Terminating a Real Estate Lease in Japan: What are "Just Cause" Requirements for Eviction and How Does the Leased Land and House Lease Act Protect Tenants?

Japanese Attorney at Law - Bengoshi L.L.

• 9 min read

Navigating real estate leases in Japan presents a unique legal landscape, particularly due to the robust protections afforded to tenants and lessees under the Leased Land and House Lease Act (借地借家法 - Shakuchi Shakka Hō, hereinafter "LLHLA"). For lessors seeking to terminate a lease or refuse renewal, especially for standard "ordinary" leases, the concept of "Seitō Jiyū" (正当事由) or "Just Cause" is a significant hurdle. This framework differs considerably from lease termination norms in many other jurisdictions and is crucial for any entity involved in Japanese real estate to understand.

The Leased Land and House Lease Act (LLHLA): A Shield for Lessees

The LLHLA, enacted to provide stability for those relying on leased property for residence or business, is the primary legislation governing most land and building leases in Japan. Its underlying philosophy is the protection of the weaker party, typically considered the lessee. The Act covers:

  1. Leases of Land for the Purpose of Owning Buildings (借地 - Shakuchi): Where a lessee rents land to construct and own a building. The LLHLA grants particularly strong rights to such land lessees.
  2. Leases of Buildings/Houses (借家 - Shakka): This includes leases for residential apartments, commercial office spaces, retail stores, and other structures.

The Act aims to ensure continuity for lessees, making it challenging for lessors to unilaterally end leases or refuse renewals without substantial justification.

Ordinary Leases: The Default and the Power of Renewal

Unless a lease is specifically structured as a "fixed-term" lease (discussed later) meeting stringent requirements, it is generally considered an "Ordinary Lease" (普通借地契約 - futsū shakuchi keiyaku, or 普通借家契約 - futsū shakka keiyaku). A defining characteristic of ordinary leases is the principle of statutory renewal (法定更新 - hōtei kōshin).

  • For House Leases: If a lessor wishes to terminate a lease with a fixed term at its expiry, or terminate a lease without a fixed term, they must typically provide notice to the lessee between one year and six months before the term's end (or at least six months prior for leases without a fixed term). Crucially, if the lessor does not provide such notice, or if the notice is given but is not accompanied by "Just Cause," and the lessee continues to use the property after the term ends, the lease is generally deemed renewed on the same terms as before (LLHLA Article 26).
  • For Land Leases: Similar principles apply, with initial lease terms being very long by default (30 years, LLHLA Art. 3) and subsequent renewals also being substantial (20 years for the first renewal, 10 years thereafter, LLHLA Art. 4). Refusal to renew by the lessor requires Just Cause (LLHLA Art. 6).

This powerful statutory renewal mechanism means that ordinary leases in Japan can potentially continue for very extended periods unless the lessor can successfully demonstrate Just Cause for termination or refusal to renew.

Unraveling "Seitō Jiyū" (Just Cause): The Lessor's Hurdle

The cornerstone of a lessor's ability to terminate an ordinary lease against the lessee's will (at term end or with proper notice for indefinite term leases) is the requirement to demonstrate "Just Cause" or "Seitō Jiyū." This is explicitly laid out in Article 28 of the LLHLA for house leases and Article 6 for land leases. The absence of Just Cause renders the lessor's notice of termination or refusal to renew ineffective.

What Constitutes Just Cause? A Multi-faceted Analysis:
The LLHLA stipulates that Just Cause is determined by comprehensively considering various factors. It's not a simple checklist; rather, courts weigh these elements holistically, often with a bias towards protecting the lessee's continued use. The main factors include:

  1. Necessity of Use by the Lessor and Lessee:
    • Lessor's Need: The court examines why the lessor needs to use the property themselves (e.g., for their own residence, for a close family member's residence, or for their own direct business use if it's a commercial property). A mere desire for higher rent or a more favorable tenant is generally insufficient. The genuineness and urgency of the lessor's need are scrutinized. For instance, a lessor claiming personal need for a residence when they own multiple other suitable properties might face skepticism.
    • Lessee's Need: Conversely, the lessee's dependence on the property is also a critical factor. Is it their sole residence? Is their business heavily reliant on the specific location and goodwill built there? The potential hardship to the lessee if evicted is a significant consideration.
  2. Circumstances Concerning the Lease (従前の経過 - jūzen no keika):
    • This involves looking at the history of the landlord-tenant relationship. Factors might include how the lease was initially entered into, the payment history of rent and other dues, whether the lessee has breached any minor covenants (though major breaches leading to loss of trust are treated differently, see below), and the duration of the lease. A long-standing, trouble-free tenancy might strengthen the lessee's position.
  3. Condition and Utilization of the Property (建物の利用状況及び現況 - tatemono no riyō jōkyō oyobi genkyō):
    • The physical state of the property (e.g., extreme dilapidation making continued use dangerous or impractical) can be a factor.
    • The lessor's concrete plans for redevelopment, especially if the current structure is old or underutilized and the redevelopment serves a public or significant economic interest, might contribute to Just Cause, though this alone is rarely decisive without addressing the lessee's needs.
    • The current manner of use by the lessee is also considered.
  4. Offer of Monetary Compensation (立退料 - Tachinoki-ryō):
    • This is perhaps one of the most unique aspects of Japanese lease law. A lessor can offer monetary compensation to the lessee as one of the factors to supplement their claim of Just Cause (LLHLA Art. 28, last part).
    • Tachinoki-ryō is not a "buy-out" right. A lessor cannot simply pay their way to eviction if other elements of Just Cause are weak or absent. Rather, it is a factor that the court considers to balance the interests, particularly when the lessor has some legitimate reasons for needing the property but these are not overwhelmingly strong on their own. The Supreme Court (e.g., Judgment of July 17, 1973) has affirmed that tachinoki-ryō is a supplementary consideration.
    • The amount of tachinoki-ryō is not fixed by law and varies greatly depending on all circumstances, such as the lessee's relocation costs, business losses, loss of goodwill, the value of the leasehold right (especially for commercial properties in prime locations), and the strength of the lessor's other Just Cause arguments. It can range from several months' rent to substantially more, particularly for long-term commercial leases.
    • Effectively, the offer of a reasonable tachinoki-ryō can sometimes tip the scales in favor of the lessor if other Just Cause elements are present to a certain degree.

The High Bar: Establishing Just Cause is generally difficult for lessors. Japanese courts have traditionally placed a high value on the stability of a lessee's occupancy. The burden of proof lies squarely on the lessor. Evidentiary materials, such as detailed plans for self-use, proof of the property's condition, and a reasonable valuation for any tachinoki-ryō offered, are critical.

Termination for Lessee's Default: A Different Path

The strict Just Cause requirement primarily applies when the lessor initiates termination or refuses renewal due to their own circumstances or desires. It is important to distinguish this from situations where the lease is terminated due to the lessee's default or material breach of contract.

Common grounds for termination due to lessee's default include:

  • Non-payment of rent: This usually requires persistent non-payment (e.g., three months or more, depending on circumstances), not just a single late payment.
  • Unauthorized subletting or assignment of the lease.
  • Use of the property for illegal purposes or purposes expressly forbidden by the lease.
  • Significant alterations to the property without consent.
  • Other actions that fundamentally damage the landlord-tenant relationship.

In such cases, the lessor can terminate the lease based on the "Destruction of the Relationship of Mutual Trust" (信頼関係破壊の法理 - shinrai kankei hakai no hōri). This judicial doctrine holds that if a lessee's breach is so severe that it destroys the foundation of trust necessary for the lease to continue, the lessor can terminate.

While the lessor still needs to provide notice and potentially go through court proceedings if the lessee disputes the termination, the Just Cause analysis under LLHLA Article 28 (or Art. 6) and the typical requirement for tachinoki-ryō do not generally apply to these default-based terminations. The focus shifts to the severity of the lessee's breach.

Specific Issues in Land Leases (Shakuchi)

Land leases for the purpose of owning buildings have additional complexities:

  • Building Purchase Right (建物買取請求権 - Tatemono Kaitori Seikyūken): Under LLHLA Article 13, if an ordinary land lease terminates (either by expiry and refusal of renewal by the lessor with Just Cause, or if terminated by the lessor for reasons not attributable to the lessee's default during the term), the land lessee has the right to demand that the lessor purchase the building(s) owned by the lessee on the land at fair market value prevailing at the time of termination.
    • This right protects the lessee's significant investment in the building.
    • The "market value" is generally considered the value of the building itself, without including the value of the land lease right (as that is what is terminating).
    • This can represent a substantial financial obligation for the lessor upon lease termination.

Seeking Predictability: Fixed-Term Leases (Teiki Shakka / Teiki Shakuchi)

To address lessors' concerns about the indefinite nature of ordinary leases and the difficulty of termination, the LLHLA was amended to introduce Fixed-Term Leases:

  • Fixed-Term House Leases (定期借家契約 - Teiki Shakka Keiyaku) (LLHLA Art. 38):
    • These leases have a specific, fixed term and, crucially, do not automatically renew.
    • Upon expiry of the agreed term, the lease terminates definitively without the lessor needing to demonstrate Just Cause.
    • For terms of one year or more, the lessor must give notice to the lessee between one year and six months prior to term expiry that the lease will end. Failure to give this notice means the lessor cannot assert the termination against the lessee until six months after such notice is eventually given, though the lease remains fixed-term.
  • Fixed-Term Land Leases (定期借地契約 - Teiki Shakuchi Keiyaku) (LLHLA Arts. 22-24):
    • Various types exist, including general fixed-term land leases (50+ years), land leases for business purposes (10-50 years), and land leases with special provisions for transfer of buildings.
    • These also terminate definitively at the end of the term without statutory renewal or the need for Just Cause. The building purchase right under Art. 13 typically does not apply.

Strict Formalities for Fixed-Term Leases:
To be valid and enforceable as a fixed-term lease (and thus avoid the Just Cause requirement for termination at term end), the LLHLA imposes strict procedural requirements:

  1. Written Agreement: The lease must be in writing. For fixed-term house leases, it must be by a notarial deed or other written document.
  2. Prior Explanation: Before or at the time of concluding a fixed-term house lease, the lessor must provide the prospective lessee with a separate written document explaining that the lease is fixed-term, will not be renewed, and will terminate upon expiry of the term. This is a critical step, and failure to provide this prior written explanation can render the fixed-term provision invalid, causing the lease to be treated as an ordinary lease with all its attendant protections for the lessee.

Fixed-term leases offer greater predictability for lessors regarding lease duration and recovery of possession but require meticulous adherence to these statutory formalities.

The LLHLA also provides for leases that are clearly for temporary use (一時使用目的 - ichiji shiyō mokuteki).

  • Temporary Land Leases (LLHLA Art. 25): If a land lease is self-evidently for temporary purposes, such as for temporary structures, then provisions concerning duration, renewal, and the building purchase right may not apply.
  • Temporary Building Leases (LLHLA Art. 40): Similarly, if a building lease is clearly for temporary use, provisions concerning renewal and termination (including the Just Cause requirement) may not apply.

Establishing that a lease is for "temporary use" requires clear evidence of such intent and circumstances at the outset of the lease. Merely labeling a lease "temporary" without genuine underlying temporary circumstances is usually insufficient to bypass the LLHLA's main protections.

Practical Implications for International Businesses

  • As Lessee:
    • Recognize that an "ordinary lease" offers very strong security of tenure. Do not easily concede to termination or unfavorable renewal terms without understanding your rights.
    • If presented with a "fixed-term lease," ensure the lessor has complied with all formal requirements (written contract, separate prior written explanation). If not, the lease might actually be an ordinary one.
  • As Lessor:
    • Be acutely aware of the high bar for "Just Cause" if you grant an ordinary lease. Plan for potentially very long-term occupancy by the lessee.
    • For greater certainty in recovering possession at a predetermined date, a properly executed fixed-term lease is often preferable, though it may affect the rent or type of tenant you can attract.
    • Meticulous record-keeping and adherence to notice periods are essential.
  • Lease Agreements: While statutory provisions of the LLHLA often override conflicting contractual terms (especially those detrimental to the lessee in ordinary leases), a well-drafted lease agreement is still crucial for clarifying other terms and conditions.
  • Dispute Resolution: Disputes over Just Cause can be complex, time-consuming, and expensive to litigate. Negotiation, sometimes involving tachinoki-ryō discussions, is a very common way to resolve end-of-lease situations.

Conclusion

The Japanese Leased Land and House Lease Act creates a leasing environment that strongly prioritizes tenant and lessee security, especially through the "Just Cause" (Seitō Jiyū) requirement for lessors wishing to terminate ordinary leases or refuse their renewal. While this provides stability for lessees, it demands careful planning and a deep understanding of the law from lessors. The introduction of fixed-term leases offers an alternative path providing greater certainty on lease duration, but only if strict procedural requirements are met. For any international business involved in Japanese real estate, a clear grasp of these distinct features of Japanese lease law is indispensable for making informed decisions and managing property interests effectively.