Pre-Project Selling system (PPSS) is quite a common phenomenon in Indonesia, according to which project developers conduct the sale of houses and apartments, often which exist only as a plan or picture (Cahayani, 2020; Cahayani et al., 2019). Such pre-project selling (PPS) takes place even before the infrastructure and facilities are actually constructed. A few developers market their property during the PPS phase, using a “pre-project selling” sales pattern or strategy, by offering residential units of flats/apartments or housing (Meliana, 2022). The Indonesian Law recognizes PPS as a contract so long as it is validly made and does not violate the “law, morals, and public order, and bind the parties as an act issued by the government”. Article 1338 paragraph (1) to Article 1340 of the Indonesian Civil Code classified contracts into two types: ‘named contracts,’ those stipulated under the Civil Code; and ‘unnamed contracts’ those that are not. Both types of contracts have subjective and objective requirements (Arifin, 2022). Subjective requirements require the consent and capacity of the contractual parties while objective requirements need the existence of a specific object and a legitimate cause.

Currently, there is a great challenge faced by PPSS since not all sales under the PPSS method run smoothly, but face many hurdles such as delays in completion, incompatibility with what was offered in the agreement, disputes in the transfer of land rights, and like. In some cases, the consumers file a complaint for receiving misleading information about the projects or related to land ownership and building specifications, thus violating buyers’ rights to information. The PPJB document is also prepared by the builder without involving the buyers, unilaterally and thus violating the principle of balance (Cahayani, 2020; Lestari et al., 2020; Maria et al., 2022). In most cases, the PPJB document shows the developer’s position as more dominant than that of the consumers. Consequently, there are legal cases filed by consumers. They challenge the PPJB document that was prepared by the developer in court. During 2014-2016, for example, the Indonesian Consumers Foundation (YLKI) received at least 440 complaints related to housing, the majority of which were related to PPSS, where consumers alleged of lack of consistency between what was promised and what has actually been built. These complaints were about the unbalanced position between the developer and the consumer. The questions were raised about the imbalance or inconsistency in the status of joint land ownership, building specifications, and the real market value of the asset in purchase (Cahayani, 2020; Lestari et al., 2020). In spite of such a large number of litigations, in practice, the Indonesian Consumers Foundation or Law Number 8 1999 about Consumer Protection does not provide any adequate legal protection to consumers in the sale and purchase of apartments under the PPJB system. There is a separate Law Number 20 of 2011 concerning Apartments (Apartments Law) whose article 42 paragraph (1) only regulates requirements of signing a preliminary Agreement on the Sale and Purchase (PPJB) to be signed in the presence of a notary.

The study made evident a few characteristics of PPSP and the related instruments like PPJB and the related laws like the Consumer Protection Act and the Indonesian Civil Code. The study revealed that the PPSP has two dimensions: one, when the apartment(s) involved in pre-project selling is under construction or not yet completed; and, second, it exists only as a plan, idea, or an image/ drawing which has been sued to buy and sell it. Article 1334 paragraph (1) of the Civil Code states the first type of flats/ apartments can be treated as the legal object since it will be available in the future and it is also an of the pre-project agreement. Secondly, the Civil Code ascertained it to be carrying an economic value whose ownership rights can be transferred.

However, in the second type of apartment, where the transactions between the developer and the consumer take place for an object that does not exist at all, there is a relatively larger risk and legal action could be taken only for the land on which the apartments are to be built, and not on the single units that exist in the plan. The regulations related to the land will be applicable in such a scenario. Looking back at the first scenario once again, the Apartments Law states that PPJB is valid only if it has fulfilled the construction requirements of at least 20% of the total construction of the building for which the PPS agreement was prepared. The 20% construction completed offers certainty to the consumer that the construction of apartments is going to be completed. In such a scenario, the Law plays its role and the Apartment Act guarantees that the construction of the apartment will be completed in due course. There is another aspect of this problem. Most of the PPS agreements are unilateral and prepared by the developers with obligations that are more favorable to them. There are very few obligations that can be called consumers’ rights. In other words, no power is granted by the developer to the consumer, and the entire risk is borne by the consumer.

It is generally evident that transactions related to buying and selling apartments with a pre-project selling system are unbalanced, violating the principle of balance. It means the developers have a stronger and more dominant position as consumers only sign the agreement previously prepared by the developer unilaterally, without the involvement of the consumer. Such a state might be due to the lack of legal accountability, lack of legal cohesiveness, and poor government oversight. The Indonesian Law does not provide protection to consumers because the state-enforced laws related to PPSS insist on the consumers to get aware of requirements related to PPSS prior to signing such agreements. It means literally that the buyer should be aware of the consequences and damages that might occur in such transactions. Hence, the Indonesian Laws take a precautionary approach rather than a legal juristic approach, by assuring the consumer to provide justice in case of any damages.

Author: Agus Yudha Hernoko

Details of the research can be viewed here:

https://cirrj.org/index.php/cirrj/article/view/543

Agustining, Agus Yudha Hernoko, Bismar Nasution, Sunarmi, (2022). The Principle of Balance Formulation as the Basis for Cancellation of Agreement in Indonesia, 28(90): 23-35; 10.2478/ CIRR-2022-0022