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Daylight robbery — and we accept it

by Philip Brasor

Last February, the Tokyo municipal government adopted a policy to discourage key money reikin and lease renewal fees koshinryo in rental agreements. The policy is long overdue since key money and renewal fees are tenant-gouging practices sanctioned by nothing more than habit.

The gratuitousness of these landlordly traditions was exposed in Asahi Shimbun’s “Gimon Kaiketsu Monjiro ( Monjiro the Problem Solver)” column recently. A reader asked what was the purpose of the renewal fee, usually equivalent to one month’s rent, that he has to pay every two years when he signs a new contract for his apartment. Asahi called a real estate agent for an answer, which turned out to be disarmingly simple: There is no reason, it’s just “a custom.” A different realtor explained that the custom was established after World War II, when the supply of housing couldn’t keep up with the huge demand.

Rental housing is no longer scarce, but the practice remains in place in the Kanto region and Kyoto. Utilizing what can only be called a perverse sense of journalistic fair play, the Asahi column goes out of its way to conjure up a plausible explanation for the custom (something about protecting the landlord’s investment), but in the end it’s clear that tenants cannot be forced to pay the renewal fee. In May, the Kyoto district court sided with a tenant who refused to pay it, even though it was stipulated in his original rental agreement.

In a similar vein, NHK’s Tokyo newsmagazine, “Tokuho Shutoken,” recently looked at rental security deposits shikikin. It’s assumed that part or all of such deposits will be retained by the landlord for the purpose of cleaning and repairs when the tenant moves out, but Tokyo law states clearly that a tenant cannot be held liable for normal wear-and-tear, though they usually are.

Obviously, key money, renewal fees, and, to a certain extent, security deposits are mainly charged to extract more money from tenants by exploiting their feelings of inferiority in the rental transaction. Japanese law favors the tenant, as proved by the Kyoto district court decision, but most renters don’t understand this because they’ve been conditioned to think that whatever the landlord wants the landlord gets.

This practice of charging meaningless supplementary fees is insidious. Private schools charge exorbitant admission fees nyugakkin and everything from health clubs to video stores demand new member fees nyukaikin. If this money was really needed for running the operation concerned, why isn’t it just incorporated into the monthly or yearly charges? The reason is simple: Because it isn’t needed and people will pay it anyway.

The big daddy of meaningless supplementary fees is the telephone subscription right denwa kanyuken that NTT charges when you acquire a fixed telephone line. Right now, the telecommunications giant is having a hard time justifying the kanyuken since other companies who are entering the fixed-line telephone business aren’t charging for any such right. Nevertheless, NTT says it will not completely phase out the kanyuken until 2011.

The absurdity of NTT’s stubbornness is compounded by a lack of understanding as to what the kanyuken really is. For years, NTT encouraged the belief that it was a transferable asset. Taro Aso, the minister of Internal Affairs and Communications, described the kanyuken as “a kind of credit, like stock.” But stocks can go up in price. Kanyuken can’t.

The original reason for the kanyuken, like the original reason for rental renewal fees, no longer applies. After World War II, NTT’s government-owned predecessor needed large amounts of money to build a telephone network. In the 60s, kanyuken cost hundreds of thousands of yen, and while a subscriber could never sell the line back to the phone company, he could transfer it to another party. The kanyuken thus acquired a collateral value, but in any case no one ever sold their kanyuken for more money than what they paid for when they bought it from the phone company.

Since 1985, when the public phone corporation was privatized as NTT, the price of kanyuken bought from the phone company has been fixed at 72,000 yen, even though the network it was created to fund was completed long ago. The kanyuken is merely gravy, a windfall that NTT could always count on; that is, until mobile phones and the Internet made fixed lines optional. Now that other companies are offering fixed lines, the transfer value is heading toward zero.

An recent article in the Mainichi Shimbun pointed out that in 2002 NTT launched a “light” plan. New subscribers didn’t have to pay for kanyuken to acquire new telephone lines if they instead paid a slightly higher monthly service fee. The reporter analyzed the plan (short-term users could save money while long-term users could potentially pay more) without questioning the ridiculousness of the concept itself. Whether it’s in the form of kanyuken or higher service fees, why should a subscriber pay any extra money at all?

NTT refuses to refund all or part of the kanyuken, saying that it is a “one-time fee,” a cop-out that is understandable given that the value of all the kanyuken held in Japan is estimated to be more than 4 trillion yen. But the company’s refusal to abolish the kanyuken system right now is not only illogical (Who in their right mind will buy them?) but insulting. After years of making easy money, NTT, like landlords and others in positions of authority, just can’t seem to believe that they are no longer entitled to money they haven’t earned.