Navigating Nominee Agreements: A Comprehensive Guide for Foreigners Investing in Bali Property

Land ownership is a crucial aspect of the Bali property market, and it is crucial for both locals and foreigners to understand how land ownership works in Bali. One of the ways to own land in Bali as a foreigner is by signing a nominee agreement. In this article, we will discuss the concept of nominee agreements in Bali and everything you need to know about them.

What is a Nominee Agreement in Bali Property?

A nominee agreement is a legal agreement between two parties where the nominee (a third party) is appointed to hold legal ownership of the land on behalf of the real owner. Nominee agreements are commonly used in Bali to allow foreigners to own land as Indonesian citizens cannot legally own freehold land in Indonesia.

Nominee agreements are also used to bypass certain legal restrictions on foreign property ownership. A foreigner can acquire a long-term leasehold right on a property, but the leasehold is only valid for 25-30 years. By signing a nominee agreement, the foreigner can have full legal ownership of the land and property, which can then be leased to them for a long period.

How Does a Nominee Agreement Work?

A nominee agreement works by having the nominee hold legal ownership of the land on behalf of the real owner. The nominee signs an agreement with the real owner, which outlines the responsibilities of the nominee and the rights of the real owner.

The agreement stipulates that the nominee has no rights to sell or dispose of the land without the written consent of the real owner. The nominee is only a temporary holder of the land and has no right to claim ownership of the land. In return for holding legal ownership of the land, the nominee is paid a fee or commission by the real owner.

Types of Nominee Agreements

The types of agreement that are usually used to materialize nominee arrangements to obtain land for foreigners are as follows:

• Land ownership agreement including a power of attorney:
  The nominee will acknowledge that land registered under his name actually belongs to the beneficiary who provided the funds to purchase the land. In addition, the nominee will provide an irrevocable power of attorney to authorize the beneficiary to conduct any activities on the land.
• Option agreement:
  The nominee will provide the beneficiary with options to purchase the land that was purchased by the nominee with the beneficiary’s fund.
• Lease Agreement:
  The nominee will lease the land to the beneficiary for a certain lease period, with an option for an extension.
• Grant with Testament (Hibah Wasiat)
  The nominee will grant his land and properties to the beneficiary.
• Loan Agreement
  The beneficiary will provide certain funds as a loan for the nominee to purchase the land. Following the loan agreement, the beneficiary and the nominee will enter into an agreement that uses the respective land as collateral for the loan under a mortgage mechanism.

Binding Power of Nominee Agreements

Based on the above, it can be reasonably concluded there are serious questions about the validity of so-called nominee arrangements between foreign parties and Indonesian parties for investment and land ownership purposes. The general nature of such arrangements is to circumvent applicable laws and regulations, and nominee practices are expressly prohibited under the Investment Law and Agrarian Law which deems them null and void.

In this regard, some foreign parties (beneficiaries) go as far as formalizing nominee agreements by having them made into an authentic deed before a notary. The intent is that a notarial deed will provide more legal certainty and may be used as a powerful instrument to evidence their rights over the agreement’s objects (shares or land), particularly if there is a dispute between the beneficiaries and the nominees.

Noteworthy, however, is that a notarial deed does not necessarily provide a better position for the beneficiary as there are still many potential issues regarding the validity of the nominee agreement itself which leans in favor of the nominee, despite the agreement being drafted using a notarial deed.

What are the Risks of Nominee Agreements?

Nominee agreements are a popular way for foreigners to own land in Bali, but they come with some risks. One of the risks is that the nominee can abscond with the land and sell it without the real owner’s consent. Another risk is that the nominee may be coerced or threatened to sign the land over to someone else.

There have been many cases of nominee agreements gone wrong in Bali, where the nominee has taken advantage of the real owner’s trust and sold the land to someone else without their knowledge. It is essential to choose a reputable nominee who has a good track record and can be trusted.

How to Choose a Nominee?

Choosing a nominee is a crucial step in signing a nominee agreement. It is essential to choose a nominee who has a good reputation and can be trusted. One way to find a reliable nominee is through a reputable legal firm or a property agency that specializes in nominee agreements.

It is also essential to do a background check on the nominee and their business dealings to ensure that they are trustworthy. Before signing a nominee agreement, it is advisable to consult with a legal professional who can provide guidance and help draft the agreement.

Conclusion

There is little doubt that nominee arrangements raise serious questions about their validity and enforceability. Despite such concerns, and for historical and other reasons, the fact remains that many nominee arrangements currently exist for both investment and land ownership purposes.

It is essential to understand the risks involved and to choose a reputable nominee who can be trusted. A nominee agreement is a legal agreement between two parties where the nominee holds legal ownership of the land on behalf of the real owner. The nominee is paid a fee or commission for holding legal ownership of the land.

Disclaimer

Buying property in Bali could be a great decision and lucrative investment if approached correctly. That is why you should always seek professional legal assistance to avoid any disappointment or frustration.

If you wish further information, we recommend that you contact a Lawyer/legal adviser or speak with a notary, who can help to answer any legal questions which you may have.

Reference:
http://userfiles.hukumonline.com/adv/ILD403_170420151.pdf
https://ppbali.com/understanding-nominee-agreements-land-ownership-bali/