represented numerous Japanese and international clients in a broad
range of financing matters, including synthetic notes, ship finance,
fund formations, innovative real estate finance transactions, property
acquisitions and development projects.
4th Floor, Kasumigaseki Building 3-2-5
Kasumigaseki, Chiyoda-ku
Tokyo 100-6004
Japan
+81-3-3595-7070 Phone
+81-3-3595-7105 Fax
Shinji.itoh@halaw.jp
www.halaw.jp
into a lease contract for an office space
or a residence often find it difficult to un-
derstand the provisions in the contract.
Some provisions of the law are mandatory
despite the stipulations in a lease con-
tract. In this article, we offer guidance
on certain items in a lease which often
confuse non-Japanese clients. The main
sources of Japanese law on real estate
lease are the Act on Land and Building
Lease (shakuchi shakkka ho) (the "Act")
and the Civil Code (minpo).
fixed-Term lease
refers to a lease with generally a term of
one or two years, renewable. A "fixed-
term lease (teiki chintaishaku)" refers
to a lease with a fixed term, e.g., three
years, non-renewable.
Under the Act, a lessor of a standard
lease may not reject a renewal of the term
unless the lessor has "justifiable reasons
(seito jiyu)". The justifiable reasons are
determined by taking any relevant facts
into consideration, such as the necessity
for the lessor to use the building, current
payment of compensation by the lessor.
If the lessor lacks any justifiable reason,
the lease is deemed as renewed with the
same conditions; provided that the term
of the lease becomes "unspecified". A
standard lease with unspecified term may
be terminable by notice of a lessor with a
grace period of six months, but the lessor
must again have justifiable reasons for
the termination.
For a fixed-term lease, the Act
requires a lessor to provide a written
statement of non-renewable nature with
a lessee when entering into a lease
contract. The Act also requires the lessor
to give notice of termination to the lessee
one year to six months prior to the end of
the term.
in a lease contract, parties to a standard
lease may not terminate the lease until
the term expires.
Also, parties to a fixed-term lease may
not terminate the lease until the term
expires. Under the Act, however, a lessee
of a residence of smaller than 200 square
lease if he/she has unavoidable reasons
such as transfer of work place, medical
treatment or care of his/her relatives.
The case law has developed a "doc-
trine of destruction of the confidential
relationship (shinraikankei hakai no
hori)". The doctrine restricts a lessor of
a standard lease or a fixed-term lease
from exercising its termination right for
a reason of a breach of contract or any
default event specified in the contract,
unless such reason is tantamount to a
destruction of the confidential relation-
ship. For example, if a lessee fails to pay
rent for one or two months, a lessor may
not exercise its termination right under
the contract. Under the doctrine, a court
would not find that such failure would
be tantamount to a destruction of the
confidential relationship.
they have agreed in the lease contract.
Under Article 32 of the Act, a lessor or
a lessee may claim increase or decrease
in the rent if it becomes inappropriate
due to increase/decrease in tax or other
costs, changes in economic environment
such as appreciation or depreciation of
the asset value, or when compared with
the level of the rent of the buildings of
neighboring area. Typically, such a claim
is settled through a court process.
If a contract of a standard lease stipu-
lates no increase in the rent for a certain