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Tuesday, Sep. 4, 2012

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Risky business: Oidashiya (force out) agreements help landlords seeking to rent out superannuated apartments, similar to this one, to vulnerable tenants by ensuring that the tenants only have the right to the key to apartments. PHILIP BRASOR

HOME TRUTHS

Who can guarantee you'll get your dream apartment?


By PHILIP BRASOR and MASAKO TSUBUKU

A common fixture of Japanese financial life is the hoshōnin, or guarantor. This person, known as a cosigner in North America, is legally required to fulfil the pledge on a contract or promissory note if the principal signer defaults or is delinquent in paying.

Cosigners are required when the signer is not considered a good risk, either because he/she is young and has yet to establish a credit history, or has a bad credit history. In Japan, hoshōnin are required for most types of contracts regardless of credit history, but they are especially important for housing rental agreements.

Traditionally, rental guarantors are relatives, usually parents, because it is assumed family will always support family. Though not necessarily backed by empirical evidence, this credo is so deeply embedded in the housing rental system that parents are required to be guarantors by landlords even if the parents are not themselves financially secure. Some years ago we attempted to rent an apartment in Tokyo and a friend who owned a listed company agreed to be our guarantor, but the landlord did not accept this person, insisting instead on a parent. However, the only parent — actually, a step-parent — who fitted the bill in our case made only half the annual salary we made. Nevertheless, the landlord accepted him.

As with many traditions, the parent-as-guarantor model has been affected by the economic recession as more renters are deemed to be risks due to their insecure employment. Since the mid-1990s, companies have increasingly been hiring people as either temporary or contract workers, which means their positions are not stable.

Traditionally, workers buy their first homes when they are in their 30s or 40s, but increasingly they can't afford to do so and are continuing to rent into their middle age and beyond, when it becomes difficult to secure acceptable guarantors. Consequently, more landlords these days are demanding that prospective tenants secure the services of a yachin saimu hoshō gaisha (rental-guarantee company). These firms act as guarantors for a fee paid by the tenant. Normally, the fee is paid whenever a rental agreement is signed and can be anywhere from half to a full month's rent, or even more. Some of these companies are associated with realtors, which means they operate as tenant-management services.

Around the turn of the century the number of rental-guarantee companies increased rapidly as landlords came to see their advantage in a shaky economy. But as the recession deepened after the subprime crisis of 2007, many found it difficult to stay in business. Tenants lost their jobs and were unable to pay rent, so the companies that guaranteed them had to pay up. Many went bankrupt, and as a result the companies that remained in business have themselves started demanding that the tenants they guarantee come up with their own guarantors. This situation places prospective tenants in a double bind: They are required by landlords to secure the services of guarantor companies (in addition to a conventional family guarantor, in many cases) which, in turn, require they come up with individual guarantors.

The impact is significant, since guarantor companies, which are not regulated, are often the only recourse for certain types of renters. As mentioned above, older renters may not have access to family guarantors since it's likely their parents are dead or retired, and many landlords don't accept guarantors on fixed incomes. Persons on public assistance are even more vulnerable, since one of the conditions for receiving welfare is that the applicant's family cannot support him or her. If such a person has no recourse to financial help from relatives it follows that he or she has no acceptable guarantor to cosign a rental agreement.

Another at-risk demographic is foreigners, who if they are not married to Japanese nationals have no relatives to act as guarantors. Many foreigners who rent do so through their employers, but if they are not regular full-time workers they have to come up with their own guarantors, and guarantor companies are their only solution. Then there are also people who are estranged from their families for personal reasons, meaning relatives will not agree to cosign.

This situation has given rise to a practice called oidashiya. "Oidashi" means to "force out" or evict. Some guarantor companies effectively manage properties on behalf of landlords. In their guarantee contracts with tenants, it is stated that the tenant only has a right to a key to an apartment, like a hotel. This provides the guarantor company, and in turn the landlord, with a loophole that allows them to lock the tenant out for non-payment of rent. Under normal contracts the law protects renters and thus a landlord has to take tenants to court to kick them out. But an oidashiya agreement allows the guarantor to change the lock if a tenant is late with his rent, even if it's only a few days. According to a recent report on NHK, the number of oidashiya disputes has increased greatly since 2008. The Diet drafted a bill that would make the practice illegal, but it died while waiting to be debated by the Lower House.

Oidashiya victims are typically poor. Guarantor companies prey on low-income, high-risk individuals who cannot secure housing any other way because of their lack of guarantors. They charge tenants for their services but serve landlords by acting as their muscle. The practice also helps landlords to fill residences that are difficult to rent out under normal circumstances because they are old and in disrepair. Poor people are desperate — and disposable. Turnover at oidashiya residences is high, and that's the intention because every time a new tenant moves in the guarantor company extracts a fee. The landlord doesn't even have to solicit tenants. Guarantor companies do it for them.

Last year, the same group of lawyers who helped implement the so-called anti-sarakin (anti-moneylender) law that limits the amount of interest consumer-loan companies can charge said they would tackle the guarantor issue. Credit-related laws in the Civil Code haven't been revised for 100 years. However, in terms of rentals, the guarantor system is less of an influence than the government's overall housing policy, which does not consider shelter a basic human need.

Housing policy has only one narrow aim: to promote not just home ownership, but new home ownership. That policy will have to be addressed as the population shrinks and a smaller portion can afford new homes. Landlords have reacted to the shrinking market by doing away with supplemental fees such as gift money and security deposits, but guarantors remain a requirement. That's because the number of low-income renters is rising, and unless local governments provide more public housing for them they will be at the mercy of the unrestricted private sector. Waiting lists for low-income public housing are already long, but in any case even public-housing-applicants require guarantors.


Other useful notes on Japan's guarantors

• The semi-public housing corporation UR does not require guarantors for its rental units.

• Some landlords prefer welfare recipients since local government is effectively the guarantor. However, other landlords don't accept them since it's possible they may find work and get off welfare. Elderly welfare recipients are even more problematic: they will always be on public assistance, but they could also die at any time.

• The National Consumer Affairs Center of Japan has reported a tenfold increase in the number of complaints regarding guarantor companies in the last five years.

• An association of guarantor companies has compiled a list of people who have been delinquent on rent in the past for the benefit of landlords. In response, the Tokyo Shakuchi Shakuyanin Kumiai Rengokai, an advisory service for renters, has suggested a list of landlords who maintain sub-standard properties.

• Some credit-card companies, such as Orico, act as guarantors in exchange for a 2 to 3 percent surcharge on rent that is added to the tenant's monthly statement.


Philip Brasor and Masako Tsubuku blog about Japanese housing at www.catforehead.wordpress.com.


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