The Japanese government is planning to revise its law on condominiums—Act No. 69 of 1962: “Law Concerning Sectional Ownership of Buildings” (Japanese)—to make it easier for homeowners’ associations to gain approval for large-scale renovations of buildings.
There are hundreds of buildings throughout the country that need to be renovated, but the current legal framework deters an efficient and straightforward approval process. The projected legal amendments would lower the minimum approval threshold for large-scale repair plans, institute a continuous proxy system for non-resident owners and enable a court-appointed representative to decide for condo owners who cannot be located.
The Legislative Council of the Ministry of Justice issued its recommendations for amending the law on June 8, and a public comment period will begin next month—with the goal of passing the revised law in 2024.
The Price of Repairs
Typically, condominium buildings must undergo large-scale repairs at least once every 30 years, and well-managed buildings tend to be repaired regularly every 12 to 14 years. As of the end of 2021, there were nearly 2.5 million condominium buildings at least 30 years old in Japan, and in the next 20 years, this number is set to reach almost six million. It is estimated that with regular repairs (and ignoring earthquake risk), most buildings can remain structurally viable for 120 years or more.
When buying a condominium, one of the first questions most people ask concerns the building repair reserve. Due to the surging cost of construction materials and labor over the last 10 years, it is rare to find a repair reserve that doesn’t need to be topped up by owners before a large-scale renovation can be carried out—on average major repairs usually cost in the ¥750,000 to ¥1,000,000 range per condo unit. Nevertheless, even for buildings with sufficient repair reserves, there can be other important risks when buying a condominium here.
Renovation Plans and Challenges
Many buildings around Japan are in disrepair because a large-scale renovation plan failed to be approved at the homeowners’ association meeting. Under current law, both (1) a minimum of 75% of all owners and (2) a minimum of 75% of total ownership in the building must approve any large-scale repair plan. This means generally that, if 26% of all owners don’t show up, or if residents owning at least 26% of the total private area of the building don’t show up, the plan can’t be approved.
Nevertheless, according to a recent survey of the Ministry of Land, Infrastructure, Transport and Tourism, nearly 30% of all condo buildings average less than 70% attendance at their homeowners’ association meetings. Consequently, if you buy into the wrong building, you may, for example, have to put up with water leaks in your building’s common areas since owners not in attendance are deemed to vote against any repair plan.
Changing The Status Quo
There are several ideas for changing the status quo being considered. The easiest idea envisions changing the minimum 75% threshold to pass a large-scale repair resolution to 66% or even to a simple majority. Another idea, however, separate from lowering the 75% approval requirement, is repealing the necessity of approval of at least 75% of all ownership interests in the building.
In this case, it may be possible for owners merely attending the meeting to pass a valid resolution. This means that in the future, depending on the contents of the building management rules, it may even become possible for a simple majority attending a meeting to pass a large-scale renovation plan. All of this points to it becoming more likely after next year for important condominium resolutions to be passed without everyone’s input.
As an unsuspecting owner, in the future, you may suddenly find you must pay for a major repair plan you didn’t vote on or have to top up the repair reserve when you least expect it. Without question, reading the building management rules carefully before purchasing your condominium will take on more importance once the law is changed.
Jeff Wynkoop is a fully bilingual certified real estate broker with over 15 years of experience working in the Japanese real estate business. He is a U.S. attorney (Washington), U.S. CPA (Delaware), U.S. CCIM, ARES Japan Master and author of “Legal Issues in Japanese Real Estate Investment.” Please feel free to contact him for real estate brokerage and consulting at firstname.lastname@example.org.