Before buying an investment property in Japan it is important to understand how tenancy laws work. What may be acceptable in one country is not necessarily allowed in Japan where tenant rights are strong.
A big difference to be aware of is how to end a rental lease as a landlord.
Why would you want to kick out a tenant who is paying rent on time? You may want to list the property for sale, in which case, depending on the type of property, it may be more advantageous for the property to be vacant to appeal to a wider range of buyers. Or, you may want to vacate a building so that you can redevelop the site, or use the property yourself.
Types of lease agreements:
Is it an ordinary, renewable lease or a fixed-term lease? They each have their own set of rules and requirements. If you don’t know what lease agreement you have with your tenant, check with your property manager.
Ordinary, renewable lease:
This type of lease is usually renewable for as long as the tenant pays the rent and continues to follow the rules of the contract. It can be very difficult to evict a tenant unless they have breached the contract.
If the lease has a contract term (eg. a 2 year lease), the landlord must provide notification to the tenant between 6 ~ 12 months before the end of the lease term expressing their intention to not renew the lease. The landlord must have a justifiable reason for refusing to renew. We will explain what constitutes a justifiable reason below. The tenant can cancel in accordance with the special cancellation clauses in the rental contract. These clauses can specify the cancellation period required (1 ~ 2 months is common) and any penalties for cancellation. If the penalty is considered too high, a court may rule it invalid.
If the lease agreement does not have any contract term or renewal date (less common), the landlord can provide 6 months notice of cancelling the lease, provided they have a justifiable reason for doing so. The tenant can also cancel the lease at any time (no justifiable reason is required) by providing 3 months notice.
You cannot add terms to the contract that are considered to be unfair for the tenant, such as “The landlord can terminate the lease at any time or can refuse to renew the lease for any reason”. Even if these terms are written into a lease agreement, they are invalid and cannot be enforced.
The landlord must provide notice to the tenant between 6 ~ 12 months before the end of the lease term to inform them that the lease will end at the end of the contracted rental term.
If the landlord forgets to notify the tenant during this 6 ~ 12 month window, the lease will be automatically renewed and will be renewed as an ordinary, renewable lease.
If the property has a residential floor area under 200 sqm, the tenant can cancel the lease at any time during the rental term by providing one month’s notice to the landlord. The tenant must have a valid reason for the cancellation (eg. relocation, illness, or to provide care for a family member).
If the floor area is over 200 sqm, the lease cancellation must be in accordance with the special terms written in the contract. If there are no special terms for cancellation, the tenant must continue to pay the rent until the end of the rental term.
The following items are considered when determining whether the landlord’s reason is justifiable or not:
1: How necessary is the property to the tenant or landlord. Does the landlord absolutely need to live in this property themselves, or do they have other properties they can occupy? An offshore investor is not going to meet this requirement.
2: The circumstances over the length and conditions of the lease. How long has the tenant been leasing the property, how much key money or renewal fees have they paid, have they ever been late on rent payments, have they violated the terms of the agreement at any time, or done anything to break the trust between the landlord and tenant?
3: Current use and condition of the property. How is the tenant using the property? Is the property in such poor condition and in need of repairs or reconstruction that the occupants are in danger?
4: Is the landlord providing compensation to the tenant to move out? Although this is not a deciding term on its own, it is complementary to the above conditions. Tenants can sometimes request exorbitant amounts to be convinced to move out, leading to very drawn out negotiations and high eviction costs for the landlord. There are no legally prescribed amounts.
The above applies to residential leases.