Shakeup in tenant terms

A shock wave hit the real estate industry when the Kyoto District Court ruled July 23 that an apartment tenant did not have to pay a fee to renew his lease, a fee landlords levy on average every two to three years.

This “koshin-ryo” charge demanded by landlords is an old custom in many parts of Japan. Many foreigners are surprised when asked to pay it because this custom does not exist in their home countries.

While real estate agencies try to play down the impact of the ruling because it does not automatically apply to all similar disputes, lawyers believe this will set a precedent for renters to refuse to pay landlords a fee they regard as over the top.

“I will use the ruling the Kyoto District Court handed down,” said Kyohei Niitsu, a lawyer at Niitsu Legal Visa Office in Tokyo. The firm specializes in advising foreigners.

“I will notify my clients who don’t know this, tell them they may not have to pay renewal fees and negotiate with their real estate agencies for them,” he said.

The renewal fee real estate agencies charge varies by prefecture. A survey by the Land, Infrastructure, Transport and Tourism Ministry found that 65 percent of real estate agencies in Tokyo charge an average of one month’s rent in renewal fees, while 90.1 percent in Kanagawa Prefecture charge 0.8 month’s rent and 55.1 percent in Kyoto Prefecture charge 1.4 month’s rent.

Many foreigners are not used to paying a renewal fee, let alone the other uniquely Japanese custom of “reikin” (“key money”) that’s paid when a renter moves in.

“Lots of my clients say it is ridiculous for landlords to charge a large lump sum (for key money and renewal fees), which is nonsense to foreigners,” said Edmond Courtroul, a lawyer registered in Texas who mainly deals with commercial clients rather than individuals. “Now the ruling is precedent, so they should take (renewal fees) out of contract.”

The survey by the land ministry found that half of the real estate agencies that responded claimed they charge the renewal fees and key money simply because it is a long-standing custom.

To be sure, in addition to the key money and renewal fees, many real estate agencies collect a deposit, typically worth one to four months’ rent, as insurance against a renter’s suddenly bolting without paying.

Landlords typically keep all the key money but split the renewal fee with the real estate agency.