Real Estate in Indonesia – Preliminary Contract – Real Estate and Construction



Indonesia: Real estate in Indonesia – pre-contract

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The Indonesian Civil Code (ICC) as a regulatory framework for contracts does not regulate pre-contractual documents such as letter of intent, memorandum of understanding, list of conditions or other non-binding agreements, although these are usually concluded. by the parties to the transaction prior to entering into a binding contract.

Before signing a contract for a real estate transaction, the buyer will conduct a due diligence to identify any significant risks that may affect the transaction. The result of due diligence is critical in determining the terms of a binding contract to be entered into by the parties, such as preconditions to be imposed on the seller, statements and warranties from the seller, and damages to the seller. customer. The parties usually enter into a non-disclosure agreement before disclosing documents, data and information for due diligence purposes.

The use of a real estate broker is common when selling or renting property, but the commercial activities of a real estate broker do not extend to real estate financing. In accordance with the Regulation of the Minister of Commerce No. 51 / M-DAG / PER / 7/2017 on brokerage companies (3 August 2017), the activities of a real estate broker include property analysis, marketing, consulting and information dissemination services related to property … The real estate broker will receive a commission for their services. For sale transactions, the commission is 2-5% of the transaction amount, for leasing – 5-8% of the transaction amount.

Real estate brokerage is closed to foreign investment and real estate brokerage companies must obtain a business license from the Minister of Commerce. Brokerage specialists must obtain a certificate of competence.

Contract of sale

Land is acquired legally in Indonesia following the conclusion of a Purchase and Sale Agreement (AJB) between the seller and the buyer or a Land Transfer Agreement (APH) for the benefit of the buyer. AJB is used if the buyer wishes to acquire a certified title to land of the same type as the certified title of the seller. APH is used if the seller has a confirmed title to the land that is not the same type of title that the buyer can or wants to acquire, or if the seller does not already have a confirmed title to the land to be sold.

The AJB or APH must be drafted by a land contract officer (PPAT) with jurisdiction over the land and must be completed in Indonesian prior to such a PPAT. Clauses in AJB or APH are usually standard (e.g. details of the land, purchase price, transfer of proceeds and obligations in the transfer of title or performance of a contract,

fee allocation and dispute resolution forum). Because the AJB and APH are documents that will need to be provided or made available to government agencies or other third parties for various purposes, the parties to the transaction will generally refrain from disclosing agreements therein that are commercial, sensitive or confidential in nature. These agreements are usually governed by a separate sales contract between the parties.

Issues that are usually dealt with in a contract include precedent conditions, statements and warranties from both seller and buyer, obligations or covenants, default cases and damages.

The content of this article is intended to provide general guidance on the subject. You should seek professional advice regarding your specific circumstances.

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