.png)
A client approached us to review a contract for building four villas in Bali. The deal involved investments of $270,000 on leased land, and the document presented by the contractor was called an 'Agreement Letter'.
At first glance, it looks like a standard agreement. However, legal analysis revealed that it's not a contract but a set of risks that could lead to a complete loss of investments. What is wrong with the document?
1. Incorrect Format: 'Letter' Instead of a Contract
In international practice, an agreement letter is a document of intention, not a binding contract. Given the substantial deal amount of $270,000, this is unacceptable.
2. No Information About the Parties
The contract does not include passport details, addresses, or contacts of the parties. The contractor is not identified as a company representative but as a foreign individual who has no right to make such deals and accept payments. Also missing are references to:
- having a construction license;
- the right to work in Indonesia (KITAS working visa);
- the authority to sign the contract.
3. Payment to the Contractor’s Personal Account
All payments ($270,000) are directed to the contractor’s personal account, which implies:
- violation of immigration, labor, and tax regulations;
- makes it impossible to trace the movement of funds;
- excludes any guarantees of refund in case of a dispute.
4. Lack of Technical Details and Appendices
The contract lacks:
- architectural plans;
- cost estimate;
- work schedule;
- visualizations;
- requirements for materials and quality.
This means the contractor can carry out the work in any manner, and the client will have no legal grounds to file complaints.
5. Payments Not Tied to Actual Acceptance
Payments are made in stages without certificates of completed work. As a result:
- you can pay without getting results;
- there is no mechanism to control quality and timelines.
6. Absence of Mandatory Documentation Regulations
Construction in Indonesia requires:
- PBG – building permit;
- SLF – certificate of eligibility for operation.
The contract doesn’t mention these documents, which threatens the legality and commissioning of the project.
7. Jurisdiction and Dispute Mechanism—Unspecified
No specification:
- which country will handle disputes;
- deadlines for mediation;
- how client interests are protected.
This 'agreement' is not a contract but a risky document without legal guarantees. Signing it can have the gravest consequences for any investor. Consequently, we strongly advised the client against signing this document and conducted a legal consultation, after which the client realized the kind of situation they could have faced.
If you are planning a major deal in Bali, it is essential to conduct a legal review of the documents. The price of a mistake is your investment. Seek advice from specialists who know the laws and will protect your interests.
Want a consultation?
Telegram — @legalindonesia / @LegalIndonesiaBot
You can add one right now!