Q: What Are a Contractor's Liabilities for Building Defects in Japan?

In Japan, when a newly constructed or renovated building fails to meet the expected standards of quality or performance, the contractor who undertook the work bears significant legal responsibility. This liability, traditionally known as "defect warranty liability" (瑕疵担保責任 – kashi tanpo sekinin), has been reshaped under the amendments to the Japanese Civil Code, effective April 1, 2020, into a broader concept of "liability for non-conformity" (契約不適合責任 – keiyaku futekigō sekinin). This article explores the scope of a contractor's liabilities for building defects (or non-conformities) in Japan, focusing on the remedies available to the ordering party, applicable time limitations, and the interplay with other legal grounds for liability.

I. The Contractor's Core Obligation: Delivering Conforming Work

The fundamental duty of a contractor in a construction agreement (請負契約 – ukekoi keiyaku) is to complete the work as specified and deliver a building that is free from defects or non-conformities. This obligation extends not only to adhering to the explicit terms of the contract, such as design drawings and specifications, but also to ensuring the building meets implied standards of quality, fitness for purpose, and compliance with applicable laws like the Building Standards Act. The concept of "completion of work" (仕事の完成 – shigoto no kansei) is crucial, as it traditionally marked a transition point for the applicable liability regime. While minor imperfections might be tolerated, significant deviations that impair the building's value, safety, or utility can trigger the contractor's liability.

II. Liability for Non-Conformity (Formerly Defect Warranty Liability)

The 2020 Civil Code reform integrated the specific rules for defect liability into the general principles of contract law, reframing it as liability for instances where the completed work does not conform to the terms of the contract in relation to its kind, quality, or quantity.

A. Conceptual Shift under the 2020 Civil Code Reform

Previously, "kashi" (defect) was the central term. The new framework focuses on "non-conformity to the contract." While the terminology has changed, the practical assessment of whether a building is deficient often draws upon the same considerations and established case law that defined "kashi." The reform aimed to clarify and systematize the remedies available to the ordering party (the client or employer who commissioned the construction).

B. Remedies Available to the Ordering Party (注文者が行使できる権利 - Chūmonsha ga Kōshi Dekiru Kenri)

If the completed building is found to be non-conforming to the contract, the ordering party has several remedies:

1. Right to Demand Cure/Completion (追完請求権 – Tsuikan Seikyūken)
   This is the primary remedy, allowing the ordering party to demand that the contractor rectify the non-conformity. It can take the form of:However, the contractor may not be obliged to provide a cure if it is impossible or would entail disproportionate costs compared to the significance of the non-conformity and the value of the conforming work. This principle mirrors the limitation under the old Civil Code (Art. 634(1) proviso), which stated that repair could not be demanded if the defect was not important and its repair would require excessive expense. For example, the Nagano District Court, Suwa Branch, on May 11, 2006, found that repairing welding defects in column-beam connections would entail costs equivalent to demolishing and reconstructing the building, thus deeming it excessively expensive.
   • Repair of the Defect (修補 – Shūho): This is the most common form of cure in construction, requiring the contractor to fix the identified defects. The ordering party can set a reasonable period for the contractor to complete the repairs.
   • Delivery of Substitute Items or Missing Parts (代替物・不足分の引渡し – Daitaibutsu/Fusokubun no Hikiwatashi): While more typical in sales of goods, this could theoretically apply to certain building components if they are distinct and replaceable.
2. Right to Demand Price Reduction (代金減額請求権 – Daikin Gengaku Seikyūken)
   If the contractor fails to provide a cure within a reasonable period set by the ordering party, or if a cure is impossible or refused, the ordering party can demand a reduction in the contract price proportionate to the degree of non-conformity. This right can also be exercised without first demanding a cure if the non-conformity is so significant that a cure is clearly unfeasible or if the contractor unequivocally refuses to perform the cure.
3. Right to Claim Damages (損害賠償請求権 – Songai Baishō Seikyūken)
   The ordering party can claim damages, either in lieu of or in addition to demanding a cure or price reduction.
   • Scope of Damages: Under the old regime of defect warranty, it was generally accepted that damages in construction contracts could include "performance interest" (履行利益 – rikō rieki), meaning damages that would put the ordering party in the position they would have been in had the contract been properly performed (e.g., the cost of repair). This can also encompass consequential losses, such as:
     • Costs for temporary relocation during repairs.
     • Loss of income from a commercial property due to the defect.
     • Costs of investigation and expert assessment to identify the defect and determine repair methods.
     • In severe cases where reconstruction is necessary, the costs of demolition and rebuilding might be claimed. The Supreme Court, on June 17, 2010 (Minshu 64-4-1197), held that if a new building has such severe defects that it is essentially valueless and requires rebuilding, the buyer's benefit of having lived in it is not deducted from the rebuilding costs claimed as damages.
     • Compensation for psychological distress (慰謝料 – isharyō) may be awarded in cases of particularly severe defects or egregious conduct by the contractor.
     • Attorney's fees may also be recoverable as part of damages in complex construction defect litigation.
   • Timing of Damage Calculation: Case law under the old system established that the timing for calculating the amount of damages was generally the time the demand for repair (or damages in lieu of repair) was made (e.g., Supreme Court, July 7, 1961 (Minshu 15-7-1800); Supreme Court, February 2, 1979 (Minshu 126-67)). This principle is likely to continue to be relevant.
   • Relationship with Cure: If the ordering party demands a cure, and the contractor performs it, damages may still be claimed for any loss not fully compensated by the cure (e.g., delays).
4. Right to Terminate the Contract (契約解除権 – Keiyaku Kaijoken)
   The ordering party can terminate the contract if the non-conformity is significant and the purpose of the contract cannot be achieved due to it, especially if the contractor fails to provide a cure.
   • Limitation for Completed Buildings: A notable feature of Japanese law (Article 635 proviso of the old Civil Code, considered a mandatory provision ) was that a construction contract for a completed building or other structure on land could not be terminated due to defects. The rationale was to avoid the significant socioeconomic loss associated with demolishing a completed structure. The Supreme Court, on September 24, 2002 (Minshu 207-289), clarified that this did not prevent claiming damages equivalent to rebuilding costs if defects were so severe that rebuilding was the only option.
   • Uncompleted Work: If the work is not yet completed, the ordering party generally can terminate the contract based on the contractor's non-performance (Tokyo High Court, October 21, 1991 (Hanrei Jihō 1412-109)). If the work is divisible and the completed portion is of benefit, termination may only apply to the uncompleted portion (Supreme Court, February 17, 1981 (Minshu 132-129)).
   • The new Civil Code has general rules for contract termination due to non-performance, which would apply, but the specific nuances regarding completed buildings will likely continue to be influenced by the spirit of the old Article 635 proviso.

C. Time Limitations for Exercising Rights (権利行使の期間制限 - Kenri Kōshi no Kikan Seigen)

Timely action is crucial for the ordering party.

1. Notification of Non-Conformity: Under the reformed Civil Code, if the non-conformity pertains to kind or quality, the ordering party must generally notify the contractor of the non-conformity within one year from the time they became aware of it. Failure to do so may bar them from exercising their remedies. This is a significant change from the old law's stricter periods for certain structures.
2. Statute of Limitations for Claims: The actual exercise of rights (e.g., filing a lawsuit) is subject to the general statute of limitations:
   • 5 years from the time the ordering party becomes aware that the right can be exercised.
   • 10 years from the time the right could first be exercised (e.g., from the time of delivery of the building). (This period was 20 years for rights accruing before the 2020 reform if the old Civil Code applied and the 10-year period from delivery for defect liability had not yet expired.)
3. Special Provisions for Buildings (under the old Civil Code, influential for interpretation):
   • The old Civil Code (Art. 638(1)) stipulated that for defects in buildings or other land structures, the contractor was liable for 5 years from delivery for wooden structures or ground defects, and 10 years from delivery for structures made of stone, earth, brick, concrete, steel, or similar materials. This was a period of exclusion (除斥期間 – joseki kikan), meaning rights had to be exercised (even extra-judicially) within this period to be preserved.
4. Act on the Promotion of Quality Assurance in Housing (品確法 – Hinpyō Hō): This act provides stronger protection for new housing. For major structural parts (e.g., foundations, columns, walls, roof slabs) and parts preventing rainwater penetration, contractors (and sellers) are mandatorily liable for 10 years from the delivery of a new house (Article 94 for construction contracts, Article 95 for sales contracts). This is a mandatory provision and cannot be shortened by contract, though it can be extended up to 20 years.

The interplay between the general Civil Code limitation periods and special laws like the Hinpyō Hō requires careful attention.

D. Disclaimer Clauses (免責特約 - Menseki Tokuyaku)

Parties can, in principle, agree to limit or exclude the contractor's liability for non-conformity. However, such disclaimers have limitations:

• Knowledge of Non-Conformity: A disclaimer is ineffective if the contractor knew about the non-conformity (or defect) and failed to disclose it (a principle similar to Article 640 of the old Civil Code ).
• Consumer Contract Act (消費者契約法 - Shōhisha Keiyaku Hō): Clauses that entirely exempt a business operator from liability for damages caused to a consumer by hidden defects in the subject matter of a consumer contract (including construction contracts) are generally void (Article 8(1)(v)). There are exceptions if, for example, the contract allows the consumer to demand a cure or repair.
• Hinpyō Hō: As mentioned, the 10-year mandatory liability for specific parts of new housing cannot be disclaimed to the detriment of the ordering party/buyer.

III. Relationship with Other Grounds for Liability

A contractor's liability for building defects can coexist with or be distinct from other types of legal liability.

A. Liability before Completion of Work (仕事完成前の責任 - Shigoto Kansei Mae no Sekinin)

If the contractor breaches their obligations before the work is deemed completed, the ordering party's remedies are generally governed by the standard rules for non-performance of contractual obligations (債務不履行 – saimu furikō). This might include demanding performance, claiming damages for delay, or terminating the contract if the breach is material. The determination of "completion" is a factual one, often based on whether the final planned processes have been finished (the "planned process completion theory" – 予定の工程終了説, e.g., Tokyo High Court, December 20, 1961 (Hanrei Jihō 295-28)).

B. Tort Liability (不法行為責任 - Fuhō Kōi Sekinin)

A contractor may also be liable in tort if the building defect causes personal injury or damage to property other than the building itself, or if the defect poses a risk to the life, body, or property of residents or third parties due to a failure to ensure basic safety. The Supreme Court ruling of July 6, 2007 (Minshu 61-5-1769), established that architects, contractors, and supervisors owe a duty of care to residents and others to ensure a building does not lack basic safety, and breach of this duty leading to damage can result in tort liability. This is distinct from contractual liability and may have different limitation periods and scopes of recoverable damages. Tort liability becomes particularly relevant when the contractual privity is absent or when seeking damages for harm that extends beyond mere economic loss related to the defect itself.

IV. Contractor's Defenses (請負人の抗弁 - Ukeoinin no Kōben)

A contractor may have several defenses against a claim for non-conformity:

• Non-Conformity Due to Ordering Party's Instructions or Supplied Materials: If the non-conformity arose solely because of defective materials supplied by the ordering party, or due to specific instructions given by the ordering party, the contractor may be absolved of liability. However, this defense is unavailable if the contractor knew the materials or instructions were unsuitable and failed to inform the ordering party (a principle from Article 636 proviso of the old Civil Code, likely to still hold persuasive reasoning). Courts interpret "instructions" narrowly, requiring them to be binding directives rather than mere expressions of preference (e.g., Tokyo District Court, June 14, 1991 (Hanrei Jihō 1413-78)).
• Expiration of Limitation/Notification Periods: If the ordering party failed to notify the contractor of the non-conformity within the prescribed period or if the statute of limitations for bringing a claim has expired.
• Valid Disclaimer Clause: If a legally effective disclaimer of liability was agreed upon in the contract (subject to the limitations discussed above).
• No Defect/Non-Conformity: The contractor can always argue that the alleged issue does not actually constitute a defect or non-conformity, or that it falls within acceptable tolerances or is due to normal wear and tear rather than a flaw in construction.

Conclusion

A contractor in Japan bears substantial responsibility for ensuring that a completed building conforms to the contractual requirements of kind, quality, and quantity. The shift from "defect warranty liability" to "liability for non-conformity" under the 2020 Civil Code has systematized the remedies available to the ordering party, which include demanding a cure (such as repair), price reduction, damages, and, in serious cases, contract termination. These liabilities are subject to specific time limitations for notification and claim assertion, with special mandatory provisions for new housing under the Hinpyō Hō. While disclaimer clauses are possible, their effectiveness is curtailed, particularly concerning undisclosed known defects or consumer protection. Understanding this framework is crucial for both contractors to manage their risks and for ordering parties to protect their investments in Japanese construction projects. Clear contract drafting, diligent quality control during construction, and timely action upon discovery of non-conformities are key to navigating these complex liabilities.