Landlord Sold the Building I Lease in Japan: What Happens to My Lease?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

Imagine you are a tenant, whether residential or commercial, operating under a lease agreement in Japan. One day, you learn that your landlord has sold the property to a new owner. This common scenario immediately raises critical questions: Is my lease still valid? Can the new owner force me to vacate? Understanding the legal principles that govern the fate of a leasehold when the underlying property changes hands is essential for both tenants and prospective property purchasers in Japan. This article delves into the traditional starting point, the crucial concept of "perfection" that protects tenants, and the transfer of the landlord's status.

I. The Traditional Principle: "Sale Breaks the Lease" (Baibai wa Chintaishaku o Yaburu)

At its most fundamental level, Japanese contract law distinguishes between rights in personam (effective between specific parties, like contractual rights) and rights in rem (effective against the world at large, like ownership).

  • Leasehold as a Contractual Right (Saiken): Under the Japanese Civil Code, a leasehold right (chintaishakuken) is primarily a contractual right (a saiken). This means it creates obligations and rights principally between the lessor (landlord) and the lessee (tenant) who entered into the agreement.
  • Ownership as a Real Right (Bukken): In contrast, ownership (shoyūken) is a real right (bukken). Real rights are considered absolute and can be asserted against everyone (erga omnes).

The traditional consequence of this distinction is encapsulated in the principle often translated as "sale breaks the lease" (baibai wa chintaishaku o yaburu). In its purest form, this means that if a leased property is sold, the new owner, asserting their absolute ownership right, is not automatically bound by a pre-existing lease agreement entered into by the former owner. The new owner has no direct contractual relationship with the tenant. Therefore, without further protective measures, the new owner could, in principle, demand that the tenant vacate the premises, as the tenant would lack a direct legal basis (a perfected right) to assert their occupancy against this new owner.

II. Protecting the Tenant: Making the Lease Enforceable Against New Owners (Perfection of Leasehold Rights - Taikō Yōken)

Recognizing the potential harshness of the "sale breaks the lease" principle, especially for tenants who have invested in their leased premises or rely on them for their livelihood or residence, Japanese law provides several mechanisms through which a tenant can make their leasehold rights enforceable against third parties, including subsequent purchasers of the property. This is achieved by "perfecting" the leasehold right, thereby giving it taikōryoku (対抗力 – a power to assert against third parties, or perfection).

A. For Real Property Leases – Registration of the Lease (Civil Code Article 605)

Article 605 of the Civil Code provides a general method for perfecting a lease of immovable property (real estate). It states that once a lease of real property is registered in the official property register, it becomes effective against any person who subsequently acquires a real right (such as ownership or a mortgage) in that immovable property. A registered lease, therefore, would bind a new owner.

However, the practical utility of Article 605 for tenants has historically been limited.

  • Landlord's Cooperation Required: Lease registration typically requires the landlord's active cooperation, as it's a joint application process.
  • Landlord Reluctance: Landlords are often hesitant to agree to register a lease. A registered lease can be perceived as an encumbrance that might reduce the property's market value or make it more difficult to secure financing.
  • No General Duty to Cooperate: Crucially, Japanese case law has established that, unless specifically stipulated in the lease agreement itself, a landlord generally has no legal duty to cooperate with the tenant's request to register the lease (e.g., Daishin'in (Great Court of Cassation) judgment, July 11, 1921, Minroku Vol. 27, p. 1378). The landlord's basic obligation is to allow use and enjoyment, not necessarily to provide the tenant with third-party opposability through registration of the lease itself.

B. Special (and More Practical) Protections under the Act on Land and Building Leases (Shakuchi Shakka Hō)

Given the limitations of Civil Code Article 605, the Act on Land and Building Leases (Shakuchi Shakka Hō) provides more practical and commonly utilized methods for tenants of land (for building purposes) and tenants of buildings to perfect their leasehold rights, thereby offering significantly stronger protection.

  1. Leases of Land for Building Ownership (Article 10, Paragraph 1 of the Act):
    If a lessee of land holds the lease for the purpose of owning a building on that land, their land lease rights can be perfected against third parties (including new landowners) if the building itself is registered in the lessee's name. Even if the land lease itself is not registered, the registration of the lessee-owned building on that land serves to perfect the underlying land lease. This is a vital protection for individuals or businesses that construct or acquire buildings on leased land. The rationale is that the existence of a registered building provides a clear outward sign of a long-term land use right.
  2. Leases of Buildings (Article 31, Paragraph 1 of the Act):
    For building leases (both residential and commercial), the rule is even more straightforward and tenant-friendly. A lease of a building is perfected and becomes opposable to third parties (including any new owner of the building) simply by the delivery (hikiwatashi – 引渡し) of the building to the lessee. "Delivery" in this context means the tenant acquiring physical possession and occupancy of the leased premises. Registration of the building lease itself is not necessary for this crucial protection against subsequent purchasers of the building. This provision is the most common basis for tenant security in building leases in Japan.

C. Other Specific Legislation

Similar special perfection rules exist for other specific types of leases. For example, under the Agricultural Land Act (Article 18, Paragraph 1), a lease of agricultural land can be perfected against third parties by the delivery of the land to the lessee.

D. The New Owner's Own Perfection Requirement (Civil Code Article 177)

It is also essential to consider that any new owner of real property must themselves perfect their acquisition of title by registering the transfer of ownership to be able to assert their ownership against third parties (Civil Code Article 177). Significantly, an existing tenant is generally considered a "third party" for the purposes of Article 177.

This means that if a new owner has purchased the leased property but has not yet registered their ownership, they generally cannot assert their new ownership against a tenant whose lease was already perfected (e.g., by building registration on leased land, or by delivery for a building lease). Even if the tenant's lease is not perfected by the special means above, an unperfected new owner may face difficulties evicting a tenant who is in possession under a contract with the previous owner, as the new owner's claim to ownership itself is not yet opposable to the tenant. (This principle was affirmed in early case law, e.g., Supreme Court judgment, March 31, 1931, Shimbun No. 3261, p. 16; Supreme Court judgment, May 9, 1933, Minshū Vol. 12, p. 1123).

III. Transfer of the Landlord's Status (Chintaishakunin no Chii no Iten)

When leased real property is sold, and both the new owner has perfected their title (by registration) and the tenant's lease is perfected against this new owner (e.g., through building delivery or land-building registration), the question arises as to what happens to the landlord-tenant contractual relationship itself.

A. Automatic Transfer of Landlord's Status: The Prevailing View

The dominant position in Japanese case law and legal scholarship is that, in such circumstances, the status of the landlord (lessor) automatically transfers from the former owner to the new owner. This transfer occurs by operation of law, provided there are no "special circumstances" (tokudan no jijō) indicating a contrary intent or outcome that is recognized by law. (See, e.g., Daishin'in judgment, May 30, 1921, Minroku Vol. 27, p. 1013; Supreme Court judgment, August 28, 1964, Minshū Vol. 18, No. 7, p. 1354).

This automatic transfer is often explained by the concept of "status obligations" (jōtai saimu). Certain obligations of a landlord, such as the duty to allow the tenant to use the premises and the duty to make necessary repairs, are considered intrinsically tied to the ownership of the property itself. Therefore, when ownership is transferred, these property-linked obligations (and the corresponding rights, such as the right to receive rent) are deemed to pass to the new owner. The former owner is simultaneously divested of these landlordly rights and duties.

A significant consequence of this automatic transfer doctrine is that the tenant's consent is generally not required for the landlord's status to pass from the old owner to the new owner. The rationale is that the core obligations of the landlord are primarily related to the property itself, rather than the personal identity of the landlord, and it is often considered more practical and even advantageous for the tenant to have the current property owner as their landlord. Furthermore, no specific notice to the tenant regarding the transfer of the landlord's status is usually required for the transfer to take effect legally, although practical communication is, of course, advisable. (See Supreme Court judgment, April 23, 1971, Minshū Vol. 25, No. 3, p. 388).

C. "Special Circumstances" Preventing Automatic Transfer

While automatic transfer is the rule, courts may recognize "special circumstances" that prevent it. However, these are narrowly construed. For instance, a mere private agreement between the old and new owners that the old owner will retain the landlord's status, without the tenant's informed consent or a clear, legitimate reason that doesn't prejudice the tenant, might not be upheld if it places the tenant in a worse or more precarious position. An example would be if the tenant is left dealing with a non-owner landlord who subsequently loses any ability to ensure the tenant's use of the premises. The Supreme Court judgment of March 25, 1999 (Hanrei Jihō No. 1674, p. 61) touched upon this, suggesting that such an agreement between old and new owners alone might not constitute "special circumstances" if it could adversely affect the tenant by, for example, placing them in a position similar to that of a sub-lessee dealing with a head-lessor who is no longer the owner and might default on their own obligations regarding the property.

D. Implications of Transferred Status

Once the landlord's status has validly transferred to the new owner:

  • The tenant becomes obligated to pay rent to the new owner.
  • The new owner assumes the landlord's obligations under the lease (e.g., duty to repair).
  • Security deposits (shikikin) paid by the tenant to the former landlord are generally considered to be obligations that transfer to the new landlord. The tenant can then claim the return of the security deposit (less any proper deductions for unpaid rent or damages) from the new owner at the end of the lease term.

The interplay of these rules becomes evident in legal proceedings:

  • New Owner (X) Seeking to Evict Tenant (Y) from Former Owner (A):
    X must typically prove their validly perfected ownership (A's original ownership, the valid transfer from A to X, and X's registration of title). Y, the tenant, can then raise defenses, such as challenging the perfection of X's title (if X has not registered) or, more commonly, asserting their own leasehold right that is perfected against X (e.g., by proving delivery of a leased building, or registration of a lessee-owned building on leased land). The burden falls on Y to establish the facts that give their lease opposability against the new owner X.
  • New Owner (X) Seeking to Assert Landlord Status and Claim Rent from Tenant (Y):
    X would generally need to prove their perfected ownership and the existence of the lease under which Y is occupying. The transfer of landlord status is then often presumed if the lease is opposable. Y's main defense against X's claim for rent would typically be to challenge X's perfected ownership (e.g., if X has not yet registered their title).

V. Conclusion

The traditional common law notion that "sale breaks the lease" has been significantly tempered in Japan by statutory provisions and legal doctrines designed to protect tenants. While a leasehold right remains fundamentally contractual, mechanisms such as lease registration (though less common for leases themselves), registration of lessee-owned buildings on leased land, and simple delivery (possession) for building leases, provide tenants with powerful means to perfect their rights and make them enforceable against new property owners.

Furthermore, when a leased property is sold and both the new owner's title and the tenant's perfected lease are in place, Japanese law generally presumes an automatic transfer of the landlord's status to the new owner, often without requiring the tenant's explicit consent. This framework aims to balance the property rights of owners with the legitimate needs of tenants for stability and security of tenure. For businesses involved in leasing property in Japan, whether as landlords, tenants, or prospective purchasers, a clear understanding of these rules regarding perfection of rights and the transfer of landlord status is indispensable for secure and predictable dealings.