Formality of Lease Agreement

Is there any formality for leasing real estate in Japan?

A lease becomes effective by the mutual agreement of lessor and lessee. Japanese law does not require any formality regarding lease agreement; however, lease agreement of real estate is normally made by document. It sometimes becomes legal dispute whether lease agreement without document exists or not.

*Civil Code Article 601: A lease becomes effective if one of the parties promises to make a certain thing available for the other party to use and make profit, and the other party promises to pay rent for the leased thing and return the delivered thing when the contract is terminated.

Parties of Lease Agreement

Is it possible for non-Japanese persons or non-Japanese companies to lease real estate in Japan?

Non-Japanese persons and non-Japanese companies can lease real estate in Japan. Basically, there is no restriction on parties and objects.

Land Lease

Types of Land Lease

What types of land lease exist?

Land lease can be broadly classified into two types: land lease for the purpose of building ownership and that for other purposes (e.g., for the use of parking lot). The former is subject to the Act on Land and Building Leases, while the act is not applied to the latter. As the Act on Land and Building Leases prescribes various provisions that protect lessee strongly, those types are markedly different. Land lease for the purpose of building ownership can separated to two types: ordinary land lease and fixed-term land lease. The lessee has right to request renewal of the former lease contract; however, there is no such right regarding the latter lease contract.

*Act on Land and Building Leases Article 2: In this Act, the meanings of the terms listed in each of the following items shall be as prescribed in each respective item:
(i) “Land Lease Right” shall mean superficies or the right to lease land for the purpose of building ownership;

Duration of Land Lease

How long is the land lease term?

Duration of land lease differs depending on types of the contract.

a. Ordinary land lease for the purpose of building ownership
Duration of ordinary land lease for the purpose of building ownership is thirty years, while the lessor and lessee may agree to a longer period in the lease agreement. After first renewal, the minimum duration is twenty years. A minimum ten years term is prescribed after second renewal.

*Act on Land and Building Leases
(Duration of the Land Lease Right)
Article 3: The duration of the Land Lease Right shall be thirty years; provided, however, that if a period longer than this is prescribed by contract, that period shall apply.
(Period of the Land Lease Right After Renewal)
Article 4: In cases where the parties renew the land lease contract, that period shall be ten years from the day of renewal (twenty years in the case of the first renewal after the establishment of the Land Lease Right); provided, however, that if the parties prescribe a period longer than this, that period shall apply.

b. Fixed-term land lease for the purpose of building ownership
There are three types of fixed-term land lease for the purpose of building ownership depending on conditions of the contract: (i) fifty years long or more, (ii) thirty years to fifty years and (iii) ten to thirty years.

*Act on Land and Building Leases
(Fixed Term Land Lease Right)
Article 22 In cases where a Land Lease Right is established with a duration of fifty years or more, notwithstanding the provisions of Articles 9 and 16, it may be stipulated that there is to be no extension of the duration through renewal of the contract (including renewal pursuant to a request for renewal or due to continued use of the land; the same shall apply in paragraph (1) of the following Article) or due to the construction of buildings, and that no requests to purchase are to be made pursuant to the provisions of Article 13. In this case, a special contract stating to that effect must be concluded in writing by means of a notarial deed.

(Fixed Term Land Lease Right, etc. for Business Purposes)
Article 23 (1) In cases where the objective is the ownership of buildings used solely for business (excluding those used for residences; the same shall apply in the following paragraph) and a Land Lease Right with a duration of at least thirty but shorter than fifty years is to be established notwithstanding the provisions of Articles 9 and 16, there shall be no extension of the duration pursuant to renewal of the contract or the construction of buildings, and there shall be no request to purchase pursuant to the provisions of Article 13.
(2) In cases where the objective is the ownership of buildings used solely for business and a Land Lease Right with a duration of at least ten but fewer than thirty years is to be established, the provisions of Articles 3 through 8, 13 and 18 shall not apply.
(3) Contracts with the objective of establishing Land Lease Rights as prescribed in the preceding two paragraphs shall be made by a notarial deed.

c. Land lease for the purpose of other than building ownership
The lessor and lessee may basically decide the duration of land lease for the purpose of other than building ownership; however, the duration may not exceed fifty years. While the maximum term was twenty years, it was extended by revision of Civil Code on April first, 2020.

*Civil Code
(Duration of Lease)
Article 604: (1) The duration of a lease may not exceed 50 years. Even if the contract prescribes a longer term, that term is considered to be 50 years.
(2) The duration of a lease may be renewed; provided, however, that the term may not exceed 50 years from the time of the renewal.

Building Lease

Types of Building Lease

What types of Building lease exist?

Building lease can be broadly classified into two types: ordinary building lease and fixed-term building lease. The lessee has right to request renewal of the former lease contract; however, there is no such right regarding the latter lease contract. Act on Land and Building Leases is applied to building lease regardless of the purpose of the contract.

Duration of Land Lease

How long is the building lease term?

The lessor and lessee may basically decide the duration of building lease for the purpose of other than building ownership; however, a building lease having a period of less than one year shall be deemed to be a building lease having no prescribed period by the Act on Land and Building Leases. Maximum of duration does not exist.

*Act on Land and Building Leases
(Period of the Building Lease)
Article 29: (1) A building lease having a period of less than one year shall be deemed to be a building lease having no prescribed period.
(2) The provisions of Article 604 of the Civil Code shall not apply to building leases.

*Civil Code
(Duration of Lease)
Article 604: (1) The duration of a lease may not exceed 50 years. Even if the contract prescribes a longer term, that term is considered to be 50 years.
(2) The duration of a lease may be renewed; provided, however, that the term may not exceed 50 years from the time of the renewal.

Breach of Contract

If the lessee breaches the lease agreement, what kind of rights can the lessor exercise?

If the lessee breaches the lease agreement (e.g., delay in payment of the rent), the lessor may cancel the contract under the Civil Code. However, significant breach that dissolves the relationship of mutual trust between the parties of the lease agreement is required to entitle a lessor to cancel the contract under case law. For example, the lessor cannot cancel the lease contract by only one delay of rent regardless of provisions of the lease contract.

*Civil Code
(Cancellation After Demand)
Article 541 If one of the parties does not perform that party’s obligation, and the other party demands performance of that obligation, specifying a reasonable period of time, but no performance is completed during that period, the other party may cancel the contract; provided, however, that this does not apply if the non-performance of the obligations upon the passage of the period is minor in light of the contract and the common sense in the transaction.

(Cancellation Without Demand)
Article 542 (1) In the following cases, the obligee may immediately cancel the contract without making the demand referred to in the preceding Article:
(i) if the performance of the whole of the obligation is impossible;
(ii) if the obligor unequivocally manifests the intention to refuse to perform the obligation in whole;
(iii) if the performance of part of the obligation is impossible, or if the obligor clearly manifests the intention to refuse to perform part of the obligation and the purpose of the contract cannot be achieved by the performance of the remaining part of the obligation;
(iv) if, due to the nature of the contract or a manifestation of intention by the parties, the purpose of the contract cannot be achieved unless the obligation is performed at a specific time on a specific date or within a certain period of time, and the obligor fails to perform the obligation at that time or before that period of time expires; or
(v) beyond the cases set forth in the preceding items, if the obligor does not perform the obligation and it is obvious that the obligor is unlikely to perform the obligation to the extent necessary to achieve the purpose of the contract even if the obligee makes the demand referred to in the preceding Article.
(2) In the following cases, the obligee may immediately cancel a part of the contract without making the demand referred to in the preceding Article:
(i) the performance of the part of the obligation is impossible; or
(ii) the obligor clearly manifests the intention to refuse to perform the part of the obligation.