September 20, 2019

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Real Estate Law in Japan

Many facets of the real estate law in Japan including the acquisition and sale of real estate are unique to the East Asian nation.

Letter of intent

Real estate transactions in Japan are often set in motion by the issuance of a letter of intent from the vendor to the purchaser, granting the purchaser the right to purchase the property. The letter will prescribe a period of time during which the prospective purchaser may have the exclusive right to purchase the property.

Such an agreement usually sets out the due diligence schedule as well as the types of due diligence to be performed on the property and by which party.

Letters of intent are usually not binding. They typically set out the sale price, the terms of the sale including any warranties made by the vendor and purchaser, and the date for completion of the sale and purchase.

Due diligence

Before entering into a binding agreement, it is prudent for a prospective purchaser to conduct due diligence on the property he is hoping to acquire. A title search should be carried out to ensure the vendor has good title to pass on to the purchaser. Requisitions with the relevant government departments should also be sought to ensure the purchaser is apprised of any technical or environmental irregularities. In some circumstances, the purchaser may wish to have a valuation done on the property to ensure he is getting a fair price.

Sale and purchase agreement

Before the lapse of the period during which a prospective purchaser is granted the exclusive right to purchase a property by way of a letter of intent, a sale and purchase agreement should be signed by both parties.

The sale and purchase agreement may contain warranties from the vendor to the purchaser, though what warranties are included in such an agreement may vary wildly depending on which party is in a stronger position to negotiate. Warranties that may be given by a vendor to a purchaser include good title, the vendor’s authority to sell the property, and the property being sold free from encumbrances.

Unlike a letter of intent, a sale and purchase agreement once signed becomes legally binding on both parties.

Registration

Upon completion of a sale and purchase, in exchange for a transfer of money amounting to the purchase price from the purchaser to the vendor, the title deeds will be conveyed by the vendor to the purchaser by a judicial scrivener, the rough equivalent of a paralegal. The transfer of title can then be registered in the appropriate registry. Registration is not required for the transfer of legal title from the vendor to the purchaser. However, it is necessary so that the change of title becomes enforceable against third parties.

Apportionment of taxes

It is usual for the purchaser to pay consumption tax, purchaser’s stamp duty, registration fees, real estate acquisition tax, city planning tax, fixed asset tax and his own legal costs and disbursements. The vendor’s costs are usually limited to vendor’s stamp duty, commission to the real estate agent, if any, and the vendor’s own legal costs and disbursements.