What Happens When a Business Is Denied a "Certificate of Eligibility" for a Farmland Auction in Japan?

Japanese Attorney at Law - Bengoshi L.L.

• 6 min read

Acquiring real estate in Japan can be a complex process, but the acquisition of farmland (農地, nōchi) exists in a category of its own. Governed by the strict Agricultural Land Act (農地法, Nōchi-hō), the law is designed to preserve domestic food production and ensure that land is owned by those who will actively cultivate it. This policy has profound implications, extending even to court-supervised compulsory auctions (強制競売, kyōsei keibai), where would-be buyers must often be "pre-cleared" by a local administrative body.

But what happens when a business seeking to purchase farmland at auction is denied this essential pre-clearance? If the local Agricultural Committee (農業委員会, Nōgyō Iinkai) refuses to issue a "Certificate of Eligibility to Purchase," preventing the business from even placing a bid, what are the company's legal options?

This article explores this highly specialized area of Japanese administrative and property law. It explains the unique Certificate of Eligibility system, analyzes the legal nature of a refusal to issue a certificate, and details the most effective, though perhaps counter-intuitive, legal strategy for a prospective buyer to challenge the denial and assert its right to participate in the auction.

The Case Study: A Blocked Bid for Farmland

To understand the legal issues, consider the following representative case based on a decision from the Mito District Court.

The Factual Background

An established agricultural corporation wishes to expand its operations by purchasing a parcel of farmland at a compulsory auction. Under the rules governing such auctions, any potential bidder for farmland must first obtain a "Certificate of Eligibility to Purchase" (買受適格証明書, kaiuke tekikaku shōmeisho) from the local Agricultural Committee. This certificate serves as a pre-screening, confirming that the bidder meets the stringent legal requirements to own and farm agricultural land under the Agricultural Land Act.

The corporation applies to the Committee for the certificate. However, the Committee is poised to deny the application. The reason is not related to the corporation's qualifications; it is an exemplary farming entity. Instead, the problem lies with the land itself: a small portion of the parcel contains a building that was constructed years ago without the proper land-use conversion permit. The Committee fears that by issuing the certificate, which would facilitate the sale of the entire parcel, it would be seen as implicitly condoning this past, unresolved illegality.

The corporation is now blocked from the auction, not because of its own shortcomings, but because of an unrelated issue with the property it seeks to buy.

Understanding the "Certificate of Eligibility" System

Before diving into the legal remedies, it is essential to understand this unique certificate system.

  • Purpose and Origin: The requirement for a Certificate of Eligibility is not found in the Agricultural Land Act itself. It is a practical procedural mechanism created by the Rules of Civil Execution (a body of rules established by the Supreme Court of Japan) and administrative notices from the Ministry of Agriculture, Forestry and Fisheries (MAFF). Its purpose is to ensure the efficiency and finality of court-supervised auctions. By pre-clearing bidders, the court can be confident that the winning bidder will be able to complete the purchase and legally take title to the land, preventing the auction from failing after the fact.
  • Function: The certificate functions as a provisional judgment by the Agricultural Committee that, based on the information available, the applicant appears to meet the substantive requirements of the Agricultural Land Act. It is a prerequisite for bidding, not a final permit to own the land. The final, official permit is a separate step that occurs after a successful auction bid.

The First Hurdle: Is the Denial a "Challengable Disposition"?

The most intuitive legal response to the Committee's refusal would be to file a revocation lawsuit (取消訴訟, torikeshi soshō) to have the decision overturned. However, this path is legally problematic because a revocation lawsuit can only be filed against a formal "administrative disposition" (行政処分, gyōsei shobun).

Prevailing judicial precedent in Japan, including a Supreme Court decision from October 8, 1996, suggests that the refusal to issue this type of preparatory, non-statutory certificate is not a formal administrative disposition. The reasoning is that the certificate itself does not create or extinguish final legal rights; it is a factual confirmation made to facilitate a separate court procedure. The final decision on land ownership is the permit granted under the Agricultural Land Act after the auction is complete. Because the denial of the certificate is not a formal disposition, a revocation lawsuit is likely to be dismissed by a court for targeting an improper subject matter.

If a revocation lawsuit is not the answer, how can the corporation defend its rights? The most appropriate and effective legal tool in this situation is a declaratory judgment action (確認訴訟, kakunin soshō).

Instead of asking the court to revoke the Committee's non-decision, the corporation would ask the court to confirm its underlying legal status. The lawsuit would seek a judgment, for example, "confirming that the plaintiff corporation possesses the qualifications required under Article 3 of the Agricultural Land Act to acquire the subject farmland."

This type of lawsuit is specifically designed for situations where there is a concrete legal dispute between a citizen and an administrative body, but where the body's action (or inaction) does not take the form of a classic disposition. The Agricultural Committee's refusal to issue the certificate, which prevents the corporation from exercising its right to bid, creates a clear and immediate legal conflict that requires judicial resolution. This establishes the "legal interest" necessary to bring a declaratory judgment action.

The Substantive Fight: Why the Committee's Refusal is Unlawful

Whether in a declaratory judgment action or another form of suit, the core of the company's case would be to prove that the Agricultural Committee's refusal was illegal. The argument would focus on the Committee's abuse of its administrative discretion.

Argument 1: The Committee Used Legally Irrelevant Criteria

The central argument is that the Committee's decision must be based exclusively on the criteria for purchaser eligibility as set forth in the Agricultural Land Act. These criteria are focused on one question: Is the prospective buyer a genuine agricultural producer with the resources, personnel, and business plan to efficiently cultivate the land?

The issue of the pre-existing illegal building on the property, while a real legal problem, is an enforcement matter between the Committee and the current landowner. The Act gives the Committee separate powers—such as the ability to issue an order to restore the land to its original agricultural state (Article 51)—to deal with such violations.

This past violation is legally irrelevant to the question of the new buyer's qualifications to farm. By denying the certificate based on the illegal conversion, the Committee conflated two separate legal issues and made its decision based on an extraneous and improper consideration. This is a classic form of abuse of discretion.

Argument 2: Improper Reliance on Non-Binding Internal Guidelines

The Committee's reliance on a prefectural guideline that advised against issuing certificates for partially converted parcels is also legally flawed.

Internal administrative guidelines (yōryō or shishin) are not laws. They are intended to guide the consistent exercise of discretion, but they cannot be used to justify a decision that contradicts the purpose of the governing statute.

The primary purpose of the Agricultural Land Act's permit system is to promote productive agriculture by ensuring farmland is owned by those who will cultivate it. In this case, the Committee's rigid adherence to its internal guideline had the perverse effect of preventing a fully qualified agricultural corporation from acquiring farmland to do just that. When the mechanical application of an internal rule leads to an outcome that subverts the purpose of the law, that application is an illegal abuse of discretion.

Conclusion

The acquisition of farmland in Japan is a complex regulatory field where practical procedures, like the Certificate of Eligibility system for auctions, create unique legal challenges. When a business is denied this crucial certificate, it is not left without a remedy, but it must choose the correct legal path.

A direct lawsuit to "revoke" the denial is likely to fail because the act is not considered a formal administrative disposition. The proper and most effective legal strategy is to file a declaratory judgment action, asking the court to directly affirm the company's legal eligibility under the Agricultural Land Act.

The substantive arguments in such a case should focus on the administrative body's abuse of discretion, particularly its reliance on criteria that are irrelevant to the purchaser's qualifications and its improper, rigid application of non-binding internal guidelines. This demonstrates a core principle of Japanese administrative law: all administrative decisions, even those made in a practical, non-statutory context, must ultimately be grounded in the specific purposes of the governing law.