Terminating a Commercial Lease and Recovering Property in Japan: What Legal Grounds and Proof are Required?

Japanese Attorney at Law - Bengoshi L.L.

• 8 min read

Terminating a commercial lease and recovering leased property in Japan involves navigating a complex interplay between general provisions of the Civil Code and special protective laws, particularly the Act on Land and Building Leases (借地借家法 - Shakuchi Shakka Hō). This is especially true for land leased for the purpose of owning buildings, a common scenario for commercial operations. This article explores the essential facts (要件事実 - yokenjijitsu) a lessor (landlord) must establish to terminate such a lease and seek recovery, including the common grounds for termination and the typical defenses and counter-arguments raised by lessees (tenants).

The primary claim by a lessor upon lease termination is for the return of the leased property (目的物返還請求権 - mokutekibutsu henkan seikyūken), which may include a demand for the lessee to remove any buildings they own on leased land. The specific grounds for termination asserted by the lessor will dictate the precise essential facts they need to prove.

I. The Foundation: Claim for Recovery Based on Lease Termination (請求の基礎：賃貸借契約終了に基づく返還請求)

A. Nature of the Claim (請求の性質)

Japanese legal theory generally considers a claim for recovery of property based on lease termination as a single, unitary claim stemming from the lease agreement itself, regardless of the specific reason for termination (e.g., expiration, rescission, notice). The cause of termination is a key factual component within this overarching claim.

B. Essential Facts for the Lessor (Plaintiff) (貸主（原告）の要件事実)

To establish a claim for recovery of leased property (e.g., land, potentially requiring building removal by the lessee), the lessor typically needs to prove:

  1. Conclusion of a Valid Lease Agreement (有効な賃貸借契約の締結): This includes proving the agreement on the parties, the specific leased property, and the rent amount. Some theories also view agreement on the lease term as an essential element for the formation of lease-type contracts.
  2. Delivery of the Leased Property to the Lessee (賃借人への目的物の引渡し): Proof that the lessee was put in possession of the property under the lease.
  3. Grounds for Termination of the Lease Agreement (契約の終了原因事実): This is the core of the dispute and varies significantly depending on the situation.
  4. (If claiming building removal by the lessee from leased land): That a building was constructed or affixed by the lessee on the land after the lease commenced and before its termination, and that this building still existed at the time of termination. The lessor generally does not need to prove that the lessee currently owns the building (Judgment of the Supreme Court, February 14, 1978).

Ancillary claims, such as damages for holding over (equivalent to rent for the period of unlawful occupation after termination), are also common and would require separate proof of loss.

II. Termination Due to Expiration of Term (期間満了による終了)

When a lease has a fixed term, the most straightforward ground for termination is its expiration.

A. Proving Agreed Term and Its Expiry (合意された期間とその満了の証明)

The lessor must prove the agreed-upon lease term and that this term has passed. Under the Civil Code, if a lease term is set for longer than 50 years, it is deemed to be 50 years (this was 20 years for leases concluded before the April 1, 2020 Civil Code amendments).

B. The Impact of Protective Lease Acts (借地借家法等の影響)

For land leases where the purpose is for the lessee to own a building on the land (建物所有目的 - tatemono shoyū mokuteki), the Act on Land and Building Leases (or the former Land Lease Act for older leases) provides significant protections to the lessee, often overriding general Civil Code provisions.

  • Building Ownership Purpose Defense by Lessee (建物所有目的の抗弁): If the lessor claims termination based on the expiry of a term shorter than those prescribed by these protective acts, the lessee can defend by proving the lease's purpose was building ownership, thus invoking longer statutory minimum terms (e.g., an initial term of 30 years under the Shakuchi Shakka Hō, Article 3).
  • Lessor's Rebuttal: Temporary Use (一時使用の再抗弁 - ichiji shiyō no saikōben): The lessor can counter this by proving the lease was for "temporary use" only (e.g., for a temporary structure, or pending redevelopment), making the protective acts inapplicable (Shakuchi Shakka Hō, Article 25; former Land Lease Act, Article 9). Proving temporary use generally requires showing both an agreement for short-term use and objective, reasonable grounds justifying such short-term use (this is based on an eclectic theory supported by case law, e.g., Judgment of the Supreme Court, March 28, 1968, Minshu Vol. 22, No. 3, p. 692). Facts supporting this could include the land being slated for public works, or a clear, short-term project.

C. Renewal Scenarios (契約更新の類型)

Even if a fixed term expires, the lease may be deemed renewed:

  1. Implied Renewal under the Civil Code (民法上の黙示の更新 - mokushi no kōshin): If the lessee continues to use the leased property after the term expires, and the lessor, knowing this, does not raise any objection, the lease is presumed to have been renewed on the same terms as before, but for an indefinite period (Article 619(1) of the Civil Code). The lessee would plead the continued use and the lessor's knowledge and lack of objection.
  2. Statutory Renewal under Lease Acts (借地借家法等による法定更新 - hōtei kōshin): For land leases for building ownership, if the lessee continues to use the land after the term expires (and a building exists on the land, under the Shakuchi Shakka Hō), the lease is deemed renewed under similar terms unless the lessor objects "without delay" and has "just cause" (正当事由 - seitō jiyū) for refusing renewal (Shakuchi Shakka Hō, Articles 5(1), 5(2), and 6; former Land Lease Act, Articles 4, 6).
    • Lessor's Rebuttal: Objection with Just Cause (遅滞なき異議・正当事由): The lessor must prove they objected without delay and that their refusal to renew is supported by "just cause." "Just cause" is a crucial and heavily litigated concept. Its determination involves a comprehensive consideration of factors including:
      • The lessor's and lessee's respective needs to use the land.
      • The history of the lease (e.g., past rent payments, manner of use).
      • The current condition and utilization of the land.
      • Any offer by the lessor to provide compensation to the lessee (e.g., moving expenses, loss of business value) as a condition for vacating the property. The primary factors are generally the comparative needs of the parties, with compensation being a supplementary factor.

III. Termination by Notice for Leases with No Fixed Term (解約の申入れによる終了)

If a lease does not specify a term (or if it has become a lease of indefinite term through implied or statutory renewal where the renewal term is not fixed), either party can generally terminate it by giving notice.

  • Lessor's Essential Facts: The lessor must prove they gave the lessee a notice of termination (解約の申入れ - kaiyaku no mōshiire) and that the statutory notice period has elapsed (e.g., one year for a land lease under Article 617(1) of the Civil Code).
  • Defenses: Similar to term expiry, if the lease is for building ownership, the lessee can argue that the protective lease acts apply, meaning the lessor's notice of termination is only valid if supported by "just cause" (Shakuchi Shakka Hō, Article 6). The lessor can then attempt to rebut this by proving temporary use.

IV. Termination by Rescission Due to Lessee's Breach (解除による終了)

A lease can also be terminated by rescission (解除 - kaijo) if the lessee breaches their obligations.

A. Non-Payment of Rent (賃料不払)

This is a common ground for rescission.

  1. Essential Facts for Rescission by Lessor:
    • Rent was due for a specific period.
    • The payment due date(s) (under Civil Code Article 614 or as per the lease agreement) passed.
    • The lessor made a demand (催告 - saikoku) to the lessee for payment of the overdue rent within a reasonable period.
    • The lessee failed to pay within that period.
    • The lessor declared rescission of the lease agreement to the lessee.
  2. No-Notice Rescission Clauses (無催告解除特約 - musaikoku kaijo tokuyaku): Leases often contain clauses allowing the lessor to rescind without prior demand if rent is not paid. Such clauses are generally enforceable if the lessee's non-payment is deemed a serious breach sufficient to destroy the relationship of trust (信頼関係 - shinrai kankei) between the parties (e.g., repeated defaults, prolonged non-payment) (Judgment of the Supreme Court, November 21, 1968, Minshu Vol. 22, No. 12, p. 2741). If relying on such a clause, the lessor must prove the clause and the facts demonstrating such a severe breach of trust.
  3. Lessee's Defense: Tender of Payment (弁済の提供 - bensai no teikyō): The lessee might defend by proving they tendered (offered) payment of the overdue rent after the lessor's demand but before the lessor's declaration of rescission took effect.

B. Breach of Specific Covenants (e.g., Non-Alteration Clause for Buildings - 増改築禁止特約違反)

Leases, particularly land leases for building ownership, often include covenants restricting the lessee's activities, such as prohibiting unauthorized alterations or rebuilding of structures on the land (増改築禁止特約 - zōkaichiku kinshi tokuyaku).

  1. Lessor's Essential Facts for Rescission:
    • Existence of the specific covenant (e.g., non-alteration clause).
    • The lessee breached the covenant (e.g., made unauthorized alterations).
    • The lessor declared rescission (often, such clauses allow for rescission without prior demand if breached).
  2. Lessee's Defense: Alteration Did Not Destroy Relationship of Trust (信頼関係不破壊の抗弁 - shinrai kankei fuhakai no kōben): Even if an unauthorized alteration occurred, the lessee can defend by proving that the alteration was minor, necessary for normal use, did not significantly impact the lessor, or otherwise did not constitute a breach severe enough to destroy the mutual relationship of trust essential for the lease (信頼関係を破壊するおそれがあると認めるに足りない事情 - shinrai kankei o hakai suru osore ga aru to mitomeru ni tarinai jijō). The burden of proving these exculpatory circumstances generally lies with the lessee (Judgment of the Supreme Court, April 21, 1966, Minshu Vol. 20, No. 4, p. 720).

V. Ancillary Claims (附帯請求)

Upon termination, lessors commonly claim damages for any period the lessee remains in possession after termination ("holding over"). These damages are usually calculated based on the rent amount or fair market rental value for the holdover period and are typically pursued as damages for default in the obligation to return the property.

VI. Conclusion: Navigating Lease Termination and Property Recovery in Japan (結論)

Terminating a commercial lease and recovering property in Japan, especially land leased for building ownership, requires careful attention to both the general principles of contract law and the specific, often tenant-protective, provisions of the Act on Land and Building Leases. Lessors must clearly establish the grounds for termination – whether expiration of term, notice for indefinite term leases, or rescission for breach – and be prepared to address sophisticated defenses related to building ownership purpose, renewal rights (statutory or implied), the "just cause" requirement for refusing renewal, and the principle of the relationship of trust. A thorough understanding of the applicable essential facts and potential counter-arguments is vital for effectively managing lease-end scenarios and enforcing property rights.