How can you deal with the tenant’s request to decrease the rent of your building in Japan?

The rate of rent changes by various reasons; e.g., change of economic circumstances. Therefore, it is common for a lender and a lessee to discuss reasonable rent and change it on a regular basis. However, in some cases, a lender and a tenant does not discuss rent change for a long time and the rent becomes far apart from the rate. If the rent becomes unreasonably high for such reasons, a tenant may request decrease in the amount of the rent to the lender (Act on Land and Building Leases Article 32 (1)).

Even if a lender has received request to decrease the rent, the lender can request payment of the rent in an amount that is deemed to be reasonable until a judgement is made. If the tenant insists to pay decreased rent, the lender can claim to the tenant to pay the rent prescribed on the lease agreement (Act on Land and Building Leases Article 32 (3)).

When a request for decreasing the rent is made, it is common that the lender and the tenant negotiate on the amount of the rent. If they cannot reach agreement, the tenant may file a petition for conciliation to a summary court, and file a lawsuit to a district court after conciliation. If a judge gives judgement to decrease the rent, the lender should return the amount of the excess of the rent. Besides that, the lender should pay 10% interest to the amount of repayment (Act on Land and Building Leases Article 32 (3)).

Considering the risk of repayment and 10% interest as above, it is important for a lender to consult a specialist to appraise the proper rent and work out a strategy to deal with the tenant’s request.

*Act on Land and Building Leases
(Right to Request Increase or Decrease in Rent)
Article 32: (1) When the building rent becomes unreasonable, as a result of the increase or decrease in tax and other burden relating to the land or the buildings, as a result of the rise or fall of land or building prices or fluctuations in other economic circumstances, or in comparison to the rents on similar buildings in the vicinity, the parties may, notwithstanding the contract conditions, request future increases or decreases in the amount of the building rent; provided, however, when special provisions exist to the effect that building rent shall not be increased for a fixed period, those provisions shall apply.
(2) If no agreement may be reached between the parties regarding the increase in the amount of the building rent, until the judicial decision on establishing the increased amount as valid becomes final and binding, it shall be sufficient for the party which has received that request to pay the building rent in an amount that is deemed to be reasonable; provided, however, that when said judicial decision becomes final and binding, if the amount that has already been paid is insufficient, the amount of the shortfall shall be paid with the addition of interest on late payments at the rate of ten percent per year.
(3) If no agreement may be reached between the parties regarding the decrease in the amount of the building rent, until the judicial decision on establishing the decreased amount as valid becomes final and binding, it shall be sufficient for the party which has received that request to request payment of the building rent in an amount that is deemed to be reasonable; provided, however, that when said judicial decision becomes final and binding, if the amount that has already been paid exceeds the building rent amount found to be valid, the amount of the excess shall be returned with the addition of interest at the rate of ten percent per year from the time the payment was received.