The Japanese are generally good tenants

The stereotype of Japan as a law-abiding nation seems to hold true when it comes renting. According to the Japan Rental Property Management Association, only 6.9% of tenants were late with their rental payments for one or more times in 2016, and 4.2% paid up within a month. This indicates that only 2.7% of tenants had not paid their rent even a month after it was due. Finally, only 1.6% of tenants still hadn't paid after two months or more.

The law is on the tenants' side 

Two months also happens to be the magic number for rent truancy. The standard lease agreement stipulates that if your tenant is two months late in payments, you can cancel the contract. However, you can not forcefully evict a delinquent renter. It is illegal to change locks, shut off utilities or force entry into your property, even after you cancelled the contract based on rent truancy. Therefore, landlords have no choice but to face a delinquent renter in court according to the Leased Land and House Lease Act.

The dreaded eviction process

You will most likely have to hire a lawyer, with retainer fees starting at around JPY 250,000. An eviction court case is estimated to take around 6 months, after the 2 months of late rent payments, making it a lengthy process.

According to Erik Oskamp of Akasaka Real Estate, renters can draw out the process by several more months, as long as they appear for all court appointments, promise to pay or if they makes counter claims against you ( e.g. pending or improper maintenance of the apartment). Additionally, if you made legal mistakes, for example harassing the renter by switching off the electricity, it will draw out the case even longer or you might lose.

Once an eviction order is finally achieved, the apartment will be cleared. However, the property owner is legally bound to store, and pay for storage of, any possessions left behind by the delinquent renter for up to two months before it is finally declared abandoned.
 
The accumulated cost of court fees, lawyer retainer, eviction and potential storage and discarding of possessions is in the several hundred thousand yen range, often up to  JPY 1 million.

How to protect yourself

Avoiding this costly, lengthy and cumbersome process starts with enlisting a good management company. There are a number of management companies in Tokyo that offer services in English to international property owners, for example WealthPark. Depending on the service, fees start from around 5% of the monthly rental income, or a minimum monthly fee of JPY 3,000.

The very first step of the management company will be to help you screen and select trustworthy tenants. Later, they will manage all enquiries regarding maintenance from the tenant to keep your side of the agreement in the clear, and they will also call and chase up delinquent renters. If a tenant is late in payments, usually a phone call by the management agency will suffice. However, in more serious cases, the management agency will activate the guarantor company.

Guarantor companies

In Japan, every tenant must present a guarantor to rent property. While some landlords accept close family members or the tenant’s employer, it is recommended that you stipulate in the lease agreement that the renter must have a guarantor company. For half a month’s worth of rent, to be paid by the tenant, the guarantor company acts like an insurance company that steps in if a tenant does not pay up. They will then pay the lost rent to the owner while chasing up the delinquent renter.

A guarantor company further manages a potential eviction, and continues to cover the rent to the property owner throughout the process, as well as all legal costs. Legally it is almost impossible for landlords to compel a personal guarantor to pay in the event of a delinquency. Therefore it is imperative that property owners insist on a guarantor company instead of a personal guarantor like a family member or boss.

However, the agreement usually stipulates that the guarantor company must be contacted within 10 to 40 days of rent truancy, depending on the contract. While the company will still reimburse you for your losses, they will not cover for any period missed before the notification period.
 
Therefore, for international property owners that live outside Japan or often travel outside Japan, the combination of a management and guarantor company might be the safest set-up. The management company will regularly check rental payments, respond to enquiries from the tenant and immediately communicate with the guarantor company in case of truancy, while sparing landlords the headache and cost of a court case.

By Mareike Dornhege

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