New law to guarantee the guarantor pays

BY PHILIP BRASOR AND MASAKO TSUBUKU

JUL 2, 2017

[The Japan Times] Until the postwar growth period, the majority of Japanese rented rather than owned the places where they lived, but renters in Japan have never had much in the way of rights. Still, it is difficult to evict someone from a home they rent, even when they’ve been delinquent with payments. The Leased Land and House Lease Act essentially requires a landlord to go to court to carry out an eviction, which can be costly in both time and money, even when a tenant is clearly at fault.

It is also illegal for a landlord to change the locks or use force in order to remove a tenant, and if a landlord does either of these things, the tenant can demand compensation. Most courts prefer that landlords and tenants work things out through negotiation, and rarely grant evictions for payment delinquencies of less than four months.

Nevertheless, most standard rental agreements say that the contract is void if a tenant is delinquent with payment for two months, thus implying that they are subject to eviction. Government statistics reveal that the vast majority of renters are prompt with their payments. According to a 2016 nationwide survey by the Japan Rental Property Management Association, 6.9 percent of tenants had been late with their payments at least once during the year, but only 2.7 percent had not paid rent a month after it was due, thus indicating that the other 4.2 percent had paid in the meantime. Only 1.6 percent of tenants had been delinquent for two months or more during the year.

For the most part, renters in Japan hold up their end of the bargain, an important consideration since it’s likely that a higher percentage of people will be renting in the future if the economy remains stagnant. Consequently, the government has started making relevant changes, the first since the Civil Code was implemented 120 years ago.

On April 12, the Lower House Judicial Affairs Committee approved a bill that will amend regulations regarding contracts and debts. In terms of property rentals, the new regulations cover four important points: security deposits, guarantors, rental properties for businesses and the landlord’s obligation to answer inquiries.

For average renters, the first two points are the most relevant. Security deposits (shikikin) have never been clearly regulated in the law. Ostensibly, they are collected by landlords in case the tenant is delinquent with a payment, but in most cases they are also used as “cleaning” or “damage” deposits. When the tenant moves out, the landlord may use part or all of the deposit to carry out repairs and return the property to its “original condition.” These terms are stipulated in the rental agreement, and in many cases the deposit will be used by the landlord to pay for repairs of normal wear-and-tear. In Europe and the United States, normal wear-and-tear is the responsibility of landlords, who are required to maintain their properties.

The new law clarifies that when tenants move out, they should receive the full amount of their deposits unless they have caused damage to the property that cannot be considered normal wear-and-tear. In other words, the landlord cannot demand that the tenant return the property to the condition it was in when the tenant moved into it. A May 26 article in the Sankei Shimbun says, however, that it will not be illegal for a landlord to include such a clause in the rental agreement, so it is up to the tenant to read the agreement and if they find such a condition they should clarify its meaning before signing it.

The new regulations will also clarify practices involving guarantors by distinguishing between regular guarantors (hoshōnin) and joint guarantors (rentai hoshōnin). Landlords demand that tenants have guarantors in the event that the tenants cannot pay their rent. However, legally it is very difficult for landlords to compel a regular guarantor to pay in the event of a delinquency, which is why landlords typically demand that guarantors be close relatives.

Joint guarantors, however, are as legally obligated to pay the debt of the parties to a contract as the parties themselves, and the new law stipulates that if a rental agreement states the need for a joint guarantor, then the agreement must also stipulate the maximum amount of money for which the guarantor is liable. If a maximum amount is not stipulated in the rental agreement, then the joint guarantor term is invalid.

On the surface, the new guarantor rule would seem to benefit the landlord, since it substantiates the legal claim to demand payment from the guarantor in the event the tenant can’t or won’t pay their rent, but it also may make contract transactions more difficult. Fewer people will agree to become guarantors if they really believe they could be sued for non-payment of rent. In practice, what the new law may lead to is more work for guarantor companies, which charge tenants to be their guarantors, thus making renting more expensive. Many landlords already require their tenants to hire guarantor companies.

All these new rules, which are supposed to take effect sometime in the next three years, may also help unify rental practices nationwide. For the most part, they differ from one region to another. In western Japan, for instance, security deposits are handled differently than they are in eastern Japan in that a certain amount is automatically deducted when the tenant moves out. How this “custom” will change when the new rules are enforced isn’t really clear yet.