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W&P Newsletter – Omnibus Law – W&P Analysis Series (Part 3) Harmonization and Relaxation of Land Related Provisions and Development on Definite-Term Employment Provisions

In this third part of our analytical review of the Omnibus Law, we would like to highlight (i) the harmonization and relaxation of land related provisions, and (ii) the development on the definite-term employment provisions.

For Part 1 and Part 2 of the analytical reviews, please check out these links:

  1. Harmonization and Relaxation of Land Related Provisions

    1. Ownership of Strata Title by Foreigners 
      One crucial breakthrough by the Omnibus Law in relation to property ownership is that it relaxes the previously imposed restriction that foreigners were only permitted to own strata-title properties on Right to Use (Hak Pakai, or “HP”) titled land in Indonesia. The provisions of Article 144 and Article 145 of the Omnibus Law lead to an interpretation that qualified (and licensed) foreign individuals or offshore companies having representative offices in Indonesia are now permitted to own strata-title properties on either Right to Build (Hak Guna Bangunan, or “HGB”) titled land or HP titled land.While this is certainly good news for foreigners, practitioners are still anxiously waiting for the implementing regulation, hazily wondering about the eligibility criteria for foreigners to own the strata-title properties, the specifications, the minimum pricing thresholds for foreigners, as well as the designated locations, considering that Article 144 of the Omnibus Law requires that the strata-title properties be owned by a licensed foreigner as well as the property is located in a special economic zone (kawasan ekonomi khusus), free trade zone (kawasan perdagangan bebas), industrial area (kawasan industri), and other economic zone (kawasan ekonomi lainnya).
    2. Land Bank and Recognition of Title for Space Below Land Surface
      The Omnibus Law mandates the central government to form a land bank board (badan bank tanah) with a primary duty to manage and distribute land in support of the national and economic development and agrarian reform. This is also intended to harmonize land management and improve Indonesia’s land acquisition process, which is often criticized by businesses for being nerve-wracking, time-consuming and non-transparent.All land managed by the land bank board will be accorded with the Right to Manage (Hak Pengelolaan, or “HPL”) status as the underlying land title, on the basis of which the government will create secondary land titles, including the HGB and the Right to Cultivate (Hak Guna Usaha, or HGU), to be bestowed on businesses.In addition, the Omnibus Law now recognizes land titles for space below the land surface, which provides certainty and clarity on the status of space located below the land surface, for example in the case of underground mining areas and basements.
    3. Greater Convenience in Land Related Matters
      1. Grant of Advance Land Title Period Extension for Apartments: In contrast to the previous regime, where businesses were required to apply for an extension close to the lapse of the originally prescribed 25-to-30-year validity period, the Omnibus Law now allows the grant of an initial 25-to-30-year period plus an advance 20-year extension (hence a total of 45-50 years in advance) for a HGB title granted upon a state land or a HPL used for apartments/flats (rumah susun), which should significantly increase the bankability of the land, making it more attractive to foreign investors.
      2. Electronic Filing of Land Documents: Unlike the previous regime, which relied on manual registration, the Omnibus Law introduces a new electronic system for land registration (including for mortgages). The electronic filing of land documentation will significantly increase efficiency and transparency for businesses.
      3. Extended Time Frame for Land Procurement for Public Interests: The Omnibus Law now allows the procurement of land for public interests with an area of less than 5 hectares to be negotiated directly with the original land owners. In addition, it provides for an extended time frame for the land procurement process, from 2 years to 3 years with a possibility of a further 1-year extension. The new rule and time frame under the Omnibus Law are certainly more relaxed and efficient than the previous regulation, which required the land procurement for public interests to be carried out and negotiated through the National Land Office within 2 years.
  1. Development on the Definite-Term Employment Provisions
    As widely reported, the removal of the strict requirement of ‘2years+1year’ period limitation of the definite-term employment from the previous regime has been heavily criticized by labour unions in Indonesia, for it gives rise to an interpretation that the length of definite-term employment agreements becomes potentially unlimited.In response to this, the government reportedly will clarify such issue of period limitation in the implementing regulation, which will expressly stipulate that the contractual period is not “unlimited” but instead is subject to a maximum of 5 years. However, it remains unclear whether it would be a strict and definite 5-year period, or a certain initial period plus an extension period (e.g., 3 years+2years).

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