Lease Agreement Types in Japan

September 21, 2018
lease agreement in japan

In Japan, plots and buildings are two individual properties and hence, legally two different lease agreements can be drawn to rent real estate.

For those interested in investing in a property in Japan, it is important to be aware of some key points. When considering buying, or looking for an apartment for rent, please know that there are two kinds of lease agreements: ordinary lease agreement and a fixed-term rent agreement.

Ordinary Lease Agreement - The regular/ordinary agreement is usually drawn for a period of 2 years with the tenant’s right to renew or terminate it on completion. The tenant has the upper hand in the contractual agreement through the tenancy period, so far as he maintains the property and meets the rent payments on time. The landlord cannot terminate the contract easily and as such requires the tenant’s agreement in ending it.

Fixed-term Agreement – This is a preferred lease contract for most property owners in view of the fact that the tenant would have to vacate the property at the end of the contract.

With obvious benefits, ordinary lease agreements are a big hit with the tenants; however after year 2000, landlords have been more inclined towards fixed term lease contracts. However it is less desired by the tenants. The disadvantage for the landlord lies in the fact that the rent is comparatively lower than an ordinary lease.

Both categories of agreements are with a monthly advance payment of rent. Any increase in rent is reviewed on the basis of existing market value.

The rent amount is reviewable usually on renewal but with conventional agreements it can be renewed when deemed necessary, given market fluctuations. All utility payments are borne by the tenant and any parking space allotted to the tenant is at an additional cost under a separate agreement.

The cancelation of an ordinary lease agreement requires a tenant meeting the notice period as per the contract, but the landlord cannot initiate cancelation without a justifiable reason like a natural calamity damaging his current residence and the leased property being the only other alternative. Reasons for cancelation on account of sale of his property or renovation are not acceptable.

In fixed-term contracts, the tenant can cancel on the basis of personal circumstances, subject to the property having a 200sq meter floor area. In the landlord’s case, he can only cancel the agreement by giving a notice of 6-12 months.

Rental Renewal Fees

Japan can be ruthlessly expensive in the business of real estate. Leasing can be a costly proposition for a tenant with expenses more than the monthly rent. For most tenants, March is the moving out month which may bear heavy on their pockets. The rental renewal fee usually differs region to region. In some areas it can be equivalent to a month’s rent in addition to any administrative charges (wherever applicable) to be paid on contract renewal, which is normally 2 years. This charge is not applicable in a fixed-term agreement but applied with a different name-Re contract fee.

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