Facing a Rent Hike in Japan? Understanding Your Right to Deposit 'Reasonable Rent'

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

In Japan's commercial leasing landscape, landlords may, under certain conditions or lease terms, seek to increase rent. When a tenant, whether an individual or a corporation, receives a demand for a rent increase that they believe is unjustified or excessive, a challenging situation arises. Refusing to pay the increased amount outright could lead to default claims, while acquiescing might mean accepting unreasonable terms. Japanese law, however, provides a mechanism for tenants to navigate this: the right to pay, and if necessary, deposit an amount they consider "reasonable" while the dispute over the new rent is resolved. This article explores this protective measure, focusing on how a "performance deposit" (bensai kyotaku) can be utilized.

The primary legislation governing rent revisions for leased properties is the Act on Land and Building Leases (借地借家法 - Shakuchi Shakka Hō).

  • Statutory Basis for Rent Adjustments:
    • For building leases (which would cover most commercial premises), Article 32 of the Act allows either the landlord or the tenant to request an adjustment to the rent if it becomes unreasonable. This can be due to factors such as an increase or decrease in taxes and other burdens on the property, a rise or fall in the property's price or other economic fluctuations, or when compared to rents of similar neighboring properties.
    • A similar provision, Article 11, applies to land leases.
    • It's important to note that a landlord's request for a rent increase does not automatically obligate the tenant to pay the new, higher amount immediately.
  • The Tenant's Right to Pay a "Reasonable Amount" Pending Resolution:
    A crucial provision for tenants is found in Article 32, Paragraph 2 of the Shakuchi Shakka Hō (and Article 11, Paragraph 2 for land). This paragraph states that until a judicial decision (or a mutual agreement) formally establishes the revised rent amount, if a tenant receives a demand for an increase, they may continue to pay rent in an amount they deem to be reasonable.
    • What is "Reasonable"? This is often the current rent, or the current rent plus a portion of the demanded increase that the tenant is willing to accept. The key is that the tenant genuinely believes this amount is fair under the circumstances.
    • Effect of Paying a Reasonable Amount: By paying this self-assessed reasonable sum, the tenant can avoid being considered in default for the disputed portion of the rent increase. This is a vital protection against potential lease termination for non-payment while the actual rent is under negotiation or adjudication.

Performance Deposit (弁済供託 - Bensai Kyotaku): A Shield for Tenants

If the landlord refuses to accept the "reasonable amount" of rent tendered by the tenant, the tenant is not left without recourse. This is where the Japanese deposit system, specifically a "performance deposit" under Article 494 of the Civil Code, comes into play.

  • Legal Basis – Civil Code Article 494: This article states: "When an obligee refuses to accept, or is unable to accept, performance, the obligor may be discharged from the obligation by depositing the subject-matter of the obligation with an official depository."
  • Triggering the Deposit: The landlord's refusal to accept the tenant's tendered payment of what the tenant deems reasonable rent constitutes a "refusal of acceptance" (juryō kyohi), which is a valid cause for making a performance deposit.
  • Purpose of the Deposit in Rent Disputes:
    1. Evidence of Willingness to Pay: It formally documents the tenant's readiness to fulfill their rental obligation up to the amount they consider currently justified.
    2. Legal Protection: It legally shields the tenant from claims of default concerning the deposited amount for that specific rental period.
    3. Neutral Holding: The funds are held by a neutral government body (the deposit office) while the parties work to resolve the disagreement over the correct rent.

Essential Requirements for a Valid "Reasonable Rent" Deposit

For a deposit of "reasonable rent" to be legally effective in discharging the tenant's obligation for that amount, several conditions must be met:

  1. Existence of a Valid Deposit Cause (供託原因 - Kyotaku Gen'in):
    • The primary cause in this scenario is the landlord's "refusal of acceptance" (juryō kyohi) of the reasonable rent tendered by the tenant.
    • Tender of Performance: Generally, before a deposit can be made due to refusal, the tenant must have made a "real tender" (現実の提供 - genjitsu no teikyō) of the payment to the landlord (Civil Code Article 493). This means actually offering the money.
    • Oral Tender Exception: If the landlord has unequivocally and in advance stated they will not accept any amount less than their full increased demand, an "oral tender" (口頭の提供 - kōtō no teikyō) by the tenant might suffice. This involves the tenant notifying the landlord that the payment is ready and requesting them to accept it. The rationale is that forcing a physical tender in the face of an absolute prior refusal would be futile.
  2. Appropriate Subject Matter and Amount of Deposit (供託の内容 - Kyotaku no Naiyō):
    • The deposit must be of money, representing the rent.
    • Critically, the amount deposited must be the full sum that the tenant asserts is the correct and reasonable rent due for that period. Depositing only a part of what the tenant themselves considers the current reasonable amount would likely render the deposit invalid. The aim is to discharge the obligation for the amount the tenant believes is actually owed. For instance, if the previous rent was ¥500,000, the landlord demands ¥600,000, and the tenant believes ¥530,000 is reasonable, then ¥530,000 should be deposited.
  3. Deposit at the Correct Official Deposit Office (適法な供託所 - Tekihō na Kyotakusho):
    • A performance deposit must be made at the deposit office that has jurisdiction over the "place of performance" (弁済の場所 - bensai no basho) of the rent obligation (Civil Code Article 495, Paragraph 1).
    • Determining the Place of Performance:
      • If the lease agreement specifies a place for rent payment (e.g., the landlord's bank account, the landlord's office address), then that location dictates the jurisdictional deposit office.
      • If the lease is silent on the place of payment, for a monetary debt like rent (which is typically an obligation to bring payment, a jisansaimu), the place of performance is generally the current domicile or business office of the creditor (i.e., the landlord).
      • Bank Transfers: Even if rent has historically been paid via bank transfer, this is often considered merely an agreed "method of payment" rather than a formal agreement altering the legal "place of performance," unless the lease explicitly designates the bank account's location as such. Therefore, if the lease is silent, the landlord's address would likely determine jurisdiction.
    • If the place of performance (e.g., a specific city) does not have its own deposit office, the deposit should be made at the nearest deposit office within the same administrative district (e.g., prefecture) that covers that place of performance.

The Practical Steps: Making the Deposit

Once a tenant determines that a deposit is necessary and appropriate:

  1. Prepare the Deposit Application Form (供託書 - Kyotakusho):
    This official form requires specific information, including:
    • Depositor (Tenant): Name and address.
    • Depositee (Landlord): Name and address.
    • Deposit Amount: The "reasonable rent" being deposited.
    • Governing Law Article: Civil Code Article 494 (for performance deposit).
    • Description of Leased Property: Sufficient to identify it (e.g., address, unit number).
    • Original Rent Amount.
    • Payment Due Date for the rent period being covered.
    • Place of Performance (as determined above).
    • Rent Period: Clearly state which month's/period's rent the deposit covers (e.g., "Rent for October 2024").
    • Facts Constituting the Cause for Deposit: This is a crucial section. It should concisely explain why the deposit is being made. For example: "Landlord demanded an increased rent of X for the period [date] to [date]. Tenant deems Y to be the reasonable rent for this period. Tenant tendered Y to Landlord on [date], but Landlord refused acceptance. Therefore, Tenant deposits Y for the rent of [period]."
      The example referenced in background materials shows a tenant detailing the landlord's demanded increase and the amount the tenant deemed a reasonable increase, which was then added to the original rent for the deposit.
  2. Submit the Application and Funds:
    The completed application form and the exact amount of money to be deposited are submitted to the correct deposit office. Payment methods and any associated fees should be confirmed with the office.
  3. Notification to the Landlord (Depositee):
    After the deposit is accepted, the deposit office will formally notify the landlord (the depositee) that funds have been deposited in their name. This notification includes details of the deposit.
  • Discharge of Obligation (for the deposited amount): The tenant is legally considered to have fulfilled their payment obligation for the specific rent period covered by the deposited amount.
  • Protection from Default Claims: This act protects the tenant from claims of default, late payment penalties (on the deposited sum), or lease termination based on the non-payment of the amount that was validly tendered and subsequently deposited.
  • Landlord's Access to Funds: The landlord has the right to apply to the deposit office to withdraw the deposited funds.
    • If the landlord withdraws the funds without reservation, it could, depending on the circumstances and any accompanying communications, be interpreted as their acceptance of that amount as full satisfaction for that rent period.
    • However, landlords often withdraw funds "with reservation," meaning they accept the money but do not agree it represents the full rent owed, thereby preserving their right to claim the difference. Tenants, when making the deposit, should also clearly state in the application that the deposited amount is what they consider reasonable pending final resolution.

Resolving the Underlying Rent Dispute

It is critical to understand that the act of depositing the "reasonable rent" does not, by itself, resolve the fundamental disagreement over what the correct increased rent should be. The deposit is a temporary measure to protect the tenant's standing while the dispute is addressed through other channels:

  1. Negotiation: The most straightforward path is for the tenant and landlord to continue discussions and attempt to reach a mutually acceptable agreement on the new rent.
  2. Mediation (調停 - Chōtei): If direct negotiations fail, parties can utilize formal mediation services, often available through the summary courts in Japan. A neutral mediator helps facilitate a resolution.
  3. Litigation (訴訟 - Soshō): Either the landlord (to claim the higher rent) or the tenant (to confirm the reasonableness of the current or a moderately increased rent) can file a lawsuit. The court will then judicially determine the appropriate rent based on the evidence presented, considering the factors outlined in the Shakuchi Shakka Hō.

Reconciliation After Rent Determination:
Once the appropriate rent is finalized, either by agreement or court order:

  • If the determined rent is higher than the amount the tenant was depositing, the tenant will be liable for the shortfall for all relevant periods. Article 32, Paragraph 3 of the Shakuchi Shakka Hō (and Article 11, Paragraph 3 for land rent) stipulates that the tenant must pay this deficiency along with interest at a rate of 10% per annum.
  • If the determined rent is equal to or lower than the deposited amount, the deposit will have satisfied the tenant's obligation. Any excess deposited amount for a period (if the determined rent is lower) can be reclaimed by the tenant.

Important Considerations for Tenants

  • Maintain Thorough Records: Keep copies of all correspondence related to the rent increase demand, your responses, evidence of your tender of the "reasonable rent," and the landlord's refusal. Also, retain copies of all deposit application forms and certificates.
  • Consistency is Key: If the dispute spans multiple rent periods, consistently tender and, if refused, deposit the same "reasonable amount" each period until the matter is resolved. This demonstrates ongoing good faith.
  • Clarity in Deposit Application: Ensure the "facts constituting the cause for deposit" section in the application clearly articulates that the deposit represents what the tenant deems reasonable in light of a disputed increase demand.
  • Seek Legal Counsel: Rent increase disputes, the interpretation of "reasonableness," and the correct application of the deposit system can involve complex legal arguments and strict procedural requirements. Engaging a legal professional in Japan familiar with real estate and deposit law is highly advisable to ensure your rights are protected and procedures are correctly followed.

Conclusion: A Strategic Tool in Rent Negotiations

The ability to deposit a "reasonable rent" when facing a disputed increase demand provides a significant strategic tool for tenants in Japan. It allows them to uphold what they believe to be their current payment obligations, thereby safeguarding themselves against allegations of default and potential eviction, while the more complex issue of the appropriate future rent is addressed through negotiation, mediation, or litigation.

However, this is not a passive remedy. It requires the tenant to proactively assess what is reasonable, make a proper tender of payment, and then, if that tender is refused, navigate the formal deposit procedures correctly. Given the legal implications and the necessity of correctly following the procedures laid out in the Civil Code and the Shakuchi Shakka Hō, professional legal advice is often indispensable for tenants, especially corporate entities managing commercial leases, to effectively utilize this right.