Understanding the warranty against defects when buying real estate

When buying real estate in Japan there may be occasions where the buyer has recourse against the seller if a hidden defect or fault is discovered with the property. This does not apply in all situations, so it is important for a buyer to understand when and what is covered before signing a contract of sale. 

If a warranty against hidden defects is in effect, a buyer may seek repairs or compensation from the seller. In extreme cases, the sale agreement may be cancelled. A hidden defect is one that the buyer was not aware of when entering into the contract of sale, except in cases where the buyer was unaware of the defect due to their own negligence.

Typical examples of hidden defects include:

  • Water leaks
  • Termite damage
  • Corrosion to the main structure
  • Obstruction to the plumbing
  • Structures or items buried underground and soil pollution
  • Non-physical defects (eg. unknown easements, leaseholds etc)

Generally, there will be a clause in the contract of sale specifying the warranty against defects and whether it applies or not. If there is no warranty clause in the contract, then the terms under Japan’s Civil Act will apply. Please note that defect warranties do not apply to properties purchased at a foreclosure auction.

There are two ways that the defect warranty can be applied to protect consumers:

[1] Civil Act: The buyer can cancel the contract or seek damages from the seller within 1 year of detecting the defect. This typically lapses after 10 years from taking delivery of the property. This applies if there is no warranty clause in the contract of sale.

[2] Real Estate Brokerage Act: If the seller is a real estate company (and the buyer is not), the seller is legally obligated to provide a two year warranty against defects starting from the date of delivery of the property to the buyer. If the real estate company tries to reduce their liability by adding in any other clauses, such as providing only a 1 year warranty, the entire defect warranty clause is considered invalid and the Civil Act applies. If the seller is not a real estate company, it is up to the seller to decide what kind of warranty they want to apply.

Private sellers

Private sellers (those that are not real estate companies) are generally not obligated to provide any warranty against defects when selling real estate, and the sale contract can be drawn up to include a clause exempting them from any liability. However, this clause is invalid if the seller was aware of any defects and failed to disclose them to the buyer.

Generally speaking, private sellers may elect to provide a standard 2 ~ 3 month warranty term for hidden defects. For items not covered under the warranty against defects, eg. hot water heaters, electrical items, dishwasher, cooktop, etc, the warranty term may be just 7 days from delivery of the property. Some sellers may not provide any warranty at all.

New Construction (Housing Quality Assurance Act) 

If you are buying new housing directly from a developer, the developer is obligated to provide a 10-year warranty against defects. It is not possible for the developer to shorten this term, although they are free to extend it up to 20 years if they choose. 

This warranty only applies to brand-new construction that has not been occupied and is less than 12 months old. The warranty applies to the main structural portions of the building, such as foundations and supporting beams, portions with rain water prevention such as roof, external walls and external windows/doors. The buyer must report the defect within 12 months of becoming aware of it. 

What if the developer goes bankrupt before the end of the 10-year term? Under this act, the developer is required to place either a deposit with the deposit office or obtain insurance to provide coverage in this event. The details of the deposit or insurance must be explained to the buyer in the contract of sale. Keep an eye out for this explanation when signing the contract documents. 

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