Q&A: Leasing Real Estate in Japan (Chintaishaku): What Protections Do Landlord and Tenant Laws (Shakuchi Shakka Ho) Offer?

Leasing real estate in Japan, known as chintaishaku (賃貸借), is governed by a combination of general provisions in the Japanese Civil Code (民法 - Minpō) and, more significantly for most land and building leases, by the Land and Building Lease Act (借地借家法 - Shakuchi Shakka Hō, often abbreviated as LBLA). This specialized Act was enacted to provide tenants with protections that were historically perceived as lacking under the Civil Code alone. For businesses and individuals leasing property in Japan, understanding the LBLA is crucial.

Q1: Why does Japan have a special Land and Building Lease Act (LBLA) in addition to the Civil Code provisions on leases?

The Japanese Civil Code, enacted in the late 19th century, treats leasehold rights (賃借権 - chinshakuken) primarily as contractual rights (saiken - 債権) rather than as robust property-like rights (bukken - 物権). This traditional approach had several consequences that were often disadvantageous to tenants:

• Insecure Tenure: Under the Civil Code, leases could generally terminate upon the expiry of the agreed term without strong inherent rights for tenants to demand renewal.
• Vulnerability to Third Parties: A core principle of Civil Code lease law was "sale breaks lease" (売買は賃貸借を破る - baibai wa chintaishaku o yaburu). This meant that if a landlord sold the leased property, the new owner could often evict the tenant unless the lease was formally registered in the real estate registry. However, lease registration required landlord cooperation, which was rarely forthcoming, leaving tenants vulnerable.

Recognizing these limitations and driven by socio-economic needs—such as urbanization, housing shortages, and the often weaker bargaining position of tenants compared to landlords—Japan enacted a series of tenant protection laws throughout the 20th century. These included the Building Protection Act of 1909 (建物保護法 - Tatemono Hogo Hō), followed by the Land Lease Act (借地法 - Shakuchi Hō) and the Building Lease Act (借家法 - Shakka Hō) in 1921, which were subsequently revised (e.g., in 1941, introducing the "just cause" concept for refusing lease renewals). The current Land and Building Lease Act (LBLA) was enacted in 1991 and came into effect in 1992, consolidating and updating these earlier protections.

The core purpose of the LBLA is to afford tenants of land (specifically for the purpose of owning buildings thereon) and tenants of buildings substantially greater security of tenure and stronger rights against third parties than those available under the Civil Code alone, thereby aiming to balance the interests of property owners and users.

Q2: What are the main types of leases regulated by the LBLA and its key general characteristics?

The LBLA primarily regulates two main categories of leases:

• Land Leases for Owning Buildings (Shakuchiken - 借地権): This refers to the right to use another person's land for the specific purpose of owning a building on that land. This right can be in the form of a land leasehold (chishakuken) or a superficies right (地上権 - chijōken) if used for this building-ownership purpose (LBLA Art. 2(i)).
• Building Leases (Tatemono Chintaishaku - 建物賃貸借, also commonly referred to as Shakka - 借家): This covers leases of buildings or parts of buildings, whether for residential or commercial use (LBLA Chapter III).

A key characteristic of the LBLA is that many of its provisions are "one-sidedly mandatory" (片面的強行法規 - henmenteki kyōkō hōki). This means that any term in a lease agreement falling under the LBLA that is less favorable to the tenant than the protection stipulated by the Act is generally void. Terms that are more favorable to the tenant than the LBLA's minimums are usually valid. This principle significantly curtails the freedom of contract to safeguard tenant interests.

The LBLA's protective provisions generally do not apply to leases that are explicitly and clearly for temporary use (一時使用目的 - ichiji shiyō mokuteki) (LBLA Art. 25 for land leases, Art. 40 for building leases ).

Q3: What specific protections does the LBLA offer for Land Lessees (Shakuchiken holders) who lease land to own buildings?

The LBLA provides robust protections for those who lease land for the purpose of owning buildings on it:

• A. Enhanced Security of Tenure:
  • Minimum Lease Durations: The initial term of a shakuchiken is set at a minimum of 30 years, regardless of any shorter period agreed upon by the parties (LBLA Art. 3). Upon the first renewal, the term is a minimum of 20 years, and for subsequent renewals, the minimum is 10 years (LBLA Art. 4). These provisions are often mandatory against terms less favorable to the tenant.
  • Statutory Renewal and the "Just Cause" (Seitō Jiyū) Requirement for Landlord's Refusal:
    When the lease term expires, if a building exists on the land, the tenant can request a renewal of the lease. The landlord can refuse this renewal (or a statutory renewal if the tenant continues use after expiry and the landlord objects) only if the landlord has a "just cause" (seitō jiyū - 正当事由) and objects without delay (LBLA Art. 5(1), Art. 6). Similarly, if the tenant continues to use the land after the term expires and the landlord does not object without delay (with just cause), the lease is deemed renewed (LBLA Art. 5(2)).
    The determination of "just cause" is a complex assessment made by the courts, taking into account various factors outlined in LBLA Article 6. These include:
    1. The respective needs of the landlord and the tenant to use the land.
    2. The prior history and circumstances of the lease relationship (e.g., rent payment history, length of the lease).
    3. The current condition and method of utilization of the land.
    4. The landlord's offer of monetary compensation (立退料 - tachinoki-ryō, often translated as "key money to vacate" or "eviction compensation") to the tenant. This compensation can supplement other reasons but generally cannot solely constitute "just cause" if other legitimate grounds are entirely lacking (as affirmed in cases like Supreme Court, October 25, 1994, Minshū Vol. 48, No. 7, p. 1303).
• B. Perfection of Land Lease Rights Against Third Parties (LBLA Art. 10):
  A land lessee can establish their shakuchiken as effective against third parties (e.g., a new purchaser of the land) if the building owned by the tenant on the leased land is registered in the tenant's name in the real estate registry (LBLA Art. 10). This is a highly practical alternative to registering the land lease itself (which requires landlord cooperation and is rare). The building registration effectively serves as public notice of the tenant's underlying right to use the land.
• C. Tenant's Right to Demand Landlord Purchase the Building (Tatemono Kaitori Seikyūken - LBLA Art. 13):
  If the land lease term expires and is not renewed (and the termination is not due to the tenant's default, such as significant rent arrears leading to termination), the land lessee has the right to demand that the landlord purchase the building(s) on the land at its then-current fair market value (LBLA Art. 13). This is a "formative right" (形成権 - keiseiken), meaning the tenant's demand itself creates a sale agreement for the building. This provision aims to protect the tenant's investment in the building and prevent its total loss.
• D. Court Permission for Assignment or Sublease of Land Lease (LBLA Art. 19):
  While the Civil Code (Art. 612) generally requires the landlord's consent for a tenant to assign their lease or sublet the property, the LBLA provides a mechanism for land lessees. If a land lessee wishes to transfer the building (which usually entails transferring the associated land lease right) to a third party, and the landlord refuses to consent without a valid reason (i.e., the transfer would not disadvantage the landlord), the lessee can petition the court for permission in lieu of the landlord's consent (LBLA Art. 19(1)).
• E. Exceptions: Fixed-Term Land Leases (Teiki Shakuchiken) (LBLA Arts. 22-24):
  Recognizing the need for more flexible land use and to provide landlords with greater certainty of recovering their land, the LBLA introduced specific types of fixed-term land leases. For these, the strong renewal protections and the building purchase right mentioned above generally do not apply, ensuring the land returns to the landlord at the end of the agreed term. These fixed-term leases require strict adherence to specific written formalities, often involving notarized deeds for certain types.
  • General Fixed-Term Land Lease (一般定期借地権 - Ippan Teiki Shakuchiken) (Art. 22): Must be for a term of 50 years or more. The agreement must explicitly exclude renewal, any extension by construction/reconstruction of buildings, and the building purchase right. It must be made in writing (e.g., by notarized deed).
  • Fixed-Term Land Lease for Business Buildings (事業用定期借地権等 - Jigyō-yō Teiki Shakuchiken-tō) (Art. 23): This applies to land leased exclusively for buildings used for business purposes (not residential). The term is typically between 10 and 50 years (specific ranges and conditions apply). It must be made by a notarized deed. Renewal and building purchase rights are excluded.
  • Land Lease with a Special Agreement for Building Transfer (建物譲渡特約付借地権 - Tatemono Jōto Tokuyaku-tsuki Shakuchiken) (Art. 24): The lease term must be 30 years or more. It includes a special agreement stipulating that the building(s) on the land will be transferred to the landlord for a fair price upon the expiry of the lease term. This ensures the building remains, and the occupant (former land lessee or their building tenant) may be able to continue occupation as a building tenant of the landlord.

Q4: What specific protections does the LBLA provide for Building Tenants (Tatemono Chintaishaku or Shakka-ken holders)?

The LBLA also provides significant protections for tenants who lease buildings or parts of buildings:

• A. Lease Duration (LBLA Art. 29):
  • A building lease with an agreed term of less than one year is deemed to be a lease with no fixed term (LBLA Art. 29(1)).
  • The Civil Code's maximum 50-year lease term (Art. 604) does not apply to building leases (LBLA Art. 29(2)). This allows for building leases with terms exceeding 50 years if so agreed.
• B. Renewal of Ordinary Building Leases and the "Just Cause" Requirement (LBLA Arts. 26-28):
  • For Fixed-Term Building Leases: If a building lease has a fixed term, the landlord must notify the tenant of their intention not to renew the lease between one year and six months prior to the expiration of the term (LBLA Art. 26(1)). Crucially, this notice of non-renewal by the landlord is only valid if the landlord has a "just cause" (seitō jiyū) for refusing renewal (LBLA Art. 28). If no valid notice with just cause is given, or if the tenant continues to use the building after expiry and the landlord does not object without delay (with just cause), the lease is generally deemed renewed on the same terms as before, but as a lease for an indefinite period (LBLA Art. 26).
  • For Indefinite-Term Building Leases: If a building lease is for an indefinite term (either initially or following a statutory renewal), the landlord can give notice to terminate the lease. However, this notice also requires "just cause" and must provide a six-month notice period before termination becomes effective (LBLA Arts. 27, 28).
  • The factors considered for "just cause" in building leases are similar to those for land leases, focusing on the respective needs of the landlord and tenant, the history of the lease, the condition of the building, and any offer of compensation by the landlord.
• C. Perfection of Building Lease Rights Against Third Parties (LBLA Art. 31):
  A building lease right can be asserted against third parties (such as a new owner of the building) if the tenant has received delivery (引渡し - hikiwatashi) of the leased building (LBLA Art. 31(1)). This means actual possession of the premises by the tenant is sufficient to protect their lease against subsequent purchasers or encumbrancers of the building. Registration of the building lease itself is not necessary for this third-party effect, making it a very practical and widely relied-upon protection for building tenants.
• D. Exceptions: Fixed-Term Building Leases (Teiki Tatemono Chintaishaku) (LBLA Art. 38):
  Similar to land leases, the LBLA allows for Fixed-Term Building Leases where the provisions on statutory renewal and the "just cause" requirement for non-renewal or termination by the landlord do not apply. This allows for leases that will definitively end upon the expiry of the agreed term.
  • Strict Formalities: To be valid as such:
    1. The contract itself must be in writing.
    2. The landlord must, prior to or at the time of concluding the lease contract, provide the tenant with a separate written document explaining clearly that the lease is for a fixed term and will not be renewed upon its expiration (LBLA Art. 38(2)).
       If the landlord fails to provide this separate prior written explanation, any clause stating that the lease will not be renewed is ineffective, and the lease will be treated as an ordinary (potentially renewable) building lease (LBLA Art. 38(3)).
  • Notice of Expiry for Longer Leases: For fixed-term building leases with a term of one year or more, the landlord must also give the tenant notice of the impending termination between one year and six months prior to the expiry date. If this notice is not given, the landlord cannot assert the termination against the tenant until six months have passed from the date such notice is actually given (LBLA Art. 38(4)).
• E. Tenant's Right to Demand Purchase of Fixtures (Zōsaku Kaitori Seikyūken) (LBLA Art. 33):
  If a building tenant, with the landlord's consent, has attached certain fixtures (zōsaku – e.g., air conditioning units, custom partitions, or other improvements that become integrated with the building but are not structural parts) to the leased property, the tenant may demand that the landlord purchase these fixtures at their fair market value at the time the lease terminates (either by expiry of a fixed term or by the landlord's notice of termination of an indefinite term lease) (LBLA Art. 33(1)).
  • Unlike the building purchase right for land leases, this fixture purchase right for building tenants can be waived by a specific agreement in the lease contract (LBLA Art. 33 is not listed among the non-waivable provisions in Art. 37).

Q5: What about rent adjustments during the lease term under the LBLA?

The LBLA provides a statutory right for both the landlord and the tenant to demand an increase or decrease in rent (賃料増減額請求権 - chinryō zōgengaku seikyūken) if the current rent becomes unreasonable due to changes in economic circumstances. This applies to both land leases (LBLA Art. 11) and building leases (LBLA Art. 32).
Factors considered include changes in taxes or other public charges on the property, fluctuations in land or building values, changes in general economic conditions, or a comparison with rents for similar properties in the vicinity. This right is generally considered mandatory and cannot be permanently excluded by a contract term stipulating no rent increases or no rent decreases, at least not in a way that is disadvantageous to the party (usually the tenant) seeking adjustment against such a clause.

Conclusion

The Land and Building Lease Act (Shakuchi Shakka Hō) fundamentally reshapes the landscape of real estate leasing in Japan compared to the basic provisions of the Civil Code. It offers significant protections to tenants, particularly concerning security of tenure through statutory renewal mechanisms and the "just cause" requirement for landlords wishing to refuse renewal or terminate leases. It also strengthens the tenant's position against third parties by providing practical means of perfecting their leasehold rights (building registration for land leases, delivery for building leases). While the LBLA also provides for "fixed-term" lease arrangements that do not carry these renewal protections, such agreements are subject to strict statutory formalities to be effective. For any business involved in real estate leases in Japan, whether as a landlord or tenant, a thorough understanding of the LBLA's often mandatory and tenant-protective provisions is indispensable for navigating lease terms, renewals, terminations, and third-party rights effectively.