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Leopalace21 scandal highlights the risk tenants face in Japan compared to building owners

by Philip Brasor

Contributing Writer

The theme of the Nippon Television series “Shiawase! Bonbi Girl” (“Happy Poor Girls”) is one of the most resilient on Japanese television: People of limited means getting by. As the title indicates, the subject is young women and one of the regular segments, “Jokyo Girl,” highlights a young woman “moving to Tokyo” to find an apartment.

The base assumption of the segment is that Tokyo is much more expensive than wherever the subject is coming from, and the parameters are always the same: The newcomer sets a maximum monthly rental target, indicates preferred conditions and neighborhoods, and then visits realtors to secure a place to live. In many cases, these women are not students. They have already found jobs or want to fulfill some sort of dream in the big city.

As anyone who has lived in Tokyo on a budget knows, finding apartments can be frustrating, but for the most part the women on “Shiawase! Bonbi Girl” do not get flustered despite being presented with residences that are cramped, dark and lacking in amenities many would take for granted. The idea that you have to put up with such limitations when you’re young is built into the show’s DNA, and the subjects go through the motions of inspecting apartments and pondering their options without a trace of disappointment. As renters, they understand they are in no position to complain about what’s available.

This aspect of Japanese rental life is, for the most part, absent from the coverage of the Leopalace21 Corp. scandal. Leopalace21 is a prominent rental apartment operator with buildings all over Japan and, earlier this month, the company announced it would be paying for the removal of 14,443 residents from 1,324 apartments in 32 prefectures in order to repair defects that render the units unsafe. Leopalace21 does not own most of the buildings that feature their name. What they do is build apartments and sell them to individuals as investments. The investor pays for the construction and owns the building. Leopalace21 manages it and guarantees a monthly payment derived from rental fees.

Although some of the media reports on the scandal have included comments from tenants, who complain about thin walls and other problems common to collective housing, the victims are the owners, a Nagoya-based group of whom held a news conference in Tokyo on Feb. 12, where they called on the land ministry to investigate the matter and monitor the renovations that Leopalace21 promises to carry out.

The group also asked the Financial Services Agency to make sure Leopalace21 could secure enough funds for the renovations, since the company has estimated a net loss in fiscal 2018 of ¥38 billion to ¥40 billion, and not just due to the cost of covering tenants’ moving expenses and repairs. Following the announcement, the company’s stock price plunged.

The focus on the damage being done to investors’ lives rather than those of tenants was mainly developed by the media outlet that scooped the story, TV Tokyo’s business documentary series, “Gaia no Yoake” (“Dawn of Gaia”), which is significant given that Leopalace21 is a major TV advertiser. In the past 14 months, the show has broadcast three programs in its “Mane no Maryoku” (“Magic Power of Money”) subseries about the company, all of which use building owners as their main interview subjects.

The first program, which aired Dec. 26, 2017, was about flawed contracts rather than flawed buildings. The investors entered into their deals with the company expecting a steady monthly income, which would go initially toward their mortgages but, in some cases, payment amounts decreased over time due to the increasingly depressed rental market. Some of these owners have sued Leopalace21 and, in the process of having their properties independently assessed, discovered the structural problems.

The second program on May 29 of last year stressed the “illegal construction” angle. TV Tokyo itself hired experts to inspect the buildings and found flaws and, after they contacted Leopalace21, the company acknowledged the problem at a news conference.

The third part, aired Feb. 5, elaborated on an issue addressed in part two — the insufficiency of separation barriers in spaces above the ceiling. These barriers are legally required to prevent fires that occur in one unit from spreading to others, and in some buildings there were none at all. One owner told TV Tokyo that he expected the company to get in touch after the May news conference but they had yet to inspect his building and carry out repairs. Others said they’d known about the lack of barriers for some time but Leopalace21 ignored their inquiries. A person related to Leopalace21 anonymously told TV Tokyo that the company’s assertion that it only recently found out about the flaws is an obvious lie, since it had been settling individual claims for years. The policy is to arbitrate a settlement as quickly as possible and then put a lid on it.

TV Tokyo, which is affiliated with Japan’s top financial newspaper, Nihon Keizai Shimbun, became interested in the Leopalace21 story because of owner lawsuits, not tenant complaints.

Generally speaking, Leopalace21 renters are even more economically vulnerable than the women on “Shiawase! Bonbi Girl.” Initial deposits are manageable, so a lot of part-timers apply and, since personal guarantors usually aren’t required, they’re popular among foreign residents.

Most of the apartments are furnished and slightly cheaper than the average, but they are also infamously flimsy. A common joke among tenants is that when someone knocks on one door, every other door in the building answers. The apartments are designed and built not for comfort or convenience, but for maximum return on investment.

In other words, the owners got what they paid for and only became angry when Leopalace21 didn’t keep up their end of the bargain. The people who actually live in the apartments, the tenants who would die if a fire broke out, are just elements in this transaction — essential ones, to be sure, but endlessly exchangeable.