Property Management

What Happens When a Tenant is Delinquent With Rent in Japan?

By Erik Oskamp

In general, Japanese renters pay their rent on time, but if they don’t pay, it can be difficult to collect. As a landlord, what are your options?

Legal Procedures

When a renter stops paying their rent, nominally, as a landlord, you have no choice but to go to court.

If you do not speak Japanese, live outside the country or don’t have time to handle the procedures yourself, you will have to hire a lawyer. Retainer fees start at ¥250,000. Renters, in general, just have to show up to court at no cost.

A court will only take a case into consideration if the rent is at least 3 months late.

Then the paperwork starts. Every month there is a court session, there is the potential for more delay. The tenant can promise to pay and get an extra month. He can throw in a spurious counter claim, for example, about a maintenance issue. He can ask for mediation. As long as the renter shows up it takes about 4-6 months for the court to issue an eviction notice. If the renter uses delay tactics, this can last 9-12 months. If you or your lawyer make a bureaucratic mistake, you will likely have to start your case from scratch. And if you have harassed the renter, for example, by changing locks or cutting off utilities, you will probably lose.

The Eviction Process

But even if the court issues an eviction notice, it doesn’t mean that the tenant will be forced to immediately vacate the property.

First, a court-appointed negotiator will contact the renter to discuss the eviction procedure. If the renter doesn’t cooperate, the negotiator will hire a court-appointed locksmith to open the door to take stock of the inventory. Once that is done, a court appointed-moving company has to be hired. This whole process takes another 2 months or so.

On eviction day, over a dozen people will all come to execute the actual eviction. The inventory then has to be stored by a court-appointed storage company that you, as the property owner, must pay for. The landlord will not have access to the inventory for another month or two, until it is officially declared abandoned. You can then either pick it up yourself or have it discarded. You cannot see the contents before making that decision, so you cannot have any idea if there is anything valuable. The entire eviction process usually costs about ¥500,000.

In short, in Japan, the average eviction takes a year and will cost close to ¥1 million. It is also almost impossible to retrieve anything from the tenant. The conclusion: as a landlord, you should only use the courts as a last resort.

Guarantor Companies

The difficulty of dealing with a delinquent tenant in the courts is a major reason why landlords require renters to be backed by a guarantor company.

For about half a month’s rent, a guarantor company will take on the risk that a renter will not pay their rent. If the renter defaults, the guarantor company will pay out the rent to the landlord and then will try to collect it from the renter.

Guarantor companies are essentially collection agencies.

Before accepting a renter, a guarantor company will check the tenant’s credit rating. As there is no proper national standardized credit scoring system in Japan, such a credit check cannot be made by the landlord. People without steady jobs, foreigners, entrepreneurs and seniors are sometimes rejected. But if the tenant is not taken on by a guarantor company, a landlord will take the risk of having to deal with the court system.

Collection

However, many renters are backed by a guarantor company, and when a renter is delinquent with rent, we (as a property management company) just contact the guarantor company. This has to be done within 10 days or so, otherwise the guarantor company will not accept the claim.

But if the renter does not have a guarantor, we will first contact them by phone. If he is apologetic and really doesn’t have the money, we will offer a payment plan or less expensive apartment.

However, if the renter is actually trying to avoid paying the rent, we will call relatives, emergency contacts and if possible, their workplace. If that doesn’t lead to a reasonable discussion, we will knock on the door and leave a notice. Officially, you are not allowed to leave a notice in public, but sometimes, people can be shamed into paying, if a letter is left sticking out of the mailbox for others to see.

It is not legal to change locks, shut off utilities or force entry into the property.

However, as a landlord, you may call the local police station to say that you have not heard from the renter in some time, and a police officer may accompany you to open the door in his or her presence.

If the tenant has vacated the apartment, you will not be able to recover the delinquent rent, but you can least avoid the cumbersome eviction process. If the tenant is still living in the property a court ordered eviction will be your only option as a landlord.

Erik Oskamp

Erik Oskamp came to Japan in 2004 and applied for a mortgage the first day. Within 2 months of research he bought his first property in Tokyo, a 3-bedroom house in Shirokane. By 2005 he bought his first investment property. During this process Mr. Oskamp encountered a lack of transparency in the Japanese real estate market and so proceeded to build computer models to assist with the statistical analysis. By 2006 he was able to realize his first capital gains with a 60% profit on the house in Shirokane.

This encouraged him to take a more serious look at real estate. When many friends and colleagues started asking for information he realized the need for a real estate agency specialized in helping foreigners dealing with the Japanese market.

He started Akasaka Real Estate in September 2007. He took advantage of the financial crisis by purchasing more properties in the dark days of early 2009. By 2010 many investors started following this strategy.

Before Mr. Oskamp started Akasaka Real Estate he spent over 15 years working in finance for companies such as Credit Suisse, Citibank, UBS and Barclays in New York, London and Tokyo, as well as his native Amsterdam. In his last position at Barclays he was working as a quantitative analyst, modeling the yen yield curve for swap traders.

Mr. Oskamp divides his time between Manila and Tokyo and has five daughters. He currently owns 24 properties in Japan, but rents the apartment he lives in. In his rare free time you might find him at the beach with his daughters or enjoying traveling.

Akasaka Real Estate

Akasaka Real Estate focuses on helping foreigners buy property in Tokyo, including both primary residences and investment properties. Other services include property management, help with obtaining financing, and organizing renovations.

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  • Matt Brian

    Interesting article. Is this still the case? “A court will only take a case into consideration if the rent is at least 3 months late.” – so in the middle of a contract if a tenant is not working and doesn’t/can’t pay his rent, I have no recourse but to wait 3 months until I can file with the courts?