Renting comes with guarantors, not guarantees

by and

According to the most recent census, as of 2010 the population of Japan stood at a little less than 128 million, and if demographic trends continue at the current rate it will be 107 million in 2030 and 97 million in 2050. Despite this projected decline, 369,993 new rental units were built in Japan last year; up from 291,804 built in 2010, an increase that sounds counterintuitive given the population drop, though the trend could be a reflection of perceived changes in housing preferences.

As families become more atomized, the number of single-person households in Japan is also increasing. This and the fact that regular, full-time employment is less secure, may put people off the purchase of a home. In more practical terms, landowners are building more rental units on their properties in order to lower their own various tax bills.

In any case, the nationwide vacancy rate for rental units in 2013 was 18.9 percent. The vacancy rate for all residences in Japan is 13.5 percent. Rental vacancies drop somewhat in large cities. It’s 11.9 percent in the 23 wards of Tokyo, though rates vary widely depending on the location. In the cheaper, outlying wards, it’s between 7 and 9 percent, while in much more expensive Chiyoda Ward it’s 36 percent.

The real estate portal site Homes (www.homes.co.jp) cites over-construction and declining population as the background for the high rental-vacancy rate, but there’s another factor that tends to go unremarked: Landlords aren’t really working hard enough to attract tenants. Those who do pay attention to renters’ needs tend to have fewer problems getting and keeping tenants.

Rentals are a buyer’s market now, which means landlords are compelled to make concessions. Old traditions such as “gift” or “key” money (reikin), one-time payments that range from anywhere between one and four months’ worth of rent given to landlords before moving in, as well as lease re-signing fees, are less common than they used to be. Deposits (shiki-kin) are also smaller and landlords now understand they have to be forthright about what the deposit does and doesn’t cover. They are becoming more lenient with regard to certain conditions, such as allowing pets. Some landlords even offer the first month or so rent-free just to lock in tenants for a two-year contract.

But one aspect of Japanese rentals that has remained in place is the guarantor (hoshonin) system. Landlords require co-signers to cover rent when tenants are late, and traditionally insisted they be family members — preferably parents — since landlords assume families feel more responsible for one of their own.

Many rental agreements now require joint guarantors (rentai hoshonin), which is a more binding arrangement. The Civil Code stipulates that a normal guarantor who receives a notice to pay a debt in lieu of the contracted tenant can ignore the notice if he or she thinks it has no merit. The guarantor can say the tenant has sufficient funds to pay the debt, or that the landlord should try to seize the tenant’s assets first. However, if the person is a joint guarantor, he or she cannot refuse the notice for any reason and must pay the debt. In addition, if there is more than one joint guarantor, the landlord can demand full payment from any one of them and that party cannot refuse. Moreover, the party cannot insist that the debt be divided among the different joint guarantors. The landlord has full discretion as to who shall pay the debt.

Obviously, being a joint guarantor is a more serious responsibility than being a regular guarantor, so before co-signing a rental agreement a person should read the contract carefully and understand his or her obligations as a joint guarantor which are exactly the same as the tenant’s. The Ministry of Justice is currently studying the matter with a mind to revising the Civil Code article regarding guarantors in rental agreements. The ministry wants to include a provision that says the agreement is void unless the landlord or his agent clearly explains the guarantor’s obligations.

According to Homes, in recent years there has been an increase in lawsuits brought by guarantors who questioned their responsibilities, claiming that they were not sufficiently made aware of them. In addition, landlords are becoming less flexible about guarantors. In the past, it was usually enough for parents to co-sign their children’s rental agreement, but now landlords require that parents provide proof of income, and if that is found insufficient, they may reject the parents or insist on a second additional guarantor.

This situation has given rise to businesses that act as rental guarantors, and nowadays more landlords require potential tenants to hire such companies before signing a lease. In the event that a tenant’s rental payment is late, the landlord can get the money immediately from the rental guarantee company. The tenant’s debt thus becomes the company’s concern, not the landlord’s.

In many cases, the rental guarantee company is the same firm that manages the apartment building, which makes the arrangement more attractive to the landlord, since it is the tenant who pays for the services of the company rather than the landlord. These companies typically charge a tenant 30 to 50 percent of a month’s worth of rent when the tenant signs the rental agreement, and then another 10,000 or so every year or when the tenant signs a new lease.

This system has obvious advantages for the landlord. However, in addition to paying the fees, it may have further disadvantages for the tenant. If the rental guarantee company also manages the building, the tenant pays the landlord via the company, which has the power to evict the tenant on behalf of the landlord. This is often the case with units that are rented out to low-income people in large cities. Conditions for moving in are made relatively simple, but this also means it is easy for the building management company to kick the tenant out if he’s late with the rent, since it can usually find a new tenant without much trouble.

Homes also warns renters that all rental guarantee companies are not the same. If the landlord’s management company does not act as a guarantor, the tenant may have to find one on his own, and since it’s a relatively easy business to start, some are less reliable than others. If the company goes out of business, the tenant may have to find a new guarantor without getting his money back from the old one. And just because a real estate agent recommends a company it doesn’t necessarily mean that the company is reliable, only that the two firms have a working relationship.

Philip Brasor and Masako Tsubuku blog about Japanese housing at www.catforehead.wordpress.com.

  • Michael Darmousseh

    Is this because of a law or tradition? If it’s just tradition, the tradition can change.

  • Japanese Bull Fighter

    The “traditional” part depends where you are in Japan. Western Japan, especially Osaka surrounding cities are quite different from Tokyo.