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

Navigating land rights in Indonesia can often feel like deciphering a complex legal maze, especially when business expansion is on the line. Under Government Regulation No. 18 of 2021, the Right to Cultivate (HGU) has seen significant updates designed to enhance regulatory clarity and expand operational boundaries for commercial enterprises. Here is a simplified breakdown of what these legal frameworks mean for business owners, investors, and landowners looking to utilize state or management-right land safely and efficiently.

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”). The regulation and explanation of HGU are not only provided under the UUPA. One of the regulations governing HGU is Government Regulation Number 18 of 2021 on Management Rights, Land Rights, Condominium Units, and Land Registration (“GR 18/2021”), which revoked Government Regulation Number 40 of 1996 on the Right to Cultivate, the Right to Build, and Land Rights.

Subject of HGU

HGU may only be granted to:

1. Indonesian citizens; and
2. Legal entities established under Indonesian law and domiciled in Indonesia.

If the holder of HGU is not qualified as Indonesian citizen or an 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 be extinguished by  law.

Right and Obligations of HGU Holders

An HGU holder has the right to:

1. Use and utilize the granted land in accordance with the designated purpose and the requirements stipulated in the granting decision and agreement;
2. Utilize water resources and natural resources on the granted land insofar as they support the use and utilization of the land; and/or
3. Carry out legal acts to relinquish, transfer, or change the use of the HGU, as well as encumber it with a Mortgage Right (Hak Tanggungan), in accordance with the prevailing laws and regulations.

An HGU holder is obligated to:

1. Conduct agricultural, fisheries, and/or livestock activities in accordance with the designated purpose and the requirements stipulated in the granting decision, no later than 2 (two) years after the right is granted;
2. Properly cultivate the HGU land in accordance with business feasibility based on the criteria determined by the relevant technical authority;
3. Construct and maintain infrastructure and facilities within the HGU area;
4. Maintain the land, preserve its fertility, prevent damage, and protect environmental sustainability;
5. Provide access roads, waterways, or other facilities for enclosed plots or parcels of land;
6. Manage, maintain, supervise, and preserve the functions of high conservation value areas and other conservation functions;
7. Preserve the conservation function of water boundary areas and other conservation functions;
8. Comply with spatial utilization provisions in accordance with the spatial planning regulations;
9. Facilitate the development of community plantations covering at least 20% (twenty percent) of the HGU area (for limited liability companies using the HGU for plantation purposes);
10. Submit an annual report on the utilization of the HGU;
11. Release the land rights where required for public interest; and
12. Return the land to the State or the holder of the Right of Management (Hak Pengelolaan) after the HGU expires.

Prohibitions for HGU Holders

An HGU holder is prohibited from:

1. Assigning the utilization of the HGU land to another party, except where permitted by the prevailing laws and regulations;
2. Blocking or closing access to public roads, public access, or waterways for other plots or parcels of land;
3. Clearing and/or cultivating land by burning;
4. Damaging natural resources and environmental sustainability;
5. Abandoning the HGU land; and
6. Constructing permanent buildings that reduce the conservation function of embankments, boundary areas, or other conservation areas where the HGU area includes water boundary areas or other conservation functions.

Object of HGU

The land which can be granted with HGU is state land and management right. 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.

Where the HGU is granted over State land, the decision granting the HGU shall be issued by the Minister responsible for agrarian/land affairs and spatial planning (“Minister“).

For HGU over Right of Management land, the HGU shall be granted by a decision of the Minister based on the approval of the holder of Right of Management.

The granting of the above decision may be carried out electronically.

Granting of HGU

The granting of an HGU must be registered with the land office, and the HGU comes into existence upon its registration by the land office. The HGU holder is granted a Land Title Certificate as evidence of the registered HGU.

Time Period of HGU

An HGU may be granted for a maximum period of 35 (thirty-five) years. It may be extended for a maximum period of 25 (twenty-five) years and renewed for a maximum period of 35 (thirty-five) years. Upon expiration of the terms of the grant, extension, and renewal, the HGU land shall revert to land directly possessed by the State or Right of Management land.

For the extension and renewal of an HGU, the holder must satisfy the following requirements:

1. The land is still properly cultivated and utilized in accordance with the condition, nature, and purpose of the granting of the right;
2. The requirements of the granting of the right have been duly fulfilled by the holder;
3. The holder still qualifies as the holder of the right;
4. The land remains consistent with the applicable spatial plan;
5. The land is not being used and/or planned for public interest; and
6. Approval has been obtained from the holder of Right of Management (additional requirement for HGU over Right of Management land).

Transfer of HGU

An HGU may be transferred, assigned, or relinquished to another party, or converted into another land right. Such transfer shall be executed by and before the competent official and reported to the Minister.

The Encumbrance of HGU

An HGU may be used as security for debt by being encumbered with a Mortgage Right.

Elimination of HGU

The causes of the elimination of HGU are by the following causes:

1. The expiry of the term as stipulated in the decision granting, extending, or renewing the right;
2. Revocation of the right by the Minister before the expiry of its term due to:
   • non-compliance with the obligations and/or prohibitions applicable to the holder of the rights, as we have outlined in the Rights and Obligations of HGU Holders and Prohibitions for HGU Holders sections above;
   • administrative defects; or
   • a court decision having permanent legal force;
3. The right being converted into another Land Right;
4. Voluntary relinquishment by the holder of the right before the expiry of its term;
5. Relinquished for the public interest;
6. Revoked pursuant to the applicable law;
7. Designation as abandoned land;
8. Designation as destroyed land;
9. Expiry of the land utilization agreement, for HGU over Right of Management land; or
10. The HGU holder no longer meeting the requirements to hold HGU.

The termination of an HGU results in the land becoming State land or being subject to the operative part of a court decision. For HGU over Right of Management land, the land shall revert to the control of the holder of the Right of Management.

HGU is regulated more comprehensively under GR 18/2021. The regulation not only governs the subjects, objects, granting, term, transfer, encumbrance, and termination of HGU, but also clarifies the rights, obligations, and prohibitions applicable to HGU holders. With greater legal certainty, the practical implementation of land utilization under HGU is also expected to become clearer.

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Source:

• Law Number 5 of 1960 on Basic Agrarian Principles
• Government Regulation Number 18 of 2021 on Right of Management, Land Rights, Condominium Units, and Land Registration

This article has been updated to reflect the latest rules under Government Regulation No. 18 of 2021, replacing the provisions of Government Regulation No. 40 of 1996.