provisions which prohibit or inhibit the development of a landmarket and those which fail to secure the interests of traditional communities inrespect of land.

These wide-ranging and multi-dimensional issues concern the whole ofIndonesian society and can not be dealt with solely through the landadministration agency. What is required to address the problems of the presentland law system is an independent National Land Law Reform Commission orsimilar body established by an Act of the Parliament to:

w develop land law reform policies and strategies;

w develop inter-agency cooperation;

w undertake strategic reform activities;

w generate and supervise legislative reforms; and

166 Prof. C.F.G. Sunaryati Hartono, SH Hak Ulayat Arrangements in the New Basic Agrarian Law Jakarta,reported in Kompas 31 August 1999.167 Per Sumadjono M Professor of Agrarian Law University of Gajah Mada Yogyakarta Land Policy ReformsKompas 25 September 1998.

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w procure advice from experts.168

Without such a broad-based land law reform agent, it is difficult to see how theproblems presented by the Basic Agrarian Law for the people of Indonesia,particularly those pertaining to the security of land tenure and invasive Statecontrol, civil peace and the problems it poses for the Indonesian economy andindigenous peoples will ever be solved in a just way.

Warren WrightLand Law Adviser – International16 December 1999Jakarta

168 Per Indonesian Land Law and Tenures Issues in Land Rights op. cit. pp. 8-3 – 8-4. A recent development isthe creation of the National Law Commission comprised of prominent intellectuals and practitioners (Kompas14 December 1999 “Anggota Komisi Hukum Berannggotakan Enam Orang”)

a

BIBLIOGRAPHY & REFERENCES

LAWS AND REGULATIONS

NederlandsAgrarische Wet 1870 (Agrarian Act State Gazette 1870-55)

Domeinverklaring 1870 (Declaration of the State as Owner 1870 State Gazette 1870-115)

Algemene Domeinverklaring (General Declaration of the State as Owner State Gazette1875-119a)

Domeinverklaring untuk Sumatera (Declaration of the State as Owner for SumateraState Gazette 1874-94f)

Domeinverklaring untuk Keresidenan Menado (Declaration of the State as Owner forthe Regency of Manado State Gazette 1877-55)

Domeinverklaring untuk Residentie Zuilder en Oosterafdeling van Borneo (Declaration ofthe State as Owner for the Regencies in the Southern and Eastern Parts ofKalimantan State Gazette 1888-58)

Koninklijk Besluit (Decree of the Dutch Kingdom State Gazette 1872-117)

Grondvervreemdingsverbod (Ordinance on Prohibition on Land Alienation 4 August1875)

Burgerlijk Wetboek voor Indonesie (Civil Code for Indonesia State Gazette 1847-23)

Indonesia

Basic Agrarian Law 1960

b

Circular Letter of the Minister for Agrarian Affairs No 500-2165-DIII 27 May 1999Re Forms and Drafts of Decisions on the Granting and Extension of Rights on Land

Decision of the Minister for Agrarian Affairs No 2 of 1998 Re Granting of HakMilik on Land for Houses Purchased by Civil Servants

Decision of the Minister for Agrarian Affairs No 6 of 1998 Re Granting of HakMilik on Residential Land

Decisions of the Minister for Agrarian Affairs No 9 of 1997, No 15 of 1997 and No 1of 1998 Re Granting of Hak Milik on Land for Simple and Very Simple Houses

Government Regulation No 224 Tahun 1961 Re Implementation of LandSubdivision and Compensation

Government Regulation No 24 of 1997 Re Land Registration

Government Regulation No 36 of 1998 Re Control and Utilisation of AbandonedLand

Government Regulation No 40 of 1996 Re Hak Guna Usaha, Hak Guna Bangunanand Hak Pakai

Government Regulation No 38 of 1963 Re Designation of Bodies Corporate whichmay Own Hak Milik

Instruction of the Minister for Agrarian Affairs No 4 of 1998 Re Expedition of LandRegistration Service for Hak Milik on Residential Land

Law No 21 of 1997 Re Tax on the Acquisition of Land Rights and Buildings

Law No 1 of 1958 Re Abolition of Partikelir Land

Law No 4 of 1996 Re Security Rights on Land and Land-Related Objects

c

Law No 56 of 1960 Re Limits on the Area of Agricultural Land

Law No 2 of 1960 Re Share-cropping Agreements (Agricultural Land)

Law No 28 of 1999 Re State Organiser Which is Clean and Free from Corruption,Collusion and Nepotism.

Presidential Decrees Nos 97 of 1993 and 41 of 1996

Regulation of the Minister for Agrarian Affairs No 2 of 1960 Re TheImplementation of Some Provisions of the Basic Agrarian Law

Regulation of the Minister for Agrarian Affairs No 2 of 1962 Re Confirmation ofConversion and Registration of former Indonesian Rights on Land.

Regulation of the Minister for Agrarian Affairs No 9 of 1965 Re The Right ofManagement

Regulation of the Minister for Agrarian Affairs No 3/1997 Re ImplementingProvisions of Government Regulation No 24 of 1997 Re Land Registration

Regulation of the Minister for Agrarian Affairs No 7 of 1961 Re Land RegistrationAdministration

Regulation of the Minister of State for Agrarian Affairs No 2 of 1993 Re Proceduresfor Companies Wishing to Invest Capital to Obtain Location Permits and LandRights

Speech by the Agrarian Minister to the Dewan Perwakilan Rakyat-Gotong Royong(Gotong-Royong House of Representatives) 12 September 1960 on the Introductionof the Basic Agrarian Law

Australia

Aboriginal Land Rights Act 1983 (New South Wales)

Conveyancing Act 1919 (New South Wales)

d

Native Title Act 1993 (Commonwealth)

Native Title Act 1994 (New South Wales)

Real Property Act 1900 (New South Wales)

COURT DECISIONS

Mahkamah Agung 16 June 1976 No 1082/K/Sip/1976 and 19 September 1970 No123/K/Sip/1970, 12 June 1976 No 952/K/Sip/1974

Mabo v The State of Queensland (No 2) (1992) 66 CLR 186

REPORTS AND TEXTS

Bathurst Declaration on Land Administration for Sustainable Development Reportof the Workshop on Land Tenure and Cadastral Infrastructures for SustainableDevelopment United Nations International Federation of Surveyors BathurstOctober 1999

Benda-Beckmann The Minangkabau of West Sumatera An Anthropological Study

Butt P Land Law Edition 3 1996 LBC Information Services

Developing a Strategy for Registration of Communal Systematic Paper byRegistration Systems Adviser ILAP 13 December 1999 Land AdministrationSystems Australia Pty Limited Jakarta 1999

Evolutionary Change in Indonesian Land Law Traditional Law (Adat)Perspectives Final Report Land Administration Project Part C Support for LongTerm Development of Land Management Policies Topic Cycle 4

Gautama S. Indonesian Business Law 1995 Bandung PT Citra Aditya Bakti

Harsono B 1997 Hukum Agraria Indonesia: Sejarah Pembetukan Undang-UndangPokok Agraria, Isi dan Pelaksanaannya Jakarta Djambatan p pp. 263-268

e

Harsono B Hukum Agrarian Indonesia Himpunan Peraturan-Peraturan HukumTanah Djambatan 1973

Indonesian Land Law and Tenures Issues in Land Rights Final Report Topic Cycle4 Part C Indonesian Land Administration Project (Support for Long TermDevelopment of Land Management Policies)

Informasi Peraturan Peraturan-Undangan Pertanahan Biro Hukum dan HumasBPN Jakarta 1996 – 1999 Vols. 1-4, 6-9

Land Acquisition and Development Controls Final Report Part C LandAdministration Project (Support for Long Term Development of LandManagement Policies)

LASA Report on the Review of Government Regulation No 24 of 1997 dated 9September 1999

Masruchah Untoro (ed.) Tanah, Rakyat dan Demokrasi 1995 Forum LSM – LPSMDIY

Memoranda KPA Keempat Mengenai Proyek Administrasi Pertanahan “Tidak!Untuk Pendaftaran Tanah Komunal” (No! to Communal Land Registration)Konsortium Pembaruan Agraria Bandung 1997

Pendaftaran Tanah di Indonesia Edisi 2 1998 Koperasi Pegawai Badan PertanahanNasional Bhumi Bhakti

Project Preparation Report Indonesian Land Administration Project 1993LASA/BPN

Reinhart A ILAP National Land Law Adviser Annotations on GovernmentRegulation No. 24 of 1997 Jakarta 1999.

Rowton-Simpson Land Law and Registration

f

Soesengobeng H Social Assessment Impact Study 1 November 1999 LandAdministration Systems Australia Pty Limited Jakarta 1999

Sumadjono Maria Land Policy Reforms Kompas 25 September 1998

Ter Haar B Asas-Asas dan Susunan Hukum Adat trans. K. Ng. SoebaktiPoesponoto Pradnya Paramita Jakarta 1994

Van Vollenhoven in Indonesian Adat Law

West D. “The Role of Land Registration in Developing Countries” 102 CharteredSurveyor November 1969 212

Wignjodipoero S Pengantar dan Asas-Asas Hukum Adat 1988 Jakarta C V HajiMasagung

World Bank Staff Appraisal Report Document No 12820-IND Indonesian LandAdministration Project 16 August 1994

World Bank A Social Assessment Study of the Land Certification Program TheIndonesian Land Administration Project 1999 Jakarta

NEWSPAPER REPORTS

Asian Wall Street Journal 24 November 1999 page 5 Thompson Global Markets

Sumadjono Maria Land Policy Reforms Kompas 25 September 1998

Prof. Dr. Lutfi Nasution Bogor Institute of Agriculture Kompas 29 October 1999

Prof. Dr. C.F.G. Sunaryati Hartono, SH Hak Ulayat Arrangements in the New UUPAJakarta, 31 August 1999

g

Anggota Komisi Hukum Beranggotakan Enam Orang (Law CommissionComprised of Six Members) Kompas 14 December 1999