In the landscape of Japanese contract law, the principle of "good faith and fair dealing" (信義誠実の原則, shingi seijitsu no gensoku, often abbreviated as shingisoku, 信義則) stands as a cornerstone, influencing the interpretation and enforcement of all agreements. Enshrined in Article 1, Paragraph 2 of the Civil Code, which mandates that "The exercise of rights and performance of duties must be done in good faith," this principle carries particular weight in the context of long-term, relational contracts such as real estate leases for land (shakuchi, 借地) and buildings (shakka, 借家). While a lease agreement may grant a landlord specific contractual rights, including the right to terminate the lease upon certain breaches by the tenant, shingisoku acts as a significant moderating force. It ensures that such rights are not exercised in a manner that is overly harsh, opportunistic, or contrary to the underlying spirit of fairness expected in an ongoing landlord-tenant relationship.

This article explores how the principle of good faith and fair dealing, often working in conjunction with the related doctrine of "abuse of rights" and the judicially developed "destruction of the relationship of trust" (shinrai kankei no hakai, 信頼関係破壊) principle, serves to limit a landlord's strict contractual right to terminate a lease in Japan. It prevents terminations based on trivial or merely technical breaches if the fundamental trust underpinning the lease remains substantively intact.

The Principle of Good Faith and Fair Dealing (Shingisoku) in Japanese Contract Law

Article 1, Paragraph 2 of the Japanese Civil Code provides: "The exercise of rights and performance of duties must be done in good faith." This is not merely an aspirational statement but a fundamental legal principle that permeates all areas of contract law. Shingisoku requires parties to a contract to:

• Act honestly and with integrity in their dealings with each other.
• Show due consideration for the legitimate interests and expectations of the other party.
• Cooperate to the extent necessary to achieve the contract's objectives.
• Refrain from conduct that would undermine the purpose of the contract or unfairly prejudice the other party.

Particular Relevance to Relational Contracts:
The principle of good faith and fair dealing is especially pertinent to what are known as "relational contracts"—long-term agreements, like leases, where the parties are engaged in an ongoing course of dealing. In such relationships, unforeseen circumstances can arise, and the initial terms of the contract may not perfectly address every eventuality. Shingisoku provides a flexible standard that allows courts to adapt the application of strict contractual rights to ensure fairness and maintain the viability of the relationship where appropriate. It recognizes that the literal enforcement of a contract term might sometimes lead to an outcome that is unjust or contrary to the parties' original, reasonable expectations of fair dealing.

Functions of Shingisoku:
The doctrine of good faith serves several functions in contract law:

1. Supplementary Function: It can fill gaps in a contract where the parties have not explicitly provided for a particular situation.
2. Interpretative Function: It guides courts in interpreting ambiguous contractual terms in a manner consistent with fairness and the parties' presumed intentions.
3. Limiting Function: Crucially, for the purposes of this discussion, it can limit the exercise of contractual rights. Even if a party has a technical right under the contract (e.g., a right to terminate for any breach, however minor), shingisoku may prevent the exercise of that right if doing so would be unconscionable, disproportionate, or motivated by bad faith.

Connection to the "Abuse of Rights" Doctrine (Kenri Ranyō):
Closely related to shingisoku is the doctrine of "abuse of rights" (kenri ranyō, 権利濫用), codified in Article 1, Paragraph 3 of the Civil Code, which states: "No abuse of rights is permitted." An act may constitute an abuse of rights if a party exercises a technically valid right in a manner that is contrary to its intended social or economic purpose, solely to harm another, or in a way that grossly violates prevailing societal notions of justice and fairness. Often, an action that breaches the duty of good faith could also be characterized as an abuse of right, and courts may use these concepts interchangeably or in conjunction.

Shingisoku as a Limit on Lease Termination: The "Destruction of Trust" Doctrine as Its Embodiment

The entire judicially developed doctrine of "destruction of the relationship of trust" (shinrai kankei no hakai) in Japanese lease law can be seen as a specific and highly significant application of the principle of good faith and fair dealing. While a lease agreement might enumerate specific grounds for termination—such as non-payment of rent, unauthorized subletting, or breach of use covenants—Japanese courts, guided by shingisoku, will generally not uphold a termination for what they deem to be minor or merely technical breaches if the fundamental trust between the landlord and tenant has not genuinely been broken.

The "Betrayal" (Haishinsei) Standard:
The requirement that a tenant's breach must amount to an "act of betrayal" (haishin-teki kōi, 背信的行為) before it can justify lease termination is a direct consequence of applying good faith principles. This standard implicitly asks whether the tenant's conduct is so egregious, so contrary to the expected norms of a lease relationship, that it would be unfair or unreasonable to compel the landlord to continue being bound by the lease. It shifts the focus from a purely mechanistic check of whether a clause was breached to a qualitative assessment of the breach's impact on the core viability of the landlord-tenant relationship.

"Special Circumstances" (Tokudan no Jijō) Reflecting Good Faith:
The judicial recognition of "special circumstances" (tokudan no jijō) that can excuse or mitigate a technical breach further illustrates the influence of shingisoku. This concept allows courts to consider the broader context, the tenant's intentions, the actual prejudice (or lack thereof) to the landlord, and overall fairness.

• For example, in the landmark Supreme Court decision of September 25, 1953, regarding an unauthorized assignment of a land lease, the Court explicitly stated that if the tenant's act, despite being unauthorized, does not amount to a betrayal of the landlord due to "special circumstances," the landlord's right to terminate does not arise. This reasoning is deeply rooted in ensuring that the remedy of termination is proportionate to the actual damage to the trust relationship.
• Similarly, in a building lease context, the Supreme Court's ruling on July 28, 1964, denied termination for rent arrears where the landlord's own conduct (e.g., past tolerance of irregular payments, unresolved disputes about landlord's repair obligations) contributed to the situation, and the tenant showed willingness to pay once those issues were addressed. This reflects a good faith assessment of the entire interaction, not just the tenant's default.

These examples, among many others, show courts looking past the letter of the contract to its spirit, ensuring that the powerful remedy of termination is not wielded in a way that good faith would condemn.

Specific Applications of Good Faith Limiting Landlords' Termination Rights

The principle of good faith and fair dealing, often in tandem with the abuse of rights doctrine, limits a landlord's right to terminate in various concrete scenarios:

1. Trivial or Minor Breaches vs. Fundamental Breaches:
Shingisoku guides courts to differentiate between minor, technical infractions and breaches that genuinely undermine the core purpose of the lease or the landlord's substantial and legitimate interests. A landlord who attempts to leverage a minor, easily rectifiable default (e.g., a slight, isolated delay in rent payment by a long-term tenant with an otherwise impeccable record, especially if the arrears are promptly paid upon notice) primarily to end a lease that has become unfavorable to them (perhaps to re-lease at a higher market rent) might find their termination invalidated as contrary to good faith or an abuse of rights.

• The Supreme Court decision of December 17, 1976, provides an example. Even where a court-mediated settlement contained a strict clause allowing "natural termination" for a single missed rent payment, the Supreme Court denied termination when a tenant missed one payment under circumstances suggesting a misunderstanding rather than a fundamental unwillingness or inability to pay. The Court looked at the overall fairness and the actual impact on trust, rather than just the strict wording, indicating that even strong clauses are subject to good faith interpretation.

2. Landlord's Own Conduct and Contributory Fault:
The principle of good faith demands that both parties act fairly. If a landlord's own actions have contributed to the tenant's breach, or if the landlord is seeking termination in bad faith or for ulterior motives unrelated to the tenant's purported breach, courts are likely to intervene.

• An example principle can be seen in cases like the Tokyo High Court decision of October 27, 1959, where a tenant fell into rent arrears on a land lease. Termination was denied as an abuse of rights because the landlord's conduct in demanding excessive rent increases and key money was seen as a contributing factor to the dispute and the tenant's non-payment. A landlord cannot create or exacerbate a problem and then use it as a pretext for termination.

3. Estoppel or Waiver by Landlord's Acquiescence:
If a landlord is aware of a tenant's breach (e.g., a minor unauthorized alteration, a slightly non-conforming use of the premises) but fails to object for a significant period and continues to accept rent as usual, they may be considered to have implicitly acquiesced to the breach or waived their right to terminate based on that specific past infraction. This is rooted in the good faith expectation that rights will be asserted in a timely and consistent manner, preventing a party from lulling the other into a false sense of security only to later invoke a stale breach.

• The Tokyo District Court decision of July 16, 1992, where a land lease intended for sturdy buildings was used as a parking lot for over 19 years, illustrates this. While the detailed reasoning pointed to the landlord's long acquiescence, the underlying principle is that asserting a right to terminate after such a prolonged period of inaction can be contrary to good faith.

4. Procedural Fairness in Termination:
The general requirement in Japanese law for a formal demand (saikoku) before terminating a contract for many types of curable breaches (like non-payment of rent under Civil Code Article 541) reflects a concern for procedural fairness, which is an aspect of good faith. While "no-demand termination" clauses exist, their strict interpretation (requiring the breach itself to be trust-destroying) ensures that tenants are not unfairly deprived of their leases without an opportunity to cure, unless their actions have already demonstrated that such an opportunity would be futile. Attempting to enforce termination for a minor, curable breach without any prior warning or opportunity for rectification, even if a contractual clause seems to allow it, might be viewed as inconsistent with good faith if the trust relationship isn't truly broken.

5. Balancing of Hardships:
While not the sole or primary determinant, in borderline cases where the destruction of trust is not unequivocally clear, courts may, influenced by equitable and good faith considerations, subtly weigh the potential hardship a termination would cause the tenant (e.g., loss of home or business premises where significant investment has been made) against the actual harm or prejudice suffered by the landlord due to the breach. If the landlord's reasons for termination appear weak, opportunistic, or disproportionate to the tenant's infraction, this balance may tilt against upholding the termination.

The Interplay: Shingisoku, Abuse of Rights, and Destruction of Trust

These three legal concepts—good faith and fair dealing (shingisoku), abuse of rights (kenri ranyō), and destruction of the relationship of trust (shinrai kankei no hakai)—are intimately related and often work in concert in Japanese lease law:

• "Destruction of trust" is the specific, judicially developed test applied to determine if a breach in a lease relationship is severe enough to justify termination.
• The application and interpretation of this "destruction of trust" test are profoundly informed and guided by the broader, overarching Civil Code principles of good faith and fair dealing and the prohibition against the abuse of rights.
• A landlord's attempt to terminate a lease where the tenant's actions, viewed objectively and contextually, have not genuinely destroyed the trust relationship, or where termination is sought for a trivial reason, with an improper motive, or would lead to a grossly unfair result, could be characterized by a court as a breach of the landlord's duty to act in good faith, or as an abusive exercise of their contractual termination right.

In essence, shingisoku acts as the encompassing ethical and legal framework, ensuring that the specific rules and doctrines governing lease terminations are applied in a just and equitable manner.

Conclusion

The principle of good faith and fair dealing (shingisoku) is a potent, albeit inherently flexible, doctrine within Japanese real estate lease law. It serves as a crucial check on a landlord's power to terminate a lease, ensuring that this significant right is not exercised arbitrarily, opportunistically, or in a manner that disregards the relational nature of the lease agreement and the legitimate expectations of the tenant.

Shingisoku mandates that lease termination should generally be reserved for situations where the tenant's breach is substantial and has genuinely and irreparably destroyed the foundational trust upon which the landlord-tenant relationship was built. It steers courts away from upholding terminations based merely on minor, technical, or easily rectifiable infractions, especially if the landlord's own conduct has been less than exemplary or if the consequences for the tenant would be disproportionately severe. By requiring an assessment of the overall context, the conduct of both parties, and the actual impact of the breach on the trust relationship, the principle of good faith and fair dealing plays a vital role in promoting fairness and stability in the Japanese rental market, tempering strict contractual rights with equitable considerations.