Japan's rental agreement renewal fees: Money for what, exactly?

The late-March house moving season in Japan once again raises the dilemma among tenants about paying rental agreement renewal fees (koshinryō) and the yet unanswered question as to what it is they are getting for their money.

The end of March is traditionally a “moving season” in Japan. School’s out for the year, maybe mom or dad’s job contract is coming to end, as is maybe the current housing contract. The nation’s removal services are preparing to “make hay while the sun shines,” and right now an army of student part-timers is doing nightly press ups in preparation to lug fridges and sofas down, then up, sets of stairs.

For many tenants in Japan then, March is a time to brace for a hit on the finances. Those who are moving will have been in brace position for sometime now as they prepare to suffer the indignity of having to shell out somewhere between three to six months of rent just to be let into their prospective home.

Tenants staying put this year can be separated into two groups -- those in the middle of existing rental contracts / agreements and those whose contract is about to expire and who have decided to renew, like this expat, and will have to pay a “renewal fee” (更新料 / koshinryō) of typically one, maybe two, month’s rent.

Like expensive fruit and endless bureaucracy, the rental “renewal fee” is an aspect of life in Japan that continues draw consternation from expats who are often left wondering, “Do I really have to pay the renewal fee?” and “What the hell is it I’m paying for anyway?”.

Where the expat in Japan might be able to take some solace is that they are not alone in the above sentiments -- locals have also asked the same questions (although the expensive fruit continues to get a pass).

What are we paying renewal fees for?

Some industry insiders have described Japan’s rental laws as favoring the landlord over the tenant. This perhaps comes after such laws having gone through a post-war period of being the other way round when, on the back of housing shortages, the government stepped in to freeze rental fees. A move which led to landlords and property owners bringing in renewal fees, along with “gift money,” in a bid to keep profits up. “Supplemental fees,” they’re called.

Those frozen rents have thawed but the supplemental fees are still in place (although Japan is seeing an increase in real estate that is free of gift money) which has led to many a cry of exploitation and greed, typically followed by whimpers of resignation.  

The questions are still being asked though, and quite rightly so, but answers as to why tenants in Japan continue to be saddled with renewal fees continue to remain unsatisfactory if not elusive.  

Staying with the “pro-landlord” view, most rental agreements in Japan are of the “rental contract limited in time” (kikan no sadame no aru chintaishaku / 期間の定めのある賃貸借) type (Note 1). Such contracts place emphasis on the tenant’s right to renew it -- it’s harder for landlords to give us the boot, without good reason. Unfortunately for said tenant (and landlord, depending on which side you’re on) renewing means the landlord is missing out on the more profitable supplemental fees that can be pocketed when a new tenant moves into one of their properties. The renewal fee then, helps to offset some of this loss.

Of course, this is scant consolation for the renewing tenant who appears to not be getting anything for the extra outlay.  

Do tenants in Japan have to pay renewal fees / koshinryō?

As we mentioned earlier, questions about renewal fees are not exclusive to the exasperated expat, locals have actually challenged their payment.

Challenges to the payment of koshinryō rose in Japan after the passing of the Consumer Contract Act in 2000. The key clause cited in the courts in some of these cases seems to that detailed in Article 10 of the act, entitled “Nullity of Clauses that Impair the Interests of Consumers Unilaterally.” The (unofficial) translation reads: 

“Any Consumer Contract clause that restricts the rights or expands the duties of the Consumer more than the application of provisions unrelated to public order in the Civil Code, the Commercial Code (Act No. 48 of 1899) and any other laws and regulations, and that unilaterally impairs the interests of the Consumer, in violation of the fundamental principle provided in the second paragraph of Article 1 of the Civil Code, is void.” Japanese Law Translation, Jan. 4, 2011.

The second paragraph of Article 1 of the Civil Code reads: 

“The exercise of rights and performance of duties must be done in good faith.” Japanese Law Translation April 1, 2009.

While the language is tricky, for this expat at least, Article 10 seems to be calling for the fair balance between what the consumer is paying for, “application of provisions,” and how it impacts their life, “restricts the rights or expands the duties.” Unfortunately, there seems to little in the way of anything definitive here, especially when you throw in the term “good faith.”

There have been successful challenges to the payment of koshinryō that have seen tenants reimbursed. The Osaka High Court ruled this way in a case in 2009 citing a violation of the “good faith” agreement, now incorporated into the Consumer Contract Act (Note 2). However, this case seemed, in part, to revolve around a disparity in information held by the landlord and the tenant.  

Subsequent cases have seen renewal fees upheld. A review by the Supreme Court in 2011 found that clearly stated renewal clauses in lease contracts do not constitute the impairment of consumers in regards to the second paragraph of Article 1 of the Civil Code (above). 

This brings us back to vagaries of such terms as laid out by the Consumer Contract Act and the Civil Code -- there is no clearly drawn line to indicate when demands placed on the consumer become excessive, and even if there were, it could surely only be subjective at best, arbitrary at worst.  

Ask the average tenant in Japan if they felt the renewal fee was an impairment of their rights as a consumer, and the answer would likely be a resounding, “Yes.” Viewed from this perspective leaving the determination of what is excessive and what is reasonable in the hands of a highly paid judiciary might understandably be hard to take for the renewing tenant, and still fails to answer the question as to what it is that the consumer is getting in return.

A precedent has been set though, and the renewal fee can be deemed excessive by those with the power to have it rescinded. In the case of the 2009 Osaka High Court ruling the tenant was required by the landlord to pay a lease renewal fee of 100,000 yen for the renewal of a one-year contract which commanded a monthly rent of 45,000 yen and key money of 60,000 yen. The court ruled that it lacked “rational basis.” (Although one assumes the landlord to have found rationale somewhere in there!)

Progress of a kind then, but the one month’s rent to renew a two-year contract, as is typically the case in such affairs, doesn’t look to be garnering any sympathy from Japan’s judges.

The rental agreement renewal fee has grown into something of a divisive issue among expats in Japan, a bit like the 29.5-hour working contract and the racketeering eikaiwa. Online forums have perhaps become saturated with vents of frustration regarding the issue such that sympathy is now in short supply and advise often comes if the form of Well, move out then!, or Find a place with a landlord that doesn’t require such payment.

In fact, approaches to the issue of koshinryō have even taken a broader stance seemingly aimed at the greater good, the “high road,” from which advice comes in the form an ethical shaming of sorts -- We shouldn’t be renewing contracts with landlords who demand fees, nor should be moving into such properties, it only encourages them.  

Similar arguments have been made when it comes to the signing of the 29.5-hour work contract, or the payment of key money to move into a new place.

Of course, quite how many of the people dispensing such advice have followed it themselves, or have been in the position to make such a choice, is unclear to this expat.

On the other hand, there are those expats whose approach to issues like koshinryō takes the more stiff upper lip, stop moaning and just do it form. What you’re getting for your money, after all, is to keep a roof over your head which, presumably, you want to keep over your head.

Of course, a post like this, looking at an issue like this could justly be filed under same s@&t, different year, because it pretty much is. Still, matters like rental renewal fees need airing, and even challenging, from time to time.

How do you feel about paying rental agreement renewal fees? Just part and parcel of life in Japan? Let us know in the comments.

Footnotes:

(Note 1) - Tsubasa Wakabayashi, Tenant’s Right Brochure for JAPAN (TENLAW: Tenancy Law and Housing Policy in Multi-level Europe)

(Note 2) - Andrew M. Pardieck, LAYERS OF THE LAW: A LOOK AT THE ROLE OF LAW IN JAPAN TODAY (Pacific Rim Law & Policy Journal Association, 2013)

Further Reference:

Once settled in, chances are you’ll have to pay to stay - The Japan Times, Aug.2, 2011

Links

National Consumer Affairs Center of Japan

Consumer Affairs Agency, Government of Japan

Japan Legal Support Center

The Japanese government has made steps to try and reduce any disparity of information held between landlords and tenants. The Ministry of Land, Infrastructure, Transport and Tourism has published an English-language version of what the typically rental agreement should look like which you can see in the link below:

Property Rental Application

See us on … 

Twitter and Facebook: @citycostjapan

YouTube