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Thursday, Oct. 12, 2000

New law means marching orders for bad tenants

Empowering of landlords with fixed-time leases may make better housing available


Staff writer

Motokazu Miyama's big fear is one probably shared by hundreds of thousands of other property-owners in Japan: What if unwelcome tenants refuse to leave after the apartment lease expires?

The 56-year-old apartment owner's concern is not completely unfounded. Unlike in the West, where written contracts are legally binding, house lease contracts are not taken literally in Japan due to a decades-old law that protects the rights of tenants. A tenant can resist an owner's eviction notice when the contract expires.

But when Miyama recently rebuilt his eight-unit studio apartment building in Tokyo's Setagaya Ward, he utilized a new law that came into effect in March and reinforces the rights of property owners to sign contracts with future tenants that require them to pack up and leave if he asks them to when the leases expire in four years.

"I don't mean to kick everybody out in four years," Miyama said. "I'd rather have a good tenant stay as long as possible, but problems with tenants have long been the biggest headache for landlords."

The new scheme, known as Teiki Shakuya Seido, or fixed-time house lease system, gives an owner the right to enforce the expiry of a contract. Seven months after its introduction, the law has begun to attract the attention of property owners, housing developers and tenants.

The new system coexists with the old one, in which tenants have, in many cases, the right to stay after their lease expires.

Behind this seemingly contradictory situation is a legal revision made in 1941 to a 1921 housing lease law. Designed to protect the families of men fighting in wars abroad, the law allowed tenants to stay in rental properties for an indefinite period unless there was "fair reason" to evict them. The standard for eviction is unclear and can be defined only by court judges on a case-by-case basis.

Under the existing Leased Land and House Lease Act, which retains the spirit of the 1941 revision, owners must go to court if a tenant refuses to leave upon the expiry of a lease unless the tenant is clearly at fault -- by failing to pay rent, for example. Even when a judge acknowledges that there is "fair reason" for eviction, owners may have to pay as much as 5 million yen per tenant in compensation.

The system, while having served its purpose of protecting the rights of powerless tenants during and immediately after World War II, has contributed to aggravating living conditions in Japan, argues Takao Sano, spokesman for Mitsui Home Co., a major housing developer.

"When (foreigners) used to mock Japanese houses as 'rabbit hutches,' they were talking about rental housing," Sano said. "The biggest reason (for small housing) is that owners are reluctant to rent large properties for fear that trouble-making tenants will occupy their buildings for good."

Thus, owners have been motivated to offer only small, one-room apartments targeted at single workers and students, assuming they will leave within several years.

Management and Coordination Agency statistics bear this trend out. The average size of rental housing has changed little over the past 30 years, from 35.46 sq. meters in 1968 to 43.78 sq. meters in 1998. In the same period, however, the figure for owner-occupied housing grew from 85.36 sq. meters to 119.97 sq. meters -- a level comparable to the average size of that in the U.K. and France.

With the introduction of the fixed-time lease law in March, however, both owners and tenants can now choose between traditional contracts and fixed-time contracts.

The law was drafted with the intention of encouraging more people to build rental properties as a means of investment and to spur competition in the business to make better, more diverse rental properties available.

Recruit Co., which publishes the weekly rental housing information magazine Shukan Jutaku Joho, recently compiled a survey showing that owners of some 2,300 housing units, or about 3 percent of all rental properties listed in the magazine as of June, offered fixed-time leases. The poll covered the Tokyo metropolitan area.

The survey also shows that the percentage of fixed-time leases was higher -- at 26.5 percent -- among detached houses as opposed to apartments or condominiums.

In many of these cases, salaried workers with houses in the suburbs were offering to lease their homes after being notified of a transfer to other cities for a few years, said Hirofumi Kunita, the magazine's editor.

He also said that owners of two houses or more are increasingly opening up their vacant properties for lease -- something that would have been difficult under the traditional lease law.

Masaaki Sugiyama is one such homeowner. The 40-year-old, who works in the financial industry in Shinjuku, Tokyo, had already bought a house in Saitama Prefecture when his father passed away a couple of years ago, leaving behind a vacant 100 sq.-meter-plus house in Abiko, Chiba Prefecture. Sugiyama could not sell off the property right away, because he jointly inherited it with his mother, who is now in hospital care.

"I needed to find someone to lease the house until when maybe (my mother passes away and) I can sell it," Sugiyama said. "But I found that, under the traditional law, you have no guarantee that the tenant would leave at the end of the lease."

He asked a firm specializing in relocation support services to look for an occupant, and through the firm, rented the Abiko house to a five-member family on a fixed two-year lease in August.

"I'm happy with the new scheme so far," Sugiyama said, adding that the arrangement helps him keep the house in good condition, as well as earning him extra income.

But if the new lease law is so convenient, why is it not used more often? While it is too early to judge whether it is a success or a failure, some experts say there are several factors hindering the proliferation of fixed-time leases in Japan.

Kazuyuki Tone, a researcher for the Shinkin Central Bank Research Institute, points out that a clause in the fixed-time lease law prohibits owners from canceling ongoing leases with tenants and changing to fixed-time leases. Although landlords can sign a fixed-time lease with a new tenant, many think it troublesome to differentiate in the same housing complex between new tenants and old tenants, who are still on more traditional contracts, he said.

With a newly built rental housing facility, this kind of hassle is avoided. But in the long-depressed market for rental properties, few people are interested in building new rental homes, Tone said.

Banks are also dragging their feet on financing the needs of would-be landlords to build new rental properties.

Many banks are still experiencing post-bubble hangovers, Tone said. During the asset-inflated bubble economy of the late 1980s, banks engaged in a furious loan-selling race, soliciting wealthy individuals to build rental properties for investment. After the bubble burst, many of these loans turned sour, Tone said.

Kunita of Recruit Co. said the merits of a fixed-time lease must become more visible to entice tenants. If the new law becomes more popular, it will revitalize the depressed market, promoting competition and helping improve the quality of rental housing, Kunita said.

There is a glimmer of hope. Landlord Miyama said he has made sure his new apartments are attractive to tenants by providing a clothes dryer and a multifunctional toilet, while keeping the rent within the market range.

He made the improvements because he was concerned fixed-time leases might be less competitive than traditional lease contracts from the tenants' point of view.

"Owners need to change their mind-set as well," Miyama said. "If owners want to hold on to good customers, they must compete by upgrading the facilities."



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