Leasing Farmland in Japan: Understanding "Riyoken Settei" via the Agricultural Management Basis Reinforcement Act

Japanese Attorney at Law - Bengoshi L.L.

• 7 min read

Securing leasehold rights over agricultural land in Japan presents a distinct set of regulatory considerations, primarily governed by the Farmland Act (Nochi Ho, 農地法). While Article 3 of this Act provides the standard pathway for obtaining permission for such leases, its provisions, particularly concerning lease renewal and the conditions for repossession by landowners, have historically been perceived as somewhat rigid. This perception occasionally led to a reluctance among landowners to enter into formal, long-term lease agreements.

To address these challenges and promote the fluid transfer of farmland use to motivated and efficient agricultural operations, Japan introduced an alternative mechanism known as "Utilization Rights Setting" (riyoken settei, 利用権設定). This system operates under the Agricultural Management Basis Reinforcement Act (Nogyo Keiei Kiban Kyoka Sokushin Ho, 農業経営基盤強化促進法 – hereafter "AMBRA"), enacted in 1993 (Heisei 5). Riyoken settei offers a more flexible framework for farmland leasing, specifically designed to facilitate the consolidation of agricultural land for "core farmers" (ninaite, 担い手) and improve overall agricultural productivity.

AMBRA and Riyoken Settei: Purpose and Context

The primary objective of AMBRA is to foster the development of efficient and stable agricultural management units by promoting measures such as the accumulation of farmland use for farmers who are actively seeking to improve their operations. Historically, landowners leasing under a Farmland Act Article 3 permit faced a system where tenants often had strong rights, including implied statutory renewal of leases, making it potentially difficult for landowners to regain possession of their land even after the agreed lease term expired. This was a significant disincentive to leasing out farmland, contributing to issues of underutilized or abandoned land.

The riyoken settei system was introduced to alleviate these concerns. By creating a lease arrangement with a definite term and no automatic right of statutory renewal for the lessee, it provides landowners with greater assurance that their land will be returned upon the expiration of the agreed period. This, in turn, encourages them to make their land available for lease to capable farmers.

Key Differences: Riyoken Settei vs. Farmland Act Article 3 Permission

The riyoken settei mechanism differs from the standard Farmland Act Article 3 permission process in several crucial aspects:

  1. No Separate Farmland Act Article 3 Permit Required: When utilization rights are established through an approved Farmland Use Aggregation Plan under AMBRA, a separate permission under Article 3 of the Farmland Act is not necessary. The AMBRA process itself serves as the legal basis for the lease.
  2. Eligible Land: The riyoken settei system is generally applicable only to farmland located within designated Agricultural Land Zones (noyochi kuiki, 農用地区域) of Agricultural Promotion Areas (nogyo shinko chiiki, 農業振興地域). These are areas specifically earmarked by local governments for focused agricultural development. This means that not all farmland is eligible for this type of leasing arrangement.
  3. Eligible Lessees (Borrowers): While Article 3 of the Farmland Act applies broadly, AMBRA and the riyoken settei system are particularly geared towards supporting "core farmers" (ninaite), including Certified Farmers (nintei nogyosha, 認定農業者). These are individuals or corporations whose agricultural management improvement plans have been officially certified by their municipality. While new entrants can potentially utilize this system, they may face higher hurdles in demonstrating their suitability as a future "core farmer" compared to established, certified operations.
  4. No Statutory Renewal (法定更新なし, hotei koshin nashi): This is arguably the most significant distinction and a primary incentive for landowners. Unlike leases under Article 3 of the Farmland Act, which may be subject to statutory renewal under Article 17 of that Act, utilization rights established via AMBRA expire definitively at the end of the agreed term. The land automatically reverts to the landowner, and the lessee has no legal right to demand a continuation of the lease. This provides landowners with much greater certainty regarding the return of their property.
  5. Fixed Term: Leases under riyoken settei are established for a clearly defined period as stipulated in the Farmland Use Aggregation Plan.

The Core Instrument: Farmland Use Aggregation Plans (Noyochi Riyo Shuseki Keikaku)

The establishment of utilization rights under AMBRA hinges on the creation and approval of a Farmland Use Aggregation Plan (Noyochi Riyo Shuseki Keikaku, 農用地利用集積計画). This plan is the legal instrument that details the terms of the farmland leasing arrangement.

  • Formulation: These plans are typically formulated with the involvement of the farmland lessors, the prospective lessees (the farmers), and often facilitated by the local municipal government or designated intermediary organizations.
  • Content: The plan must specify key details, including:
    • Identification of the lessor(s) and lessee(s).
    • Precise details of the farmland parcels involved (location, area, etc.).
    • The nature of the rights being set (e.g., leasehold).
    • The duration of the utilization rights.
    • The agreed rent and payment terms.
    • Other relevant conditions of the lease.
  • Approval and Effect: The drafted plan is submitted to the municipal Agricultural Committee for review and approval. Once the Agricultural Committee deems the plan appropriate and in line with AMBRA's objectives (such as promoting efficient land use by core farmers), it approves the plan. Following approval, the municipality publicly notifies the plan. This public notification formally establishes the utilization rights as detailed within the plan, thereby legalizing the lease without needing a separate Farmland Act Article 3 permit.

The Crucial Role of Intermediary Organizations

AMBRA acknowledges the importance of intermediary bodies in facilitating the smooth leasing and consolidation of farmland. Several types of organizations can play this role:

  • Agricultural Public Corporations (Nogyo Kosha, 農業公社): These are often established at the prefectural or municipal level, frequently as incorporated foundations (財団法人, zaidan hojin), and have a longstanding involvement in farmland transactions, including buying, selling, and leasing land to support agricultural development.
  • Farmland Use Right Setting Facilitation Organizations (Nochi Riyo Shuseki Enkatsuka Dantai, 農地利用集積円滑化団体): AMBRA specifically provides for these organizations to act as intermediaries in the riyoken settei process. Such an entity can be a municipality itself, an agricultural cooperative (JA), an Agricultural Public Corporation, or even a designated non-profit organization.

These intermediary organizations perform various functions, such as:

  • Matching landowners wishing to lease out their farmland with capable farmers seeking to expand their operations.
  • Assisting in the preparation and negotiation of the Farmland Use Aggregation Plan.
  • Providing information and guidance to both landowners and farmers about the riyoken settei system.
    In some operational models, these organizations might even temporarily lease land from owners themselves and then sublease it to farmers, thereby playing a more active role in land management and reallocation. This role has been further developed and expanded by the more recent Farmland Intermediary Management Organizations (Nochi Chukan Kanri Kiko, or "Farmland Banks").

Benefits of Utilizing the Riyoken Settei System

The riyoken settei framework offers several advantages:

  • For Landowners: The most significant benefit is the certainty that the lease will terminate at the end of the agreed period and the land will be returned without the complexities of potential statutory renewal claims. This reduces landowner risk and encourages the leasing out of underutilized land. The involvement of an intermediary can also simplify the administrative process for landowners.
  • For Lessees (Core Farmers): It provides a formal and legally secure way to access farmland, often for reasonably long and stable terms. Leasing through an aggregation plan can also lead to the consolidation of fragmented plots, improving operational efficiency. Furthermore, participation in such recognized schemes can sometimes make farmers eligible for certain agricultural support measures or subsidies linked to land aggregation and management improvement.
  • For Regional Agriculture: The system aims to combat farmland abandonment and fragmentation by channeling land use towards more viable and productive agricultural operations. This contributes to the overall health and sustainability of the local agricultural sector.

Specific Requirements for Establishing Utilization Rights

For utilization rights to be established under AMBRA via a Farmland Use Aggregation Plan, a number of conditions, pertaining to the land, the lessee, and the plan itself, must generally be met:

  1. Land Eligibility: The farmland must be located within an Agricultural Land Zone (noyochi kuiki) of an Agricultural Promotion Area (nogyo shinko chiiki).
  2. Lessee's Total Cultivated Area: The lessee, after setting the new utilization rights, must be cultivating a total of at least 50 ares (or the locally adjusted kagen menseki), including their currently farmed land.
  3. Reasonable Commuting Distance: The lessee's residence should be within a reasonable commuting distance to the farmland in question.
  4. Full Utilization of Existing Holdings: The lessee must already be cultivating all farmland they currently own or lease.
  5. Minimum Farming Engagement by Lessee: The lessee must engage in agricultural work for at least 60 days per year. This is a specific requirement for this scheme and differs from the general 150-day guideline often associated with Farmland Act Article 3 for individuals.
  6. Plan Conformity: The Farmland Use Aggregation Plan must be consistent with the municipality’s basic agricultural development vision or master plan (市町村基本構想, shichoson kihon koso).
  7. Efficient Cultivation: All farmland included in the plan must be destined for efficient and appropriate cultivation.
  8. Engagement of Household/Corporate Members: There are specific requirements regarding the engagement in farming activities by members of the lessee's household (if an individual) or by the officers/employees of the lessee corporation. For instance, if it's a family operation, household members should be primarily engaged; for a corporation, key officers must be involved in the farm work.
  9. Consent of Rights Holders: Generally, consent from all parties holding rights over the land (e.g., mortgagees) is necessary. An exception exists for land co-owned by several individuals, where utilization rights for a term not exceeding five years can be set with the consent of co-owners representing more than half of the total ownership share.

Challenges and Practical Considerations

While the riyoken settei system offers a streamlined alternative to Article 3 permissions, it is not without its own procedural aspects and considerations:

  • Availability of Intermediaries: The effectiveness of the system can depend on the presence and proactivity of local intermediary organizations like Agricultural Public Corporations or Farmland Use Right Setting Facilitation Organizations.
  • Plan Development and Approval: Crafting a Farmland Use Aggregation Plan that satisfies all parties and meets municipal approval criteria requires careful negotiation and documentation.
  • Accessibility for New Entrants: The emphasis on "core farmers" and efficient, large-scale operations might mean that brand-new entrants without a proven track record or a clear pathway to becoming a "certified farmer" could find it more challenging to access land through this scheme initially, unless they have strong local backing or a very compelling business plan.

Conclusion: A Strategic Avenue for Farmland Leasing

The "Utilization Rights Setting" (riyoken settei) system under the Agricultural Management Basis Reinforcement Act provides a crucial and often more landowner-friendly alternative for leasing farmland in Japan compared to the traditional Farmland Act Article 3 route. By offering fixed terms and no statutory renewal, it encourages landowners to make their land available, thereby facilitating its consolidation and use by capable and motivated farmers. For businesses and individuals looking to engage in agriculture in Japan through leasing, particularly those aiming to develop professional and efficient farming operations, understanding and potentially utilizing the riyoken settei framework, often with the assistance of local municipalities and agricultural organizations, can be a strategic approach to securing necessary land resources.