Are Rental Apartment Contract Renewal Fees Illegal? ? Real Estate ...

One of the hidden expenses for renters in Japan is the contract renewal fee. Many rental leases include a clause charging a fee equivalent to one or two months? rent in order for the lessee to renew the contract at the end of the term. Rental leases in Japan usually have a two year term.

In a recent court case, several tenants sued their landlords alleging that the contract renewal fees they were being charged was invalid. The case resulted in a split decision from the Osaka High Court, which referred the case to the Supreme Court. On July 15th, 2011, the Supreme Court handed down their decision that rental lease renewal fees are valid.

The decision was a victory for the lessors, but the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) is currently studying laws relating to apartment lease renewal fees to see if reform is needed. The Ministry is expected to issue its conclusions by next spring.

Those findings will be of interest to many, as nationwide, there are about 500 million rental condo units. Depending on the area of the country, it is accepted practice for landlords to charge a renewal fee; for example, in the Tokyo metropolitan area, Kyoto, and Shiga, renewal fees are commonplace. Nationwide, there are about 100 million condo units where these fees have been charged for the last forty years.

The recent court decision is also of interest to watchers of consumer finance protection laws. In contrast to that decision and the prevailing practice of charging rental contract renewal fees, the Consumer Contract law that became effective in April 2011 states that contract stipulations which place unduly harsh obligations on borrowers and unilaterally harms their interests are invalid.

There is debate as to whether the recent decision on apartment contract renewal fees actually violates this clause in the Consumer Contract law. The courts are apparently also divided on the issue. In the case, three tenants sued their landlords, and the courts were asked to look at three separate leasing contracts. In the first trial, it was decided that one of the three contract renewal fees under consideration was invalid. In the second trial, it was deemed that two out of the three renewal fees was invalid.

Ultimately, the Court?s decision was that apartment rental renewal fees are valid as long as they are not excessive.

Speaking to the decision, Torayoshi Takechi, honorary chairman of the National Rental Housing Management Association, which has about 12,000 members, said that landlords are operating in hard economic times. He pointed out that vacancy rates have been increasing and that landlords have had to incur additional expenses to upgrade their properties for the switchover to terrestrial digital TV broadcasting in July of this year. He also said that there was concern among the members of the Association that many of them would be forced into bankruptcy if the courts had invalidated contract renewal fees.

The lawyer for the lessees, Nao Masuda, however, rejected the landlords? position, saying that no matter how you look at it, an outlay of two months? rent is a big expense. He said that the Supreme Court did not try to understand the lives of ordinary people.

It?s not just lessees who are saying that there is a need for some kind of reform in the way rental renewal fees are currently being charged. Osamu Miyoshi, chairman of the Japan Rental Housing Management Association, which represents over 1,000 condominium companies, said that his organization has started the following initiative. The Association would propose an ?approximate net rental amount? which would be equivalent to one month?s rent; this amount would include the actual monthly rent plus condo association fees, management fees, and the contract renewal fee. Tenants who have rented for at least four years would be eligible for this system. It would be one way of including the contract renewal fee in the monthly rent.

The MLIT is also considering whether various one-time lump sum payments should be included in standard apartment rental contracts.

Source: Asahi.com, August 12, 2011 (in Japanese)

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Source: http://www.realestate.co.jp/2011/09/14/are-rental-apartment-contract-renewal-fees-illegal/

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