Shakeup in tenant terms

Does ruling help or hurt foreign renters?

by Minoru Matsutani

A shock wave hit the real estate industry when the Kyoto District Court ruled July 23 that an apartment tenant did not have to pay a fee to renew his lease, a fee landlords levy on average every two to three years.

This “koshin-ryo” charge demanded by landlords is an old custom in many parts of Japan. Many foreigners are surprised when asked to pay it because this custom does not exist in their home countries.

While real estate agencies try to play down the impact of the ruling because it does not automatically apply to all similar disputes, lawyers believe this will set a precedent for renters to refuse to pay landlords a fee they regard as over the top.

“I will use the ruling the Kyoto District Court handed down,” said Kyohei Niitsu, a lawyer at Niitsu Legal Visa Office in Tokyo. The firm specializes in advising foreigners.

“I will notify my clients who don’t know this, tell them they may not have to pay renewal fees and negotiate with their real estate agencies for them,” he said.

The renewal fee real estate agencies charge varies by prefecture. A survey by the Land, Infrastructure, Transport and Tourism Ministry found that 65 percent of real estate agencies in Tokyo charge an average of one month’s rent in renewal fees, while 90.1 percent in Kanagawa Prefecture charge 0.8 month’s rent and 55.1 percent in Kyoto Prefecture charge 1.4 month’s rent.

Many foreigners are not used to paying a renewal fee, let alone the other uniquely Japanese custom of “reikin” (“key money”) that’s paid when a renter moves in.

“Lots of my clients say it is ridiculous for landlords to charge a large lump sum (for key money and renewal fees), which is nonsense to foreigners,” said Edmond Courtroul, a lawyer registered in Texas who mainly deals with commercial clients rather than individuals. “Now the ruling is precedent, so they should take (renewal fees) out of contract.”

The survey by the land ministry found that half of the real estate agencies that responded claimed they charge the renewal fees and key money simply because it is a long-standing custom.

To be sure, in addition to the key money and renewal fees, many real estate agencies collect a deposit, typically worth one to four months’ rent, as insurance against a renter’s suddenly bolting without paying.

Landlords typically keep all the key money but split the renewal fee with the real estate agency.

According to the ruling at the Kyoto court, the plaintiff, whose name is being withheld, concluded a two-year contract to rent an apartment in Kyoto in April 2006, and paid the landlord ¥466,000 — ¥350,000 in deposit when he moved in and ¥116,000 in a renewal fee in January 2008 as the expiration date neared.

He terminated the contract and vacated in May that year. Then he filed a lawsuit last October demanding a refund.

The court ordered the landlord to pay back all the money, both the deposit and the renewal fee, which was equivalent to two months’ rent. The court said the landlord should have made sure the renter understood the legitimacy of paying the renewal fee, and charging the fee without doing so was illegal.

Tomomitsu Taniyama, one of the attorneys for the plaintiff, said, “The ruling is epoch-making as it leads to a trend of protecting consumers. It is a step forward to rectifying apartment rental contracts.”

However, the ruling may end up having a negative impact on foreign residents, some experts say.

Lawyer Naoya Wada said it may become more difficult for foreigners to rent apartments in the future because landlords tend to be particular about getting key money and renewal fees from foreigners, who are likely to be more difficult to track down than Japanese if they leave without paying, Wada said.

Some real estate agencies attract foreign residents by charging no key money and renewal fees in exchange for higher monthly rents, especially in Tokyo, he said.

Tomio Nakajima, an official at the Association of Real Estate Agents of Japan, was unsure how the Kyoto ruling will affect the industry.

“There are no standards in apartment contracts. The content of each contract is not universal and the ruling is for just one case. It is difficult to say if the trend of not paying renewal fees will spread across the nation,” he said.