Right to Cultivate

Legal Aspect of Right to Cultivate (HGU) and its Regulation

Definition and Legal Basis
Based on Article 28 paragraph (1) Law No. 5 of 1960 on Basic Provisions on Agrarian (“UUPA”), Right to Cultivate is the right to cultivate the land which is controlled by the state, in certain period of time, for farming, fisheries, or animal husbandry (“HGU”). Besides UUPA, other regulations which stipulate about HGU is Government Regulation Number 40 of 1996 on Right to Cultivate, Right to Build, and Right to Use over Land (“GR No. 40/1996”). Further stipulation about HGU is regulated in GR No. 40/1996.

Subject of HGU
Only (i) Indonesian citizen and (ii) legal entity which is established under Indonesian Law and domicile in Indonesia can own HGU. If the holder of HGU is not qualified as Indonesian citizen and as Indonesian legal entity which is domiciled in Indonesia, then in 1 (one) year period the holder of HGU shall release or transfer the HGU to the other party who is qualified. If the HGU is not released or transferred, the HGU shall expire and the status of land will become the state land.

Object of HGU
The land which can be granted with HGU is state land. HGU can only be granted over the land with minimum area of 5 (five) hectare. If the area of land which is proposed for HGU reaches 25 (twenty five) hectare or more, the utilization of HGU shall use the proper capital investment and good corporate governance in accordance with the development of times.
If the land granted by HGU is state land that constitutes the forest area, the granting of HGU can only be done after such land is released from its status as forest area.

The granting of HGU over the land which already has certain right can only be made after the completion of the release of such right in accordance with the the prevailing regulations.
If over the land which is granted by HGU, there is a plant or building which owned by other party that exist under a valid title, the new holder of HGU shall give compensation to the owner of the building and plant as mentioned.

The Granting of HGU
HGU is granted by Government Act, which is by the decree on granting of right by the Minister (which responsible in the land/agrarian matters) or appointed officials. HGU is existed since it is registered by Land Office in the book of land in accordance with the prevailing regulation.

Time Period of HGU
HGU can only be granted for maximum period of 25 (twenty five) years. For the company who needs more time, HGU can be granted for maximum period of 35 (thirty five) years. Based on the request of HGU holder and by considering the condition of its company, the time period can be extended with a maximum period of 25 (twenty five) year.
The extension and the renewal of HGU can be made by the request of the right holder with the condition as follows: (i) the land is cultivated in a good way in accordance with the condition, nature, and purpose of the granting of right, (ii) the conditions of granting of right is fulfilled by the holder of right, (iii) the holder of right is still qualified as the holder of right.

The Transfer of HGU
HGU can be transferred to other party by (i) sale and purchase, (ii) exchanges, (iii) capital participation, (iv) grants, and (v) inheritance.

The transferof HGU by sale and purchase shall be made through a deed made by the land conveyancing officer (“PPAT”). The sale and purchase that was conducted through the auction is proven by the Minutes of Auction. The transfer of HGU through inheritance shall be proven by testament or the statement of heir which was made by authorized instance.

Elimination of HGU
The causes of the elimination of HGU is regulated in Article 34 of UUPA and Article 17 paragraph (1) GR No. 40/1996. HGU becomes obliterated by the following causes:
a) The expiry of time period as stipulated in the decree of granting or decree of extension;

b) The right is cancelled by the authorized official before the expiry of its time period because:
1) The obligations of the right holder are not complied and/or the violation of the conditions as stipulated in Article 12, 13, and/or 14 of GR No. 40/1996;

2) The decision of court which has obtained absolute legal force;
c) Released voluntarily by the right holder before the expiry of its time period
d) Revoked by the Law Number 20 of 1961;

e) Abandoned;
f) The land becomes obliterated;
g) The holder of HGU is no longer qualified to own HGU as stipulated in Article 30 paragraph (2) of UUPA.

The Encumbrance of HGU
HGU can be used as loan guarantee through the encumbrance by mortgages right (hak tanggungan). The mortgage right shall be eliminated automatically by the obliteration of HGU.

The Registration of HGU
Every granting, transfer, and elimination of HGU shall be registered to ensure the legal certainty. The registration includes: (i) the mapping measurement and the bookkeeping of land, (ii) registration of rights of land and transfer of such rights, (iii) the granting of letters which proves the right.

Right and Obligation of HGU Holder
Right of HGU holder is to cultivate its land in accordance with the area of land and time period that has been given.
Attachment II of Head of National Land Office of Republic Indonesia Regulation Number 1 of 2010 stipulate about the requirements which must be fulfilled by the holder of HGU if he/she wants to register the HGU, this also has been stipulated in Article 12 paragraph (1) of GR No. 40/1996, which is:
a) Pay the revenue to the state;
b) Perform the farming, plantation, fisheries, and/or animal husbandry in accordance with the purpose and conditions as stipulated in its decree of grating of right;
c) Cultivate the HGU land in a good way in accordance with the business eligibility based on criteria which is stipulated by the technical instance;
d) Build and maintain the environment facility and land facility which is existed within the environment of HGU area;
e) Maintain the fertility of the land, and prevent the damages of natural resources and to keep the sustainability of the capacity of living environment in accordance with the prevailing law and regulations;
f) Submit the annual written report regarding the use of HGU;
g) To give back the land which has been granted by HGU to the state after the HGU is obliterated;
h) To deliver the certificate of obliterated HGU to the Head of Land Office.

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