Terminology
Japanese standard practice in the industry is as follows:
Lease Terms
- Standard lease is two years.
- Leases are automatically renewed after two years.
- Even during the lease period, lessee may terminate the lease by giving six months or more advance notice.
- In principle, providing advance notice allows either party to terminate the lease, however, Japan's Lease Land and House Law makes termination initiated by lessor almost impossible.
Deposits
- In Japan, all tenants pay security or rent deposits.
- Deposits typically range between 6 and 12 months rent.
- Generally, bank's letter of credit is not accepted.
- A joint surety (or a guarantor) is required for lease agreement by some lessors in addition to the deposit.
- Deposits do not bear interest.
- Deposits are kept in the lessor's designated bank saving account.
Tenant Improvements / Restoration
- Offices usually rented with ceilings, walls, and floors, are constructed of standard materials in ordinary colors; light fittings and air-conditioning also installed.
- Usually, new tenant bears all costs of improvement/fitting-out work.
- Vacating tenant bears all costs of restoration.
- For major construction involving changes to building structure or equipment, and for that of restoration, lessor assigns qualified company to undertake the work.
The following are some of the terms unique to the Japanese office-rental market that you may find useful to know.
1. Floor Area (Menseki)
Space in Japan is usually expressed in square meters (m2) or in the term 'tsubo' (1 tsubo=3.305785 sqm or about 35.58 sq feet). Floor space is usually measured from wall center to wall center. However, prospective lessees should be careful when comparing office as rental contracts usually differentiate between two types of space. One type refers only to the space occupied exclusively by the tenant (senyo menseki) while the other refers to both exclusive tenant space and common space (kyoyo menseki) such as corridors, rest rooms, and elevator halls.
2. Deposit Money (Hosho-kin or Shiki-kin)
Before tenants start occupying any rental accommodation in Japan, they are required to pay the building owner a non-interest-bearing deposit (most cases the payment is requested to be made on the same day of lease signing). This gives the new tenant credibility, while the owner generates a financial reserve out of which any tenant-incurred losses are paid. The owner will return the deposit after "the delivery by the lessee of the leased premises to the lessor." Most rental contracts stipulate that the deposit money will be raised in proportion to a property's rent when the rent itself is increased.
3. Rent (Chin-ryo)
As soon as a tenant delivers belongings or begins office remodeling, rent payment must begin. Rent is usually paid for the coming month on the last day-or by the 25rh day-of the month preceding it. In theory, rents can be raised if dramatic changes in economic circumstances occur, and often contracts contain such a warning. In practice, however, rents are not increased until the rental contracts fall due for renewal.
4. Maintenance Fee (Kyoeki-hi)
In addition to rent, tenants are usually asked to pay a monthly building maintenance fee (or 'Common Area Management Fee'). This fee covers the cost of utilities for common space such as lobbies, halls, rest rooms, and pantries, as well as the costs of building maintenance and security services. Items covered by the fee usually vary from building to building, so prospective tenants should confirm in advance whether the fee covers cleaning and air-conditioning and/or heating costs.
5. Cohabitation and Subleasing (Dokyo Tentai)
Unlike in some other countries, when a tenant in Japan terminates a lease contract and prepares to vacate, all premises must be restored to their condition at the time that the contract commenced. This restoration is at the tenant's expense and usually includes (at a minimum) repairs to all walls, floors and ceilings, and the removal of any fixtures installed by the tenant.
6. Restoration to Original Condition (Genjyo-kaifuku)
Unlike in some other countries, when a tenant in Japan terminates a lease contract and prepares to vacate, all premises must be restored to their condition at the time that the contract commenced. This restoration is in most cases undertaken by the lessor's designated contractor and is always at the tenant's expense and usually includes- at a minimum-replacement of all floors and walls with new carpets and wall papers, repainting on ceilings (and sometimes walls, as well), repairs to all walls, floors and ceilings if any damage, and the removal of any fixtures installed by the tenant.
7. Lease Terms (Keiyaku Kikan)
Lease terms in Japan are mostly for two years but are automatically renewed for an additional two years unless either party wishes to terminate the contract. In contrast with European and North American practices where tenants must generally pay rent for as long as the lease is in effect, tenants in Japan can usually leave leased space before the contract expires. So long as prior written notice of cancellation is given, tenants can leave without paying for the entire contract period.
8. Notice of Cancellation (Kaiyaku Yokoku)
Canceling a contract prior to expiry usually carries no penalty for lessees in Japan as long as the lessor is notified beforehand and within the time period specified in the contract (usually 6 months). Recently however, some landlords have demanded penalty payments.
9. Depreciation Fee (Shokyaku-hi)
Owners of small-sized buildings often demand that tenants pay a depreciation fee. This is deducted as a percentage from the deposit (usually 10% to 20%) when the contract ends, and the deposit minus the fee is then returned to the lessee. The term "depreciation fee" is used here, but there is no direct relationship between the fee and building depreciation.
10. Renewal Fee (Koshin-ryo)
Most office leases stipulate a two-year contract period, and rental contracts can be renewed upon expiry. It is common for owners of small-sized buildings to demand a renewal fee when rental contracts are renewed, and this fee is usually one month's rent at the rate stipulated in the new rental contract.
11. Construction Involving Building Structure (Kutai-ni-kakawaru Koji)
Construction works listed below may affect the building's structure, the property value or other tenants. Therefore, such work requires the building owner's prior approval, and the tenant bears all construction costs.
Some examples:
- Construction altering the building structure (where pillars, beams and/or ceilings are affected, or where a room partition is extended up to the ceiling).
- Changes in air-conditioning systems, security systems, and disaster prevention systems.
- Installation of heavy machines or equipments.
- Changes in electric equipment where the whole building's power supply system could be affected.
12. Commission (Chukai Tesu-ryo) (Kutai-ni-kakawaru Koji)
In Japan, at the time of contracting for new lease space, it is the tenant and not the landlord who pays the introducer or the agent a fee equal to one month's rent. This practice gives the tenant important advantages by ensuring that the agent represents the tenant only while diligently maintaining the tenant's position and acting in the tenant's best interests in all negotiations.