My Japanese Landlord is Bankrupt: How are Tenant Rights Protected?

Japanese Attorney at Law - Bengoshi L.L.

01 Jun 2025 • 7 min read

The news that your landlord in Japan has filed for bankruptcy (破産手続 - hasan tetsuzuki) can be a source of considerable uncertainty and concern for any tenant, whether individual or commercial. Questions immediately arise: Will my lease continue? Do I still pay rent? What happens to my security deposit? Fortunately, Japanese law provides significant protections for tenants, especially those whose leasehold rights are properly "perfected."

This article explores the situation for tenants when their Japanese landlord (賃貸人 - chintaishin) enters bankruptcy, focusing on the continuation of the lease, the tenant's right to use the property, the handling of security deposits, and the implications of the property being sold by the bankruptcy trustee (破産管財人 - hasan kanzainin).

The Importance of "Perfection" (対抗要件 - Taikō Yōken) of Leasehold Rights

The cornerstone of tenant protection in the event of a landlord's bankruptcy in Japan lies in the concept of "perfection" of the leasehold right. Perfection, in this context, means that the tenant has taken the necessary legal steps to make their leasehold rights effective against third parties, including a bankruptcy trustee or a subsequent purchaser of the property.

The method of perfection depends on the type of lease:

Building Leases (建物賃貸借 - tatemono chintaishaku): For leases of buildings (including apartments, houses, and commercial spaces), the tenant's rights are typically perfected by the delivery (引渡し - hikiwatashi) or possession of the leased premises. This is stipulated in Article 31, Paragraph 1 of the Act on Land and Building Leases (借地借家法 - Shakuchi Shakka Hō). This means that simply occupying the premises under a valid lease generally constitutes perfection.
Land Leases (土地賃貸借 - tochi chintaishaku): For land leases, perfection against third parties is typically achieved by registration (登記 - tōki) of the leasehold right in the real estate registry (Civil Code, Article 605). Alternatively, if the land lease is for the purpose of owning a building on that land, the tenant can perfect their land lease rights by registering the building they own on that land in their own name (Act on Land and Building Leases, Article 10, Paragraph 1).

If a tenant's leasehold rights are properly perfected before the commencement of the landlord's bankruptcy proceedings, their position is significantly strengthened.

Continuation of the Lease Agreement

The general rule, as provided by Article 56, Paragraph 1 of the Japanese Bankruptcy Act, is that if a tenant's leasehold right is duly perfected against third parties, the bankruptcy of the landlord does not give the landlord's bankruptcy trustee the right to unilaterally terminate the lease agreement.

This means:

The Lease Continues: The lease agreement remains in effect under its existing terms and conditions (rent, duration, permitted use, etc.).
Trustee as Landlord: The bankruptcy trustee effectively steps into the shoes of the bankrupt landlord and is bound by the terms of the perfected lease.
Tenant's Right to Use: The tenant retains the right to continue using and occupying the leased premises in accordance with the lease agreement.

The trustee cannot simply evict a tenant with a perfected lease due to the landlord's bankruptcy. Any claims the tenant has under the lease (e.g., for the landlord to perform repairs) become administrative expense claims (財団債権 - zaidan saiken) against the bankruptcy estate if they arise post-bankruptcy or are related to the ongoing use provided by the estate (Bankruptcy Act, Article 56, Paragraph 2).

Payment of Rent

Since the lease continues, the tenant's obligation to pay rent also continues.

To Whom Rent is Paid: Rent that becomes due after the commencement of the landlord's bankruptcy proceedings should be paid to the bankruptcy trustee, or as otherwise directed by the trustee. The trustee will typically provide tenants with instructions regarding rent payments.
No Unilateral Withholding: Tenants generally cannot unilaterally withhold rent payments due to the landlord's bankruptcy, even if they are concerned about their security deposit (see below). Doing so could put the tenant in default under the lease, potentially giving the trustee grounds to terminate the lease for non-payment.

Security Deposits (敷金・保証金 - Shikikin/Hoshōkin)

Security deposits are a significant concern for tenants. In Japan, these are typically substantial sums paid to the landlord at the inception of the lease.

Status as a Bankruptcy Claim: When a landlord goes bankrupt, the tenant's claim for the eventual return of their security deposit (敷金返還請求権 - shikikin henkan seikyūken) is generally treated as a bankruptcy claim (破産債権 - hasan saiken) against the landlord's estate. This claim is usually considered a contingent claim, as it only becomes fully due upon the termination of the lease and the vacation of the premises by the tenant, after deductions for any unpaid rent or damages to the property.
Set-Off Against Rent Not Permitted During Lease Term: While the lease is ongoing, a tenant cannot typically demand an immediate return of the security deposit nor unilaterally set off future rent payments against their potential claim for the deposit's return. The trustee, acting as the landlord, is entitled to collect the full rent due.
Transfer to a New Owner upon Sale: This is a crucial protection for tenants. If the bankruptcy trustee sells the leased property, the obligation to return the security deposit (less any legitimate deductions at the end of the lease) is almost invariably assumed by the new owner/landlord. The sale price negotiated by the trustee will typically reflect this assumption of liability by the buyer. This ensures that the tenant's security deposit remains secured even if the property changes hands due to the landlord's bankruptcy. The trustee is expected to manage the sale process to ensure this transfer of obligation.

Sale of the Leased Property by the Trustee

The bankruptcy trustee is generally empowered to sell assets of the bankrupt landlord, including leased properties, to raise funds for creditors.

Sale "Subject To" Perfected Leases: If a tenant's lease is perfected, the property is sold "subject to" that existing lease. This means the buyer acquires the property with the tenant and their leasehold rights in place.
New Owner Becomes New Landlord: The purchaser of the property steps into the shoes of the bankrupt landlord and becomes the tenant's new landlord. The terms and conditions of the original perfected lease remain binding on the new landlord.
Notice to Tenant: Tenants should receive notice of any change in ownership and landlord, along with instructions for future rent payments and communications.

The Critical Impact of Mortgages (抵当権 - Teitōken) on the Property

While a landlord's bankruptcy itself may not terminate a perfected lease, a pre-existing mortgage on the property can pose a significant risk to the tenant.

Priority of Rights: The crucial factor is the priority between the tenant's perfected leasehold rights and any mortgages registered against the property. If a mortgage was registered before the tenant's lease was perfected (e.g., before the tenant took possession of a building, or before the lease/building was registered for land), that mortgage generally has priority over the lease.
Risk of Termination upon Foreclosure: If the mortgagee (the secured creditor, who holds a betsujo-ken) forecloses on a prior-ranking mortgage due to the landlord's default (which bankruptcy often signifies), the purchaser at the foreclosure sale may be able to terminate leases that are subordinate to the foreclosed mortgage.
Abolition of General Short-Term Lease Protection (短期賃貸借の保護廃止): Previously, Japanese law provided some automatic protection for short-term leases (e.g., up to three years for buildings) against prior mortgagees. However, this broad protection for "short-term leases" (tanki chintaishaku) was largely abolished for leases entered into on or after April 1, 2004.
- For leases entered into after this date that are subordinate to a prior mortgage, if the property is sold in a foreclosure, the tenant typically only has a six-month grace period (明渡猶予 - akewatashi yūyo) from the time the foreclosure purchaser demands possession to vacate the premises (Civil Code, Article 395). They cannot assert their original lease term against the foreclosure purchaser.
  This means that even if a tenant's rights are protected against the landlord's bankruptcy trustee under Bankruptcy Act Article 56, those rights might still be vulnerable if a senior mortgagee forecloses. This is a separate risk stemming from real estate financing law, not directly from the bankruptcy itself, but a landlord's bankruptcy can be the event that triggers a mortgagee to enforce its rights.

Landlord's Obligations: Maintenance and Repairs

The landlord's obligations under the lease, such as those concerning necessary maintenance and repairs to the property, continue despite the bankruptcy. Initially, the bankruptcy trustee (acting as landlord) is responsible for these obligations. If the property is sold, this responsibility passes to the new owner. Tenants experiencing issues should communicate them to the trustee or the new landlord, as appropriate. The cost of such repairs undertaken by the trustee would generally be an administrative expense of the estate.

Communication with the Bankruptcy Trustee

Tenants should:

Identify the appointed trustee and their contact information (usually provided in the initial bankruptcy notice).
Direct inquiries regarding the lease, rent payments, or property management to the trustee.
Keep copies of all communications.

Practical Advice for Tenants

If your Japanese landlord enters bankruptcy:

Verify Lease Perfection: Confirm that your lease is properly perfected (possession for buildings, registration for land/buildings on leased land). This is your primary shield.
Continue Paying Rent: Pay rent as directed by the trustee to avoid defaulting on your lease.
Preserve Documents: Keep all lease documents, rent payment receipts, and any communications from the landlord, trustee, or new owner.
Understand Security Deposit Status: Recognize that your security deposit claim is a bankruptcy claim, but typically protected through assumption by a new owner if the property is sold.
Monitor Property Sale: If the property is to be sold, understand that it will likely be sold subject to your perfected lease. Confirm the identity of the new landlord and how your lease and security deposit will be handled.
Assess Mortgage Risk: If possible, ascertain if there are mortgages on the property that predate your lease. This can be complex, and legal advice may be needed if you have concerns.
Seek Legal Advice if Necessary: For complex leases, substantial security deposits, or if facing issues with continued occupancy or rights, consulting a lawyer familiar with Japanese bankruptcy and real estate law is advisable.

Conclusion

A landlord's bankruptcy in Japan can indeed create uncertainty for tenants. However, Japanese law, particularly through the principle of perfection and Article 56 of the Bankruptcy Act, offers substantial protection to tenants whose leasehold rights are properly established. In most cases, a perfected lease will continue, and the obligation to return the security deposit will transfer to a new owner if the property is sold by the trustee. The most significant potential risk often arises not directly from the bankruptcy itself, but from the enforcement of mortgages that hold priority over the lease. Tenants should remain informed, continue to meet their lease obligations, and understand their rights throughout the landlord's bankruptcy process.