Leasing Property in Japan: Key Legal Aspects of "Chintaishaku" (Lease Agreements) from Formation to Termination

Lease agreements are fundamental to both commercial and residential life, providing the framework for the use and enjoyment of property owned by others. In Japan, these agreements are known as chintaishaku (賃貸借). While the Japanese Civil Code provides the foundational rules for chintaishaku, it's crucial to recognize that for leases of land and buildings, specific legislation—most notably the Act on Land and Building Leases (Shakuchi Shakka Hō)—often introduces significant modifications, particularly aimed at tenant protection. This article will focus on the core legal aspects of chintaishaku under the Civil Code, covering how these agreements are formed, the principal rights and obligations of landlords (lessors) and tenants (lessees), and the various ways in which they can be terminated.

I. Formation and Nature of Chintaishaku (Lease Agreements)

A. Definition (Civil Code Article 601)

A chintaishaku is defined by Article 601 of the Civil Code as a contract whereby one party (the lessor, chintaishakunin – 賃貸人) agrees to allow the other party (the lessee, chinshakunin – 賃借人) to use and take profits from a specific "thing" (which can be movable or immovable property), and the lessee, in turn, agrees to pay rent (chinryō – 賃料) for such use.

B. Consensual Contract (Dakusei Keiyaku)

Unlike some other types of "lending" or "use" contracts in Japanese law, such as a loan for consumption (shōhi taishaku) or a loan for use (shiyō taishaku), which are "real contracts" (yōbutsu keiyaku) requiring the delivery of the subject matter for their formation, a chintaishaku is a consensual contract (dakusei keiyaku). This means it is formed and becomes legally binding simply by the mutual agreement (offer and acceptance) of the parties on its essential elements. These essential elements are typically:

1. The specific property to be leased.
2. The rent to be paid.

Under the Civil Code, no particular formalities, such as a written document, are generally required for the validity of the lease agreement itself. A verbal lease can be legally binding. However, for clarity, evidence, and to avoid future disputes, written lease agreements are standard practice and highly recommended, especially in commercial contexts. It's worth noting that specific laws might impose additional requirements for certain types of leases, such as those concerning agricultural land, which may require official permits for validity.

C. Bilateral and Onerous Nature

A lease is a bilateral contract, as both the lessor and the lessee have reciprocal obligations. It is also an onerous contract because it involves consideration—the lessee's obligation to pay rent in exchange for the right to use the property.

D. Lease of Another's Property (Taninbutsu Chintaishaku)

Interestingly, similar to the rules governing the sale of another's property, a lease contract where the lessor does not actually own the leased property at the time of contracting is generally considered valid as between the lessor and the lessee. This principle is often applied by analogy from the rules on sales (e.g., former Civil Code Article 560 concerning the sale of another's property, applied via Article 559 which extends sales provisions to other onerous contracts).

In such a situation, the lessor undertakes an obligation to make the property available for the lessee's use. If the lessor fails to do so (for example, if the true owner of the property evicts the lessee), the lessor will be liable to the lessee for breach of contract, potentially leading to claims for damages or termination of the lease. The lessee's payment of rent to the non-owner lessor is generally considered a valid discharge of their rental obligation as towards that lessor. However, the critical caveat is that the lessee cannot assert their leasehold right against the true owner unless the lease has been perfected in a manner that makes it opposable to third parties (e.g., through registration for real property leases).

II. Rights and Obligations of the Lessor (Chintaishakunin no Kenri Gimu)

The lessor, or landlord, has several key obligations under a lease agreement:

A. Primary Obligation: To Allow Use and Enjoyment (Civil Code Article 601)

The lessor's most fundamental duty is to deliver the leased property to the lessee and to ensure that the lessee can use and take profits from it in accordance with the terms of the contract throughout the entire lease term. This is an ongoing obligation and is generally considered more active than the duties of a lender in a simple loan for use. It encompasses several aspects:

1. Duty to Make Repairs (Shūzen Gimu) (Civil Code Article 606, Paragraph 1):
   The lessor is responsible for undertaking all repairs necessary for the lessee to use the property for its intended purpose as stipulated in the lease. This duty covers repairs needed due to normal wear and tear, unforeseen damage (e.g., from natural events), or defects existing from the outset, provided these are not attributable to the lessee's fault.
   • This obligation can be modified by agreement. It's common in residential leases for minor repairs to be assigned to the lessee, and in commercial leases, tenants sometimes assume responsibility for more extensive maintenance or even structural repairs, depending on the negotiation. However, tenant protection laws (like the Act on Land and Building Leases) may limit the extent to which this duty can be entirely shifted, especially for essential repairs in residential properties.
   • If the lessor fails to make necessary repairs in a timely manner, the lessee may have several remedies, including: demanding performance of the repair, undertaking the repairs themselves and claiming reimbursement for the costs from the lessor, withholding a proportionate amount of rent until the repairs are made, or, if the lack of repair makes it impossible to achieve the purpose of the lease, terminating the lease agreement.
2. Duty to Remove Hindrances: If third parties unlawfully interfere with the lessee's peaceful use and enjoyment of the leased property, the lessor may have an obligation to take reasonable steps to remove such hindrances.

B. Lessor's Warranty Liability

If the leased property suffers from defects, whether in the rights pertaining to it (e.g., undisclosed third-party claims restricting use) or in its physical quality, which impair its suitability for the agreed use, the lessor may be held liable under warranty principles. Article 559 of the Civil Code extends the provisions concerning sales to other onerous contracts, including leases. Thus, the rules on seller's warranty liability (now framed as liability for non-conformity under the amended Civil Code) can be applied by analogy. This liability is often closely linked with or manifested through the lessor's duty to repair.

C. Lessor's Right to Enter for Preservation (Civil Code Article 606, Paragraph 2)

The lessor has the right to perform acts necessary for the preservation or maintenance of the leased property. The lessee cannot refuse such entry or acts, provided they are reasonable. However, if the lessor, while exercising this right, acts in a way that makes it impossible for the lessee to achieve the purpose for which the lease was entered into, the lessee may have the right to terminate the lease (Civil Code Article 607).

III. Rights and Obligations of the Lessee (Chinshakunin no Kenri Gimu)

The lessee, or tenant, also has a set of core rights and obligations:

A. Primary Obligation: To Pay Rent (Chinryō Shiharai Gimu) (Civil Code Articles 601, 614)

The lessee's most fundamental obligation is to pay the agreed-upon rent to the lessor.

• Timing of Rent Payment (Article 614): Unless otherwise stipulated in the contract or established by custom, rent for movables, buildings, and land is payable at the end of each period for which it is calculated (e.g., at the end of the month for monthly rent). This default rule implies payment in arrears. However, in practice, particularly for real estate leases, it is very common for contracts to require rent to be paid in advance.

B. Duty to Use the Property in Accordance with its Intended Purpose and Nature

The lessee is obliged to use the leased property in conformity with the method determined by the contract or by the inherent nature and purpose of the thing leased (Civil Code Article 616, which applies Article 594, Paragraph 1 concerning loans for use, mutatis mutandis). This includes a general duty to use the property with the care of a good manager (zenkan chūi gimu), typically implied from Article 400 of the Civil Code. Unauthorized alterations, use for prohibited purposes, or actions that damage the property beyond ordinary wear and tear would constitute a breach of this duty.

C. Prohibition Against Subletting or Assigning Lease Rights Without Consent (Civil Code Article 612)

A lessee may not assign their leasehold rights to a third party or sublet the leased property to a third party without first obtaining the lessor's consent.

• If the lessee does so without the required consent, Article 612, Paragraph 2 allows the lessor to terminate the lease agreement. However, Japanese case law has developed the "doctrine of betrayal of trust" (shingai kankei hakai no hōri). Under this doctrine, even if an unauthorized sublease or assignment occurs, courts may not permit termination if the act, under all the circumstances, does not constitute a significant betrayal or destruction of the relationship of trust and confidence that is considered fundamental to the lessor-lessee relationship. For example, if a lessee running a small business incorporates it and the same individual continues to operate from the premises, or if a residential tenant allows a close family member to cohabit, these might not be deemed sufficiently serious to warrant termination, depending on the specifics.

D. Duty to Notify the Lessor (Civil Code Article 615)

If the leased property requires repairs for which the lessor is responsible, or if a third party asserts rights over the property that could affect the lessee's use, the lessee has a duty to promptly notify the lessor of these facts, unless the lessor is already aware of them.

E. Duty to Return the Property upon Termination (Mokutekibutsu Henkan Gimu)

When the lease agreement terminates (for any reason), the lessee is obligated to return the leased property to the lessor.

• Restoration to Original Condition (Genjō Kaifuku): Generally, the lessee must restore the property to the condition it was in at the commencement of the lease, excluding changes resulting from ordinary wear and tear. A landmark Supreme Court judgment on December 16, 2005 (Hanrei Jihō No. 1921, p. 61) clarified that, unless specifically agreed otherwise in the lease, tenants are not liable for the costs of repairing normal wear and tear.
• Lessee's Right to Remove Fixtures (Shūkyoken): The lessee generally has the right to remove any fixtures or additions they have attached to the property, provided they can do so without damaging the property and that they restore the property to its original state afterwards (Civil Code Article 616, applying Article 598 concerning loans for use, mutatis mutandis).

F. Lessee's Right to Claim Reimbursement for Expenses (Civil Code Article 608)

1. Necessary Expenses (Hitsuyōhi): If the lessee incurs expenses that were necessary for the preservation or ordinary maintenance of the leased property and which should have been borne by the lessor (e.g., urgent repairs that the lessor failed to make despite being obligated to do so), the lessee can demand immediate reimbursement from the lessor (Article 608, Paragraph 1).
2. Beneficial Expenses (Yūekihi): If the lessee incurs expenses that are not strictly necessary but enhance the value of the leased property ("beneficial expenses"), the lessee may, upon termination of the lease, demand reimbursement from the lessor in accordance with the provisions of Article 196, Paragraph 2. This means the lessor has the option to reimburse either the actual amount expended by the lessee or the amount by which the value of the property has increased due to the expenditure, provided the increase in value still exists at the time of termination. A court may also grant the lessor a reasonable period to make such reimbursement.

There are short time limits for claiming these expenses: typically, one year from the time the lessor receives the return of the property (Civil Code Article 600, applied by Article 621).

IV. Duration and Termination of Lease Agreements

A. Lease Term (Sonzoku Kikan)

• Maximum Term (Civil Code Article 604, as amended in 2020): The pre-2020 Civil Code (old Article 604) limited general lease terms to a maximum of 20 years, though this could be renewed. A significant change in the 2020 reforms was the revision of Article 604, which now sets a maximum lease term of 50 years for all types of leases governed by the Civil Code. This term can be renewed, but each renewal term is also generally capped at 50 years.
  It's crucial to note that for building leases, the Act on Land and Building Leases (Article 29, Paragraph 2) had already disapplied the old 20-year Civil Code limit, allowing for longer terms. The new 50-year Civil Code limit provides a general cap where specific legislation doesn't dictate otherwise.
• Minimum Term: The Civil Code itself generally does not prescribe minimum lease terms. However, the Act on Land and Building Leases does impose minimum terms for certain real property leases to enhance tenant security (e.g., Article 29, Paragraph 1 of that Act sets a minimum term of one year for building leases, unless a shorter term is for temporary use).

B. Methods of Termination

1. Expiry of Term: A lease for a fixed term automatically terminates upon the expiry of that term, unless it is renewed.
2. Renewal of Lease:
   • By Agreement: Parties are free to agree to renew the lease on mutually acceptable terms.
   • Implied Renewal (Civil Code Article 619): If, after the expiration of the lease term, the lessee continues to use or take profits from the leased property, and the lessor, knowing of this continued use, does not raise any objection without delay, the lease is presumed to have been renewed on the same terms and conditions as the previous lease, except that the renewed lease will be for an indefinite term. The lessor can then terminate this implicitly renewed lease by giving notice as per the rules for indefinite-term leases.
3. Termination of Indefinite-Term Leases (Civil Code Article 617):
   If a lease has no specified term (either from the outset or due to an implied renewal), either party may give notice to terminate the agreement at any time. The lease will then terminate after the lapse of a statutorily prescribed notice period following the notice of termination:
   • One year for leases of land.
   • Three months for leases of buildings.
   • One day for leases of movables.
     (Again, for land and building leases, the Act on Land and Building Leases often provides more stringent requirements for lessors wishing to terminate or refuse renewal, such as the need for "just cause.")
4. Termination for Breach of Contract: A material breach of contract by either party (e.g., lessee's failure to pay rent, lessor's failure to make essential repairs, lessee's unauthorized subletting that constitutes a betrayal of trust) can give the other party the right to terminate the lease. This is typically done under the general contract law principles for termination due to default (Civil Code Articles 541 et seq.), often requiring a prior demand for cure (saikoku) unless the breach is irremediable or sufficiently severe.
   • Prospective Effect Only (Civil Code Article 620): Unlike the termination of some other types of contracts which can have a retroactive effect, the termination of a lease generally only operates prospectively. This means past obligations (like accrued rent up to the point of termination) remain due, and there is no general "unwinding" of performances already rendered and accepted during the valid period of the lease.
5. Destruction of the Leased Property:
   • Partial Destruction (Civil Code Article 611): If a part of the leased property is lost or destroyed due to a cause not attributable to the lessee's fault, the lessee is entitled to demand a proportionate reduction in rent. If the remaining part of the property is insufficient to enable the lessee to achieve the purpose for which the lease was entered into, the lessee may terminate the lease.
   • Total Destruction: If the entire leased property is destroyed (e.g., a building is completely destroyed by fire, earthquake, etc., without the fault of either party), the lease agreement is extinguished because its subject matter has ceased to exist.

V. Conclusion

Lease agreements, or chintaishaku, are a cornerstone of property use in Japan. While the Civil Code lays down the fundamental principles governing their formation, the respective rights and obligations of lessors and lessees, and the mechanisms for termination, it is imperative to remember that these are often significantly supplemented or modified by specialized legislation, most notably the Act on Land and Building Leases for real property. Key Civil Code aspects include the consensual nature of lease formation, the lessor's ongoing duty to maintain the property fit for use (including repairs), and the lessee's primary duty to pay rent and use the property appropriately. The rules around termination are multifaceted, depending on the lease term, the reason for termination, and the type of property involved. The 2020 Civil Code reforms have also brought updates, such as to the maximum permissible lease term. A thorough understanding of both the Civil Code's baseline provisions and any overriding special laws is essential for navigating the complexities of lease agreements in Japan.