For any business leasing real estate in Japan, the sale of the leased property by the landlord to a new owner can raise immediate and critical questions: Does our lease remain valid against the new owner? Who is now considered our landlord? And, importantly, what happens to the security deposit (shikikin; 敷金) we paid to the original landlord? The Japanese Civil Code, particularly after its significant amendments effective April 1, 2020, has codified and clarified many of the rules governing these scenarios, largely building upon established case law to provide greater certainty for tenants.

The Lease's Continued Validity: The Role of Perfection (Taikō Yōken)

The first crucial question is whether your existing lease agreement remains enforceable against the new owner of the property. The general principle, reiterated in Article 605 of the amended Civil Code, is that a real estate lease, if it has been "perfected," can be asserted against third parties who subsequently acquire rights in the property, including a new owner.

"Perfection" (taikō yōken; 対抗要件) in this context typically means taking steps to make the lease right publicly recognizable. Common methods include:

• Registration of the Lease (chintaishaku no tōki; 賃借権の登記): Registering the lease in the official real estate registry provides the strongest form of perfection.
• For Building Leases - Delivery of the Building: Under the Act on Land and Building Leases (Shakuchi Shakka Hō; 借地借家法), which often takes precedence over the Civil Code for such leases, the actual delivery (hikiwatashi; 引渡し) of the leased building to the tenant is sufficient to perfect the lease against third parties (Article 31 of the Shakuchi Shakka Hō).
• For Land Leases (for Owning Buildings) - Registration of Tenant's Building: If land is leased for the purpose of the tenant owning a building on it, the tenant's registration of ownership of that building perfects the land lease against third parties (Article 10 of the Shakuchi Shakka Hō).

If your lease was properly perfected before the new owner acquired the property, your lease generally remains valid and enforceable against that new owner under the original terms. The new owner effectively steps into the shoes of the previous landlord.

Transfer of the Landlord's Status (Chintaishaku no Chii Iten)

When a leased property is sold and the tenant's lease is perfected, the amended Civil Code now clearly addresses how the landlord's entire contractual position (rights and obligations) is transferred.

1. Automatic Succession to Landlord's Status (Article 605-2, Paragraph 1)

This is the default and most common scenario. If a tenant's lease has the necessary perfection against third parties, and the leased real estate is subsequently sold, the landlord's status automatically transfers from the seller (original landlord) to the buyer (new owner).
This means the new owner becomes responsible for all landlord obligations under the lease (e.g., maintaining the property, returning the security deposit at lease end) and is entitled to all landlord rights (e.g., receiving rent). The original landlord is generally divested of these rights and obligations.
Importantly, the tenant's consent is not required for this automatic transfer of the landlord's status. This codifies long-standing case law (e.g., Supreme Court, September 18, 1958 (Showa 33.9.18)).

2. New Landlord's Need to Register Ownership to Assert Landlord Rights (Article 605-2, Paragraph 3)

While the landlord's status may transfer automatically to the new owner upon sale (if the lease is perfected), for the new owner to actually assert their rights as the new landlord against the tenant (for example, to demand rent payment or enforce lease terms), they must first register their ownership of the leased property.
This provision codifies a Supreme Court judgment from March 19, 1974 (Showa 49.3.19), and serves to protect the tenant. Until the new owner's title is registered, the tenant can generally continue to deal with the original landlord as the party entitled to receive rent and perform landlord duties, without fear of having to pay twice or being in default to an unverified new owner.

3. An Exception: Retention of Landlord's Status by the Original Landlord (Article 605-2, Paragraph 2)

The amended Code introduces a specific, though likely less common, mechanism that allows the original landlord (seller) and the new property owner (buyer) to agree that the landlord's status will be retained by the original landlord, even after the property is sold. This was introduced, in part, to accommodate certain modern real estate investment structures, such as "real estate fractionalized products" (fudōsan koguchika shōhin), where the property ownership might be fragmented or held by a special purpose vehicle, while management and landlord responsibilities remain with a different entity.

For this retention of landlord status by the original landlord to be effective, two conditions must be met:

• The seller (original landlord) and the buyer (new owner) must agree to retain the landlord's status with the seller; AND
• They must simultaneously agree that the new owner will lease the property back to the original landlord.

In this "lease-back" scenario, the original landlord effectively becomes a master lessee from the new owner, and the original tenant becomes a sub-tenant of their original landlord. This structure was designed to provide some stability for the tenant. If the master lease between the new owner and the original landlord (now master lessee) terminates, Article 605-2, Paragraph 2, latter part, provides that the landlord's status, which had been retained by the original landlord, then automatically transfers to the new owner (or their successor). This is a key tenant protection, aiming to prevent the tenant's eviction if the intermediate master lease collapses, ensuring their tenancy can continue with the actual property owner. This mechanism attempts to balance the needs of complex ownership structures with tenant security, addressing concerns raised by older case law (e.g., Supreme Court, March 25, 1999 (Heisei 11.3.25)) which was cautious about allowing such retention if it jeopardized the tenant.

4. Transfer of Landlord's Status by Agreement (When Lease Lacks Third-Party Perfection) (Article 605-3)

What if the tenant's lease is not perfected against third parties (e.g., it's an unregistered lease of land not for building ownership, and no other perfection method applies)? In such cases, Article 605-3 provides that the landlord's status can still be transferred from the seller of the property to the buyer simply by an agreement between the seller and the buyer.
A crucial point here is that, similar to the automatic succession scenario, the tenant's consent is not required for this agreed transfer of landlord status. This creates an exception to the general rule for the transfer of contractual status found in Article 539-2 of the Civil Code, which typically requires the consent of the other contracting party (the tenant, in this case). The non-requirement of tenant consent here codifies previous Supreme Court case law (e.g., judgment of April 23, 1971 (Showa 46.4.23)) that permitted such transfers between old and new landlords in property sales.
The rules regarding the new landlord needing to register their ownership to assert their status against the tenant, and the rules for the transfer of obligations related to security deposits and expense reimbursements (from Article 605-2, Paragraphs 3 and 4), are applied mutatis mutandis to these agreed transfers of landlord status.

Fate of Key Landlord Obligations: Security Deposits and Expense Reimbursement (Article 605-2, Paragraph 4)

When the landlord's status validly transfers to a new owner (whether automatically under Article 605-2(1), upon termination of a retention arrangement under Article 605-2(2), or by agreement under Article 605-3), Article 605-2, Paragraph 4 clarifies that key financial obligations of the landlord also transfer to the new owner. These include:

1. Obligation to Return the Security Deposit (Shikikin Henkan Saimu; 敷金返還債務): The new landlord becomes responsible for returning the security deposit to the tenant at the end of the lease, subject to any legitimate deductions. This codifies established case law (e.g., Supreme Court, July 17, 1969 (Showa 44.7.17)).
2. Obligation to Reimburse Expenses (Hiyō Shōkan Saimu; 費用償還債務): The new landlord also assumes the obligation to reimburse the tenant for "necessary expenses" (hitsuyōhi; 必要費, e.g., urgent repairs made by the tenant that were the landlord's responsibility) and "beneficial expenses" (yūekihi; 有益費, e.g., improvements made by the tenant with landlord consent that increased the property's value) as provided under Article 608 of the Civil Code. (For beneficial expenses, the obligation to reimburse typically arises at lease termination and is owed by the landlord at that time.)

Regarding Security Deposits (Shikikin):
The amended Civil Code, in a new Article 622-2, also provides general rules for security deposits:

• Definition (Art. 622-2, Para 1): A security deposit is defined broadly as any money paid by the tenant to the landlord, regardless of its name (e.g., "deposit," "guarantee money"), for the purpose of securing the tenant's monetary obligations arising from the lease (such as unpaid rent or damages to the property). This codifies long-standing judicial understanding (e.g., judgment of July 12, 1926 (Taisho 15.7.12)).
• Timing of Return (Art. 622-2, Para 1): The landlord must return the security deposit (after deducting any amounts owed by the tenant) when:
  • (a) The lease terminates AND the tenant has returned possession of the leased property to the landlord. (Codifying Supreme Court, February 2, 1973 (Showa 48.2.2)). Note that it's not just lease termination, but also return of the property.
  • (b) The tenant lawfully assigns their leasehold right to a new tenant (and the original tenant is thereby released from the lease obligations). (Codifying Supreme Court, December 22, 1978 (Showa 53.12.22)).
• Landlord's Right to Apply Deposit (Art. 622-2, Para 2): During the lease term, if the tenant fails to pay rent or other monetary obligations due under the lease, the landlord has the right to apply the security deposit towards satisfaction of these arrears. However, the tenant cannot demand that the landlord use the security deposit to cover overdue rent instead of the tenant making a direct payment.

Deductions from the Security Deposit upon Transfer of Landlord Status: When the landlord's status and the accompanying security deposit obligation transfer to a new owner, it's generally understood that the new owner is liable for the net amount. If, before the transfer, the original landlord was entitled to deduct certain amounts from the deposit (e.g., for unpaid rent or damages caused by the tenant that accrued while the original landlord was the lessor), those amounts are typically considered to have already reduced the security deposit obligation that passes to the new owner. While the precise mechanics of how pre-transfer arrears are accounted for between the old and new landlord can vary in practice, the tenant's ultimate liability for such arrears against the deposit remains.

If, however, the landlord's status is validly retained by the original landlord (seller) under the special lease-back arrangement (Article 605-2, Paragraph 2), then the obligation to return the security deposit and reimburse expenses also remains with the original landlord and does not pass to the new property owner until that retention arrangement ends.

Conclusion

The amendments to the Japanese Civil Code concerning the transfer of a landlord's status and the treatment of security deposits provide significant and welcome clarification for tenants in Japan. For tenants whose leases are properly perfected, the sale of the leased property generally means their lease continues with the new owner, who also assumes key landlord obligations, including the eventual return of the security deposit. The requirement for the new landlord to register their ownership before asserting landlord rights against the tenant is an important safeguard. While mechanisms exist for the original landlord to retain their status under specific structures, these also include provisions designed to protect the tenant's ongoing occupancy. Furthermore, the new codification of general rules for security deposits enhances transparency regarding their purpose, application, and return. Tenants and their advisors should be aware of these provisions to understand their rights and obligations when a change in property ownership occurs.