Cooling off period when buying real estate

[Q] Are there cooling off periods when buying property in Japan?
[A] Sometimes.

Cooling off period = 8 days

The cooling off system for real estate transactions was introduced in a 1980 revision to Japan’s Building Lots and Building Transactions Business Act. When buying real estate in Japan, a buyer can rescind their purchase reservation or cancel a signed contract of sale with no penalty within an 8 day cooling off period, but only if certain conditions are met. The cooling off period only applies if the seller is a real estate company. It does not apply if the seller is a private individual or non-real estate company.

Each of the following conditions must be met:

1 The contract of sale is for the purchase of land and/or buildings.

2 The seller is a real estate company (it also applies if the seller is a real estate company, but has hired an agency to act as an intermediary in the transaction)

3 The purchase reservation was signed in a location that was not the real estate company’s office, and not the buyer’s office or home*. Eg. a hotel lobby, function hall, restaurant or cafe.

Even if the actual contract of sale was signed in an approved location (ie. the seller’s office), the location where the initial purchase reservation was made will determine whether cooling off applies or not.

There are no cooling off periods in the following scenarios:

(A) If the reservation application and contract of sale was signed in a real estate office or salesroom where a full-time registered real estate agent is obligated to be stationed.

(B) If the buyer asked for the contract signing to take place at their personal residence or place of work, the cooling off measures do not apply. This request must come from the buyer. If the seller (a real estate company) was to ask the buyer if they will sign the contract in their home or place of work, cooling off will apply.

(C) If the full sale price and delivery of the property takes place at the same time. E.g. if the contract and settlement is held at the same time, the location where this occurs is irrelevant as cooling off measures will not apply.

(D) If 8 days have passed since the buyer was given written notice of the cooling off period.

8 day rule

If the real estate company provides written notification to the buyer that cooling off is possible, the cooling off period lasts for 8 days from the day this written notice is provided to the buyer (not 8 days from the signing of the contact of sale). After the 8 day grace period has ended, cooling off no longer applies.

This notification must be in written form. Verbal notification does not count. The notice is usually provided to the buyer after the purchase reservation is made.

The real estate company seller has no obligation to provide this written notice to the buyer. However, if the seller does not provide this written notice, the cooling off period is infinite until the transaction of the property is complete.

What happens if the buyer wishes to cancel the purchase during the cooling off period?

  • The buyer must provide written notice of their desire to cancel. This is effective from the date it is posted, not the date it is received by the seller’s side.
  • The seller must return any money that the buyer has paid.
  • The seller cannot seek damages or penalties from the buyer.
  • Any special clauses relating to cooling off that are unfavorable towards the buyer are invalid and not enforceable.
  • If the seller makes any attempt to make it difficult for the buyer to cancel during the cooling off phase, or informs the buyer that they cannot cancel, or that they will face penalties or damages if they cancel, the seller may be subject to disciplinary actions and even a business suspension order.