Selling or Sharing Your Japanese Revolving Mortgage (根抵当権の処分) Before the Principal is Fixed

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

The Japanese revolving mortgage (根抵当権 - ne-teitōken) is a dynamic security instrument, valued for its ability to secure a fluctuating range of debts from ongoing transactions before its principal amount is formally "fixed" (元本確定前 - ganpon kakutei mae). Unlike ordinary mortgages which are tied to specific claims, the ne-teitōken framework itself can be transferred or shared using distinct legal methods. This "disposition of a revolving mortgage" (根抵当権の処分 - ne-teitōken no shobun) operates under specific rules, primarily requiring the consent of the property owner (settlor) and adherence to prescribed registration procedures. For lenders holding such security, understanding these disposition methods is key to managing their portfolio or exiting positions.

Key Distinction: Disposing of a Revolving Mortgage vs. an Ordinary Mortgage

The approach to transferring or altering a ne-teitōken before its principal is fixed differs significantly from how an ordinary mortgage (抵当権 - teitōken) is handled:

  • Ordinary Mortgage: An ordinary mortgage is accessory to the specific debt it secures. Generally, it transfers automatically when the underlying secured claim is assigned. Other "dispositions," such as creating a sub-mortgage (ten-teitō) or transferring the mortgage's priority rank, are possible but are distinct from the assignment of the mortgage framework itself.
  • Revolving Mortgage (Before Principal Fixation): The Civil Code (Article 398-11, Paragraph 1) clarifies that before the principal is fixed, the revolving mortgagee (ne-teitōkensha) cannot dispose of the ne-teitōken using the standard methods applicable to ordinary mortgages under Article 376 (which deals with things like sub-mortgaging or assigning the mortgage priority). Instead, the Civil Code provides a specific set of disposition methods tailored to the unique nature of the pre-fixation ne-teitōken.
  • After Principal Fixation: Once the principal of a ne-teitōken is fixed, it begins to behave more like an ordinary mortgage. At this stage, the dispositions available for ordinary mortgages (such as assignment following the transfer of the now-fixed claim, or transfers/waivers of priority rank) become possible. Conversely, the unique pre-fixation disposition methods discussed below are no longer available for a ne-teitōken whose principal has been determined.

A fundamental prerequisite for most contractual dispositions of a ne-teitōken before its principal is fixed is the consent of the property owner (the settlor - 設定者 - setteisha – who originally granted the ne-teitōken on their property). This is not merely a procedural formality but a substantive legal requirement for the effectiveness of the disposition, as stipulated in Civil Code Articles 398-12 through 398-14.

This consent requirement stems from the "settlor-intent-centric principle" (設定者意思中心主義 - setteisha ishi chūshin shugi). It aims to protect the property owner from having the security framework they granted being utilized by creditors they did not originally envisage or approve, without their explicit agreement. For registration purposes, proof of the settlor's consent (承諾証明情報 - shōdaku shōmei jōhō), which typically includes their formally registered seal and an accompanying certificate of that seal, must be submitted to the Legal Affairs Bureau.

Specific Methods of Disposing a Ne-teitōken (Before Principal Fixation)

The Civil Code and related registration practices recognize several distinct ways a ne-teitōken can be disposed of before its principal is fixed:

1. Complete Assignment (全部譲渡 - Zenbu Jōto)

  • Concept: Under Article 398-12, Paragraph 1 of the Civil Code, the existing ne-teitōkensha (assignor) transfers the entire revolving mortgage framework—the "bucket" itself, with its defined maximum amount, scope of claims, and specified debtor—to a third party (the assignee).
  • Effect: The original ne-teitōkensha is entirely divested of their rights under the ne-teitōken. The assignee steps into their shoes, becoming the new sole ne-teitōkensha. This new mortgagee can then use the existing, unaltered framework to secure their own future claims against the originally specified debtor, provided those claims fall within the registered scope.
  • No Automatic Transfer of Existing Secured Claims: A critical point is that the zenbu jōto transfers the ne-teitōken framework itself, not necessarily the specific debts that were outstanding and secured by the ne-teitōken for the benefit of the original mortgagee at the time of assignment. If the assignee is also intended to acquire these existing outstanding claims, that requires a separate (though often contemporaneous) claim assignment agreement. If only the ne-teitōken framework is assigned under zenbu jōto, it will primarily secure new claims arising between the new mortgagee (assignee) and the original debtor. Pre-existing claims assigned from the old mortgagee to the new one might not automatically become secured by the transferred ne-teitōken framework unless specific steps are taken, such as amending the "scope of claims" of the ne-teitōken to explicitly include these now-assigned specific claims.
  • Registration Details:
    • Applicants: The assignee is the registration rights-holder (登記権利者), and the assignor (original ne-teitōkensha) is the registration obligor (登記義務者), requiring a joint application. The settlor's consent is an attached document.
    • Cause of Registration (登記原因): "[Date of assignment agreement or settlor's consent, whichever is later] Assignment" (年月日譲渡).
    • Attached Information: The assignment agreement, the assignor's Title Identification Information (登記識別情報) or Certificate of Registered Matters (登記済証) for the ne-teitōken, and the settlor's consent (with their certificate of registered seal) are required.

2. Partial Assignment (一部譲渡 - Ichibu Jōto)

  • Concept: Governed by Article 398-13 of the Civil Code, a partial assignment involves the existing ne-teitōkensha (assignor) transferring a shared interest in the ne-teitōken framework to an assignee. The original ne-teitōken itself is not divided; rather, it becomes co-owned (more precisely, quasi-co-owned or 準共有 - jun-kyōyū) by the assignor and the assignee.
  • Effect: After a partial assignment, both the assignor and the assignee can utilize the single, shared ne-teitōken framework to secure their respective claims against the specified debtor, up to the overall registered maximum amount and within the defined scope of claims.
  • No Registered Shares of the Maximum Amount: Before the principal is fixed, the co-owners of a ne-teitōken do not have individually registered "shares" or specific allocated portions of the maximum amount (kyokudogaku). Their respective entitlements to the security are often determined by a separate inter-creditor agreement between them. Alternatively, they can register a "priority agreement" (優先の定め - yūsen no sadame) which dictates how proceeds from the security would be shared between them in an enforcement scenario.
  • Registration Details:
    • Applicants: Similar to complete assignment, the assignee is the rights-holder and the assignor is the obligor. Settlor's consent is also mandatory.
    • Cause of Registration: "[Date] Partial Assignment" (年月日一部譲渡).
    • Registration Tax: The registration tax for a partial assignment is calculated by dividing the total kyokudogaku by the number of co-owners after the assignment, and then applying the standard transfer tax rate (typically 0.2%) to this pro-rata notional share.

3. Divided Assignment (分割譲渡 - Bunkatsu Jōto)

  • Concept: Provided for in Article 398-12, Paragraph 2 of the Civil Code, a divided assignment involves the existing ne-teitōkensha first dividing the original single ne-teitōken into two separate and independent ne-teitōken. One of these newly created, distinct ne-teitōken is then assigned to a third party (assignee), while the assignor retains the other.
  • Effect: This results in two independent ne-teitōken existing on the property, typically registered with the same priority rank as each other (and that of the original ne-teitōken). This is fundamentally different from a partial assignment, which leads to co-ownership of a single ne-teitōken.
  • Limitations: The original ne-teitōken can only be divided into two (not three or more) in a single divided assignment transaction. Furthermore, the assignment of one of the divided portions to a third party is an integral component of the transaction; one cannot simply divide one's own ne-teitōken into two and retain both.
  • Impact on Sub-Interests: If the original ne-teitōken was itself encumbered by other rights (e.g., a ten-teitō or sub-mortgage), those sub-interests are extinguished with respect to the portion of the ne-teitōken that is assigned away in the divided assignment, unless the holders of those sub-interests provide their consent to the divided assignment (Civil Code Article 398-12, Paragraphs 2 and 3). Their consent is a substantive legal requirement for the divided assignment to proceed validly concerning their interests.
  • Registration Details (an example is provided in PDF source ):
    • Applicants: The assignee of the divided portion is the rights-holder, and the original ne-teitōkensha is the obligor. The settlor's consent is required, as is the consent of any holders of sub-interests on the original ne-teitōken (e.g., sub-mortgagees) whose rights on the assigned portion would be affected.
    • Cause of Registration: "[Date] Divided Assignment" (年月日分割譲渡). The date is determined by the latest of the assignment agreement or the necessary consents.
    • Registered Particulars: The registration application for a divided assignment must not only describe the new ne-teitōken being created for the assignee but also explicitly state the details of the original ne-teitōken (its reception date and number, original cause of creation, original kyokudogaku, scope of claims, debtor, etc.). Crucially, it must also specify the new, reduced kyokudogaku for the portion of the ne-teitōken that is being retained by the assignor, as well as the kyokudogaku for the new, separate ne-teitōken being assigned. The sum of these two new kyokudogaku values cannot exceed the original total kyokudogaku. The registrar will then make an ex officio registration altering the original ne-teitōken to reflect its new, reduced kyokudogaku.
    • Registration Tax: The tax is calculated based on the kyokudogaku of the newly created ne-teitōken portion that is being assigned (typically at a rate of 0.2%).

4. Transfer of a Co-owner's Rights (共有者の権利移転 - Kyōyūsha no Kenri Iten)

  • Concept: This applies when a ne-teitōken is already co-owned (e.g., following a partial assignment or if it was initially created in co-ownership), and one of the existing co-owners wishes to transfer their entire co-ownership interest in the ne-teitōken framework to a third party or to another existing co-owner (Civil Code Article 398-14, Paragraph 2).
  • Consent Requirements: Such a transfer requires the consent of the property owner (settlor) and the consent of all other existing co-owners of the ne-teitōken.
  • Limitations: A co-owner can generally only transfer their entire co-ownership interest in this manner; they cannot further subdivide their existing co-ownership interest via a partial or divided assignment of just their share to multiple new parties. However, it is possible for multiple co-owners to jointly assign their collective interests using the standard methods of complete, partial, or divided assignment applicable to a sole owner. A single co-owner cannot assign their interest to multiple new co-owners simultaneously through this specific "transfer of co-owner's rights" mechanism, as this would effectively be a prohibited subdivision of their share.
  • Registration Details:
    • Applicants: The new co-owner (assignee) is the rights-holder, and the transferring co-owner is the obligor. Consents from the settlor and all other existing co-owners must be attached.
    • Purpose of Registration: "Transfer of Co-owner [Name]'s Rights in Revolving Mortgage No. X".
    • Cause of Registration: "[Date] Assignment" (年月日譲渡). The effective date is the latest of the assignment agreement or the obtaining of all necessary consents.
    • Registration Tax: Calculated by taking the original total kyokudogaku of the ne-teitōken, dividing it by the number of co-owners before this specific transfer, and then applying the 0.2% transfer tax rate to that pro-rata share amount which represents the interest being transferred.

5. Renunciation/Waiver of Rights by a Co-owner (権利放棄 - Kenri Hōki)

  • If one of several co-owners of a ne-teitōken (before principal fixation) unilaterally renounces or waives their co-ownership interest, that interest generally accrues to the other existing co-owner(s) by operation of law (Civil Code Article 264, applying Article 255 regarding co-ownership).
  • Consent: Unlike assignments which are contractual, this type of transfer by renunciation is a unilateral act by the renouncing co-owner. Consequently, it generally does not require the consent of the property owner (settlor) or the consent of the other co-owners to whom the interest legally accrues.
  • Distribution of Renounced Share: If there are multiple remaining co-owners, the renounced share is typically deemed to accrue to them in proportion to their existing (though often unregistered in terms of specific percentage) interests. If no other basis is apparent, it might be considered to accrue equally.
  • Registration: The transfer is registered based on "[Date] Renunciation."

Joint Revolving Mortgages (共同根抵当権) and Dispositions

If a ne-teitōken is established as a "joint revolving mortgage" (共同根抵当権 - kyōdō ne-teitōken) covering multiple properties under a unified framework, any disposition—such as an assignment (complete, partial, or divided) or a change of debtor—must generally be registered with respect to all the properties included in that joint security arrangement for the disposition to take full legal effect (Civil Code Article 398-17, Paragraph 1). While applications for registration on each property can be filed separately (especially if in different jurisdictions), the disposition itself is not considered legally perfected until the registrations are completed for all involved properties. An exception noted is that this rule might not strictly apply to transfers arising from a company split due to its nature as a statutory succession rather than a purely contractual disposition.

Conclusion

Disposing of a Japanese revolving mortgage before its principal is fixed offers a range of options—complete assignment, partial assignment (creating co-ownership), divided assignment (creating separate new mortgages), and transfers or renunciations of co-owners' shares. These methods are distinct from those applicable to ordinary mortgages and are tailored to the "framework" nature of the ne-teitōken. The consent of the property owner (settlor) is a near-universal prerequisite for these contractual dispositions, underscoring the importance of their control over who benefits from the security on their property. While providing flexibility for lenders to manage their portfolios, these dispositions require meticulous adherence to the specific statutory requirements of the Civil Code and precise registration procedures to ensure their validity and enforceability.