Renting in Japan: Do I really have to pay a lease renewal fee?

This article is part of our series on “How to live in a Japanese apartment“. In this installment, we discuss the sometimes unpleasant issue of the lease renewal fee. It may seem perverse to have to pay a fee to continue leasing out a place where you’ve been a model tenant for years. So, do you really have to pay a lease renewal fee when your lease expires?

What is a rental lease renewal fee?

A lease renewal fee (更新料, koushin ryou) is a fee that is sometimes included in a rental contract in Japan, which obligates the tenant to pay a fee in order to extend (renew) the leasing agreement. Regular rental leases in Japan have a two-year term, after which time, you have the option to renew your lease.

As we’ll discuss below, lease renewal fees are very common in certain parts of Japan, but one thing to be aware of is that there is no law saying that they have to be a standard part of a rental contract. In fact, the sample residential lease agreement available on the Ministry of Land, Infrastructure, Transport and Tourism (MLIT)’s website does not include a lease renewal fee as a standard clause.

However, it’s also important to note that once you sign a contract stating that a lease renewal fee is required, you are legally bound by it. If you think that you might want to stay in your apartment for longer than two years, try to negotiate with the landlord before you sign the contract to have the lease renewal fee removed.

Are there really areas of Japan where it’s uncommon to be charged a lease renewal fee?

Whether or not a lease renewal fee is included in a lease contract is fundamentally up to the landlord or property management company, but there are some regional tendencies to be aware of.

About ten years ago, the MLIT conducted a survey to gauge the condition of the residential rental apartment market nationwide, and although the data is a bit outdated, it is actually still reflective of market conditions today. In the survey, property management companies were asked 1) whether they collected a lease renewal fee on properties under contract in the past year and 2) how much (as a multiple of the monthly rent) they charged as a renewal fee.

One data point that stands out is that companies in Osaka and Hyogo prefectures, did not charge a lease renewal fee at all. Today, it is still common for landlords in Osaka and Kobe not to charge a lease renewal fee. In these cities, it is more common for landlords to charge  much higher multiples in non-refundable key money than is found in Tokyo. Key money is a gratuity paid upfront to the landlord, as part of the move-in costs, and will not be returned to you.

In Tokyo, the average lease renewal fee is one month, while in Kanagawa (where Yokohama, Kawasaki, Sagamihara, and Yokosuka are located), the average renewal fee is only about eighty percent of one month’s rent.

For more on the regional differences in lease renewal fees, please see the chart below:

Rental lease renewal fees in Japan from the 2007 MLIT survey on “Private Sector Residential Leased Housing”

Why do landlords charge a lease renewal fee?

One generally accepted explanation for why landlords charge a lease renewal fee is that it is actually a lump sum payment of additional rent that they would otherwise charge on a monthly basis. By charging a lease renewal fee every two years, they are able to keep the advertised monthly rent one-twenty fourth (1/24) lower than it would otherwise be (if, for example, the lease renewal fee is equal to one month’s rent and the lease term is two years).

So, do I really have to pay the lease renewal fee stated in my contract?

If you signed a lease contract with a stated lease renewal fee, then yes, you really have to pay it.

In a case decided by the Supreme Court of Japan on July 15, 2011, it was held that in a lease contract, the stated requirement to pay a lease renewal fee itself is valid. Landlords can charge a lease renewal fee, but it’s up to you whether, as a tenant, you are willing to sign a contract with a lease renewal fee.

In other words, if you agree to a lease renewal fee at the time you sign the contract, you are bound to it. If you do not wish to pay a renewal fee (but signed a lease saying that you would), you have the option of giving the landlord one month’s notice and terminating the lease.

You may also be interested in: How to avoid hidden costs when renting an apartment in Japan