Solutions of Legal Dispute on Real Estate

If the buyer of the real estate does not pay the sale price by the due date prescribed in the sale and purchase agreement, the seller may cancel the sale and purchase agreement based on the breach by the buyer (Civil Code Article 541).

If the seller intends to cancel the contract based on the delay of the sale price payment, the seller should demand payment of the sale price specifying a reasonable period of time (usually around 7 days) before cancellation. If the buyer does not pay the sale price during that period, the seller can cancel the contract (Civil Code Article 541). In order to put the cancellation into practice as soon as possible, it would be useful for the seller to demand payment and manifest conditional intention in the same notice. The notice should be sent by contents-certified mail with delivery certification by Japan Post as evidence of the contents and the date of the notice.

The seller can claim for damages against the buyer in accordance with the provisions of the contract. It is common to prescribe that the seller can claim liquidated damages when the seller cancels the agreement.

As a sale and purchase agreement is a bilateral contract, the buyer may refuse to perform its obligation of paying the sale price until the seller tenders the performance of its obligation (Civil Code Article 533). The seller should arrange preliminaries to transfer the real estate to the buyer before manifesting intention of cancellation of the contract (Civil Code Article 492).

The seller can file a lawsuit against the buyer seeking payment of the sale price if the buyer does not pay by the due date. A petition for an order for a provisional seizure with regard to the buyer’s bank account may be efficient to secure the payment (Civil Provisional Remedies Act Article 20 (1)).

*Civil Code
(Exercise of Right to Cancel)
Article 540: (1) If one of the parties has the right to cancel pursuant to the provisions of the contract or the law, the cancellation is effected by manifestation of intention to the other party.
(2) The manifestation of intention referred to in the preceding paragraph may not be revoked.

(Cancellation After Demand)
Article 541: If one of the parties does not perform that party’s obligation, and the other party demands performance of that obligation, specifying a reasonable period of time, but no performance is completed during that period, the other party may cancel the contract; provided, however, that this does not apply if the non-performance of the obligations upon the passage of the period is minor in light of the contract and the common sense in the transaction.

(Defense of Simultaneous Performance)
Article 533: A party to a bilateral contract may refuse to perform that party’s own obligation until the other party tenders the performance of that other party’s obligation (including the performance of an obligation to compensate for loss or damage in lieu of the performance of an obligation); provided, however, that this does not apply if the obligation of the other party is not yet due.

(Effect of Tender of Performances)
Article 492: Upon tendering the performance, the obligor is relieved from any and all responsibilities which may arise from the non-performance of the obligation.

*Civil Provisional Remedies Act Article 20 (1): An order for provisional seizure may be issued when it is likely that a compulsory execution regarding a claim for payment of money will not be possible, or will result in the occurrence of significant difficulties.

If the seller of the real estate does not transfer the real estate by the due date prescribed in the sale and purchase agreement despite the buyer’s observance of the agreement, the buyer may cancel the sale and purchase agreement based on the breach by the seller (Civil Code Article 541).

If the buyer intends to cancel the contract based on the delay of the transference by the seller, the buyer should demand transference of the real estate specifying a reasonable period of time before cancellation. If the seller does not transfer the real estate during that period, the buyer can cancel the contract (Civil Code Article 541). In order to put the cancellation into practice as soon as possible, it would be useful for the buyer to demand transference and manifest conditional intention in the same notice. The notice should be sent by contents-certified mail with delivery certification by Japan Post as evidence of the contents and the date of the notice.

The buyer can claim for damages against the seller in accordance with the provisions of the contract. It is common to prescribe that the buyer can claim liquidated damages when the buyer cancels the agreement.

As a sale and purchase agreement is a bilateral contract, the seller may refuse to perform its obligation of transferring the real estate until the buyer tenders the performance of its obligation (Civil Code Article 533). The buyer should arrange preliminaries to pay the sale price to the seller before manifesting intention of cancellation of the contract (Civil Code Article 492).

The buyer can file a lawsuit against the seller seeking transference of the real estate if the seller does not transfer it by the due date. A petition for an order for a provisional seizure with regard to the real estate may be efficient to secure the transference (Civil Provisional Remedies Act Article 20 (1)).

*Civil Code
(Exercise of Right to Cancel)
Article 540: (1) If one of the parties has the right to cancel pursuant to the provisions of the contract or the law, the cancellation is effected by manifestation of intention to the other party.
(2) The manifestation of intention referred to in the preceding paragraph may not be revoked.

(Cancellation After Demand)
Article 541: If one of the parties does not perform that party’s obligation, and the other party demands performance of that obligation, specifying a reasonable period of time, but no performance is completed during that period, the other party may cancel the contract; provided, however, that this does not apply if the non-performance of the obligations upon the passage of the period is minor in light of the contract and the common sense in the transaction.

(Defense of Simultaneous Performance)
Article 533: A party to a bilateral contract may refuse to perform that party’s own obligation until the other party tenders the performance of that other party’s obligation (including the performance of an obligation to compensate for loss or damage in lieu of the performance of an obligation); provided, however, that this does not apply if the obligation of the other party is not yet due.

(Effect of Tender of Performances)
Article 492: Upon tendering the performance, the obligor is relieved from any and all responsibilities which may arise from the non-performance of the obligation.

*Civil Provisional Remedies Act Article 20 (1): An order for provisional seizure may be issued when it is likely that a compulsory execution regarding a claim for payment of money will not be possible, or will result in the occurrence of significant difficulties.

If the lessee does not pay the rent by the due date, the lessor may cancel the contract on the basis of the breach of the contract under the Civil Code (Article 541). However, significant breach that dissolve the relationship of mutual trust between the parties of the lease agreement is required to entitle a lessor to cancel the contract under case law. For example, the lessor cannot cancel the lease contract by only one delay of the rent regardless of the provisions of the lease contract. If the lessor does not pay the rent for several months, the lessor may cancel the lease agreement validly.

Check the column “How long non-payment is enough to evict the tenant?”

If the lessor cannot pay the unpaid rent at once, settlement by divided payment may be reasonable for both sides. While normal agreement validly works, there are two more ways of settle which may more reasonable for the lessor, in the event that the lessee agrees to adopt such ways.

a. Notarial Deed
If the lessor and the lessee settle by notarial deed, it is possible for the lessor to carry out compulsory execution against the lessor’s property (e.g., bank account) when the lessor breaches the provisions of the settlement without filing a lawsuit (Civil Execution Act Article 22 (v)). The lessor can save time and expenses for a lawsuit.

b. Settlement Prior to the Filing of an Action
By notarial deed, the lessor may carry out compulsory execution against the lessor’s property; however, compulsory execution of surrender (eviction) of the real estate cannot be carried out. If they file a petition for settlement with the summary court and reach a settlement (Settlement Prior to the Filing of an Action), the settlement has the same effect as a final and binding judgment and the lessor may carry out compulsory execution of surrender (eviction) without filing a lawsuit (Code of Civil Procedure Article 275 (1) and 267).

*Civil Law
(Cancellation After Demand)
Article 541 If one of the parties does not perform that party’s obligation, and the other party demands performance of that obligation, specifying a reasonable period of time, but no performance is completed during that period, the other party may cancel the contract; provided, however, that this does not apply if the non-performance of the obligations upon the passage of the period is minor in light of the contract and the common sense in the transaction.

*Civil Execution Act
(Title of Obligation)
Article 22: Compulsory execution shall be carried out based on any of the following (hereinafter referred to as the “title of obligation”):
(v) A notarial deed prepared by a notary with regard to a claim for payment of a certain amount of money or any other fungible thing or a certain amount of securities, which contains a statement to the effect that the obligor will immediately accept compulsory execution (hereinafter referred to as an “execution deed”)

*Code of Civil Procedure
(Settlement Prior to the Filing of an Action)
Article 275: (1) In a civil dispute, a party may file a petition for settlement with the summary court of jurisdiction in the locality that constitutes the general venue for an action involving the adverse party, indicating the object of the claim and providing a statement of the claims, as well as indicating the actual circumstances of the dispute.

(Effect of a Record of Settlement)
Article 267: When a settlement or a waiver or an acknowledgement of a claim is entered in the record, that entry has the same effect as a final and binding judgment.

Although some lease agreement contains clause providing that the lessor may change the key or enter the building and dispose household goods without the lessee’s consent, such actions are deemed to be an illegal self-enforcement and may become criminal acts; the lessor cannot execute such clause. It is necessary for a lessor to file a lawsuit against the lessee for termination of the lease and eviction, even if the lawsuit may take considerable time.

Check the column “How to evict the tenant from your building?“

Case018: court acknowledged the validity of cancellation based on 2 months’ non-payment but ordered the lender to compensate for damages because of an illegal self-enforcement: Judgement of the Tokyo District Court on August 31, 2007 (Case Number: 2006-WA-16068)

When the lessor files a lawsuit against the lessee for eviction and payment of unpaid rent, there are two optional procedures as below:

a. Petition for an Order of Provisional Disposition Prohibiting the Transfer of Possession
By carrying out an order of provisional disposition prohibiting the transfer of possession of the building, the owner can file an application with the court for a compulsory execution of surrender even if the lessee transfer the possession of the building to a third party (Civil Provisional Remedies Act Article 62). Without this procedure, a lawsuit may become meaningless and the lessor may need another lawsuit against new occupant of the building if the lessee transfers the possession. The order would be carried out by court execution officer by unlocking the key, entering the building, checking documents and certifying the occupants and posting a notice by the court on the wall inside the building. Such execution sometimes lets the lessee surrender the building without waiting the judgement of the lawsuit; it may be a secondary positive effect of the procedure.

b. Provisional Seizure
A petition for an order for a provisional seizure with regard to the lessee’s bank account may be efficient to secure the payment of unpaid rent (Civil Provisional Remedies Act Article 20 (1)).

*Civil Provisional Remedies Act
(Necessity, etc. of an Order of Provisional Disposition)
Article 23 : (1) An order of provisional disposition with regard to a disputed subject matter may be issued when there is a likelihood that the obligee’s exercise of its right will be impossible or extremely difficult due to any changes to the existing state of such subject matter.

(Effect of an Order of Provisional Disposition Prohibiting the Transfer of Possession)
Article 62 : (1) When an order of provisional disposition prohibiting the transfer of possession has been executed, the obligee may execute the compulsory delivery or surrender of the disputed subject matter against either of the following persons based on the title of obligation on the merits:
(i) a person who takes possession of the disputed subject matter with the knowledge that the order of provisional disposition prohibiting the transfer of possession has been executed; or
(ii) a person who succeeds the obligor’s possession of the disputed subject matter after the execution of the order of provisional disposition prohibiting the transfer of possession, without the knowledge that said order has been executed.
(2) A person who takes possession of disputed subject matter after the execution of an order of provisional disposition prohibiting the transfer of possession is presumed to have taken possession of the disputed subject matter with the knowledge that said order has been executed.

(Necessity of an Order for Provisional Seizure)
Article 20: (1) An order for provisional seizure may be issued when it is likely that a compulsory execution regarding a claim for payment of money will not be possible, or will result in the occurrence of significant difficulties.

If the rent of land lease for the purpose of building ownership or building lease become unreasonably low or high, the lessor or the lessee can request future increases or decreases in the amount of rent. The lessor or the lessee should first file a petition for conciliation. If they do not reach a settlement in the procedure of conciliation, they can file a lawsuit and the judge would make a judgement whether to increase or decrease in the amount of the rent.

Check the column “How can I request rent increase to the tenant in Japan?”
Check the column “The sequence of steps of requesting rent increase in Japan”
Check the column “How can you deal with the tenant’s request to decrease the rent of your building in Japan?”
Check the column “How can I request rent decrease to the owner in Japan?”

*Act on Land and Building Leases
(Right to Request Increase or Decrease in Land Rent, Etc.)
Article 11: (1) When rent or land rent (hereinafter referred to as “Rent, etc.” in this Article and in the following Article) become unreasonable, as a result of the increase or decrease in tax and other public dues relating to the land, as a result of the rise or fall of land prices or fluctuations in other economic circumstances, or in comparison to the Rent, etc. on similar land in the vicinity, the parties may, notwithstanding the contract conditions, request future increases or decreases in the amount of Rent, etc.; provided however, that when special provisions exist to the effect that Rent, etc. 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 Rent, etc., 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 Rent, etc. 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 Rent, etc., until the judicial decision on establishing the decreased amount as valid becomes final and binding, the party which has received that request may request payment of Rent, etc. in an amount that is deemed to be reasonable; provided, however, that when said judicial decision becomes final and binding, if the Rent, etc. that has already been paid exceeds the Rent, etc. 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.

(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.

*Civil Conciliation Act
(Conciliation Prior to Litigation in Cases in which an Increase or Decrease in Rent is Claimed)
Article 24-2: (1) A person who intends to file an action to claim an increase or decrease in the amount of rent for land as set forth in Article 11 of the Act on Land and Building Leases (Act No. 90 of 1991) or to claim an increase or decrease in the amount of rent for a building as set forth in Article 32 of said Act shall first file a petition for conciliation.