Increasing capital is one way to expand a business. This capital can be obtained through various ways, including by borrowing a sum of money from financial institutions such as banks based on the terms and conditions that apply.

There are a number of conditions that must be met by debtors to obtain a certain amount of money, one of which is to provide collateral in the form of assets, securities, or others. In Indonesia, there are security rights granted, including mortgages and fiduciary rights. This mortgage right is regulated in Law No. 4 of 1996 on Mortgage Rights on Land and Objects Related to Land. This law is locally known as UUHT

Article 1 point 1 of the UUHT explicitly states that  a mortgage right is;

“Land and objects related to the land, hereinafter referred to as mortgage rights on land and objects related to land (Hak Tanggungan), is a security right imposed on land rights as referred to in Law No. 5 of 1960 on the Basic Regulation of Agrarian Principles, along with or without other objects that form an integral part of the land, for the repayment of certain debts, which gives priority to certain creditors against other creditors”.”.

The above provisions specify that creditors, who have mortgage rights, to take payment and/or repayment of debts from the pledged assets by selling the object of collateral either on their own power or through a public auction.

The granting of mortgage rights as collateral can provide a sense of security for lenders. Article 9 of the UUHT states that the holder of a mortgage right is an individual or legal entity in the position of a debtor.

Rights that can be encumbered by mortgage rights are property rights, business use rights, building use rights and use rights. According to Article 4 of the UUHT, the applicable provisions of this right of use must be registered and by its nature can be transferred.

The Nullification of the Building Rights Title

Holders of mortgage rights must be cautious because UUHT stipulates about  the nullification of mortgage rights, especially land rights. Article 18 of the UUHT explicitly states that a mortgage right can be nullified due to;

  1. the extinguishment of the debt secured by the mortgage right;
  2. the release of the mortgage right by the holder of the mortgage right;
  3. “cleansing” of mortgage rights based on a list issued by  the Chief of the District Court;
  4. nullification of land rights encumbered by mortgage rights.

The nullification of land rights is certainly one of the important points that must be of concern to creditors, when providing loans with collateral in the form of land rights in the form of building use rights, business use rights, and use rights. Special attention needs to be given because the law expressly regulates the period of granting land rights.

For example, a building rights title for a period of 30 years can be extended for a maximum of 20 years and can be renewed for a maximum period of 30 years. The example is based on Law No. 5 of 1960 in conjunction with Government Regulation No. 18 of 2021 on Management Rights, Land Rights, Flat Units, and Land Registration.

Article 46 of Government Regulation Number 18 of 2021 explicitly regulates that building use rights are nullified due to:

  1. the expiration of the time period as stipulated in the decision to grant, extend, or renew the right;
  2. the right is canceled by the minister before the term expires due to;
  3. non-fulfillment of the provisions of obligations and/or prohibitions as referred to in Article 42 and/or Article 43;
  4. non-fulfillment of the conditions or obligations stipulated in the agreement on the granting of a building use right between the holder of the building use right and the holder of the property right or the agreement on the utilization of the Management Rights Land;
  5. administrative defect; or
  6. a court decision that has obtained permanent legal force;
  7. the right is converted into another land right;
  8. voluntarily relinquished by the right holder before the end of the term;
  9. released in the public interest;
  10. revoked by law;
  11. designated as abandoned land;
  12. designated as land destroyed;
  13. the expiration of a right granting agreement or land utilization agreement for a building use right on a free hold title or the rights to manage ; and/or
  14. the right holder no longer qualifies as a right subject.

Extension of Term and Application for Renewal of the Building Rights Title

For land rights in the form of building use rights, of course, the landowner must submit an application for an extension of the period at the latest before the expiration of the building use right period.

What if the term has expired?

Article 41 paragraph 2 of Government Regulation No. 18 of 2021 provides an opportunity to apply for renewal, which is an increase in the period of validity of the right after the expiration of the term or before the end of the extension period. If the term of a building use right has expired, the application can be submitted no later than 2 years after the expiration of the term of the building use right.

Failure to extend the term of the building use right can, of course, lead to the nullification of the building use right. If the building use right is located on state land, the land becomes the property of the state.

From the description above, it can be concluded that if the extension of the building right title is not carried out on time, the land right is nullified so that the mortgage right attached to the object is also nullified as stipulated in Article 18 of the UUHT.

Although the secured debt is not erased, due to the absence of the privilege given to obtain prior payment from the debtor’s assets, of course this is very detrimental. To reduce the risk of loss, the creditor holding the security right must routinely check or at least provide special notes regarding the expiration period of the land rights that are used as credit collateral.

Author / Contributor:

 Adhitya Chandra Darmawan, S.H., CLA

Senior Associate


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Phone    : +62-21 799 7973 / +62-21 799 7975