Covenants Stipulated in Deed of Granting of Mortgage

Introduction

As we already have known, according to Law Number 4 of 1996 on Mortgage of Land along with Properties Related to the Land (“Law 4/96”), the granting of mortgage is conducted by making the Deed of Granting of Mortgage (“Deed”) by the Land Conveyancing Officer (“Pejabat Pembuat Akta Tanah/PPAT”) in accordance with the prevailing laws and regulations. It is also regulated in Law 4/96, particularly in Article 11 paragraph (2) that the Deed may stipulate some covenants, considering the effort to keep the good value of the mortgage object, especially at the time of the execution. The covenants are facultative, means that it has no effect to the validity of the Deed. The parties concerned are free to determine whether or not they will stipulate the covenants in the Deed. However, in the event that the parties concerned are stipulating the covenant in the Deed and registering the Deed at the land office, such covenants shall be binding to the third party.

Covenants Stipulated in the Deed

According to Article 11 paragraph (2) of Law 4/96, the covenants that may be stipulated in the Deed are as follows:

  1. covenant which is limiting the competency of the mortgage provider to rent out the mortgage object and/or determine or change the lease term and/or receive the rent money in advance, unless with the prior written approval of the mortgage holder;
  2. covenant which is limiting the authority of the mortgage provider to change the form or structure of the mortgage object, unless with the prior written approval of the mortgage holder;
  3. covenant which is giving authority to the mortgage holder to manage the mortgage object according to the stipulation of chairman of the district court which jurisdiction covers the location of the mortgage object, in the event that debtor is in default;
  4. covenant which is giving authority to the mortgage holder to save the mortgage object, if it is necessary for the enforcement of the execution or to prevent the abolishment or cancellation of the rights as the mortgage object, due to the non-fulfillment or violation of the provisions of law;
  5. covenant that the first mortgage holder has the right to sell, on its own authority (power), the mortgage object if the debtor is in default;
  6. covenant given by the first mortgage holder that the mortgage object will not be cleared from the mortgage;
  7. covenant that the mortgage provider will not relinquish its right of the mortgage object without prior written approval of the mortgage holder;
  8. covenant that the mortgage holders will acquire all or the part of the compensation received by the mortgage provider as the settlement of the loan concerned in the event that the mortgage object is released by the mortgage provider or revoked for public interests;
  9. covenant that the mortgage holder will acquire all or the part of the insurance money received by the mortgage provider for the settlement of the loan concerned, if the mortgage object is insured;
  10. covenant that the mortgage provider will vacate the mortgage object at the time of execution;
  11. covenant that the certificate of land right(s) as the mortgage object will be held by mortgage holder.

Furthermore, Article 12 of Law 4/96 clearly expresses that if there is covenant which is giving the authority to the mortgage holder to own the mortgage object if the debtor is in default, such covenant is null and void. Such provision is stipulated in order to protect the interests of the debtors and other mortgage providers, especially if the value of the mortgage object exceeds the amount of the debt that is being collateralized.

Ivan Setiady

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Covenants Stipulated in Deed of Granting of Mortgage
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