In recent years, the use of joint guarantors in Japan's rental housing market has once again attracted attention. The Civil Code revision enacted in April 2020 brought significant changes to the joint guarantor system, affecting the entire real estate industry.
At INA&Associates, we handle many consultations from customers regarding rental contracts every day, and we directly feel the impact this institutional change has had on actual contract practices. In particular, new challenges and opportunities have emerged — such as combining guarantee companies with joint guarantors and setting liability caps.
In this article, we explain in detail, from the perspective of a real estate industry expert, the specific impact the Civil Code revision has had on the joint guarantor system and the resulting changes in usage trends. This information will be valuable for those considering rental contracts, those thinking about real estate investment, and industry professionals alike.
Changes to the Joint Guarantor System Due to the Civil Code Revision
The Core of the April 2020 Civil Code Revision
The Civil Code revision enacted on April 1, 2020 brought fundamental changes to the joint guarantor system. The most important change was that when an individual becomes a joint guarantor under a revolving guarantee contract, setting a liability cap (kyokudo-gaku) became mandatory.
The liability cap refers to the upper limit on the amount for which a joint guarantor bears payment responsibility. Under the previous system, a joint guarantor could potentially bear unlimited responsibility for the borrower's debts. However, after the revision, if a specific amount is not stipulated in writing, the guarantee contract itself becomes invalid.
This change made the burden on joint guarantors predictable and reduced the risk of taking on excessive responsibility. On the other hand, for landlords, the scope of the guarantee became limited, creating a new need for risk management.
Practical Impact of Setting the Liability Cap
Setting the liability cap is not simply a matter of deciding on an amount. In a rental contract, various obligations may arise — including rent, common area fees, renewal fees, restoration costs, and compensation for damages. It is required to set an appropriate liability cap that considers all of these.
In practice, many cases set the liability cap at approximately 12 to 24 months' worth of rent. However, depending on the characteristics of the property and the attributes of the tenant, a higher amount may be necessary.
Importantly, a relative description such as "X months of rent" may be invalid. A specific monetary amount such as "2,000,000 yen" or "3,000,000 yen" is required.
Strengthened Protections for Guarantors
Another important aspect of the Civil Code revision is the strengthening of protections for guarantors. When becoming a guarantor for a business loan, confirmation of intent by a notary became required. Additionally, the obligation to provide information to guarantors was strengthened, and more detailed information about the principal debtor's financial status and repayment situation is now required.
These changes made the risks of becoming a guarantor clearer, enabling guarantee contracts to be concluded after sufficient deliberation. On the other hand, the increased complexity of procedures has led to more cases where it becomes difficult to find a guarantor.
Current State and Statistical Data on Joint Guarantor Usage
Changes in Guarantee Systems in the Rental Market
According to a survey by the Ministry of Land, Infrastructure, Transport and Tourism, approximately 97% of rental contracts require some form of guarantee, and the form of that guarantee has changed significantly. Most notably, the use rate of rent debt guarantee companies has increased dramatically.
In fiscal year 2010, contracts using only rent debt guarantee companies were 17%, but by fiscal year 2014 this had increased to 37% — more than doubling in just four years. Currently, the utilization rate of guarantee companies has reached approximately 80%, making them the mainstream in the rental market.
| Year | Guarantee Company Only | Joint Guarantor Only | Both Combined | No Guarantee |
|---|---|---|---|---|
| FY2010 | 17% | 22% | 57% | 4% |
| FY2014 | 37% | 16% | 41% | 3% |
| Current (Estimated) | ~50% | ~10% | ~37% | ~3% |
New Trends in Joint Guarantor Usage
Interestingly, even as the use of guarantee companies has increased, joint guarantors have not disappeared entirely. Rather, a new pattern of combining guarantee companies and joint guarantors has been increasing.
The following factors underlie this combined pattern. First, from a risk diversification perspective, there are more cases where supplementary guarantees from joint guarantors are sought to account for the risk of guarantee companies going bankrupt or debts arising that fall outside the scope of coverage. Second, flexible responses based on tenant creditworthiness — for tenants with unstable income or a history of late payments, a more reliable guarantee framework is being constructed by requiring both a guarantee company screening and a joint guarantor. Furthermore, the fact that the Civil Code revision clarified the scope of responsibility for joint guarantors by requiring a liability cap has also contributed to lowering the psychological barrier to becoming a guarantor.
Usage Trends by Region and Property Type
The usage of joint guarantors varies greatly by region and property type. While guarantee companies are dominant in urban areas, joint guarantors are still commonly used in rural areas. For high-end rental properties and commercial properties, a combination of guarantee companies and joint guarantors is common — reflecting the high rents and potential for expensive restoration costs. For student housing, relatives typically become joint guarantors, and a combination with a guarantee company is also common. Particularly for students moving from rural to urban areas, a combination of parental income verification and a joint guarantor is often required.
Property Management Company Response
The responses of real estate management companies have also diversified. According to a survey by the Ministry of Land, Infrastructure, Transport and Tourism, 76% of management companies use "only a rent debt guarantee company," while the remaining 24% use a combination of a guarantee company with a joint guarantor or handle cases with a joint guarantor only. In particular, management companies with long-term track records tend to value trust relationships with tenants and adopt flexible guarantee systems. On the other hand, newly entering management companies tend to prioritize risk management and often make use of guarantee companies mandatory.
Impact on Practice and New Challenges
Changes in Contract Practice
The Civil Code revision significantly changed rental contract practices. The most significant change is the increased detail required in contract documents. Previously, a sweeping description such as "the joint guarantor guarantees all of the borrower's debts" sufficed, but now the specific monetary amount of the liability cap must be stated.
Additionally, a clearer statement is now required regarding the scope of debts covered by the guarantee. It is necessary to specifically enumerate which debts — such as rent, common area fees, renewal fees, restoration costs, and compensation for damages — are covered. The obligation to explain at the time of contract signing has also been strengthened; it is important to provide sufficient explanation to the joint guarantor about the meaning of the liability cap and the scope of the guarantee and to obtain their understanding before signing.
Practical Challenges in Setting the Liability Cap
Setting the liability cap is a complex issue involving the competing interests of the landlord, tenant, and joint guarantor. The landlord naturally wants to set an amount that sufficiently covers anticipated risks. On the other hand, it is natural for the joint guarantor to want to minimize their burden.
In practice, the following elements must be considered comprehensively. The rental level of the property is the most basic factor; generally, approximately 12 to 24 months of monthly rent serves as a guideline, though for high-value properties a relatively lower multiple may be set. Property characteristics are also an important factor — properties with full amenities or special-purpose properties may require higher liability caps due to the potential for high restoration costs. The tenant's profile is also a consideration; for tenants with stable income, a relatively lower liability cap may suffice, while higher amounts are required for those with unstable income.
Changing Relationship with Guarantee Companies
The Civil Code revision has also changed the relationship between guarantee companies and joint guarantors. While the two were previously in a substitute relationship, they are now often positioned as complementary. Guarantee companies provide specialized services such as rapid responses to rent arrears and legal procedure representation. Joint guarantors, on the other hand, provide coverage for debts that exceed the guarantee company's scope or for special circumstances that the guarantee company cannot handle. This complementary relationship makes it possible to build a more comprehensive and stable guarantee framework. However, it creates a double burden for tenants: guarantee fees and the need to request a joint guarantor.
Response to an Aging Society
Japan's aging society has also had a major impact on the joint guarantor system. While it was once common for relatives to serve as joint guarantors, cases of concern about their ability to pay have increased as the guarantors themselves age. According to a survey by the Ministry of Land, Infrastructure, Transport and Tourism, approximately 60% of landlords have reservations about elderly individuals, mainly due to concerns about unpaid rent. In such situations, additional guarantee measures are increasingly required when the joint guarantor is elderly. Additionally, with the increase in elderly people living alone, cases where it becomes simply difficult to find a joint guarantor are also increasing — in which case the use of a guarantee company becomes mandatory, though elderly applicants tend to face stricter guarantee company screening.
Progress in Digitalization and Efficiency
The progress in digitalization in the real estate industry has also affected the operation of the joint guarantor system. As online contract procedures have become widespread, digitalization has also advanced in confirming the intent of joint guarantors and exchanging documents. The spread of electronic contracts has made smooth contract procedures possible even when a joint guarantor lives far away. Submission of income verification documents for guarantors has also become possible online, improving procedural efficiency. However, many management companies still prioritize in-person explanation and confirmation for important contracts like joint guarantees, and it is expected that full digitalization will take time.
Future Outlook and Measures
Diversification of Guarantee Systems
Further diversification of guarantee systems in the rental market is expected going forward. In addition to the conventional combination of joint guarantors and guarantee companies, development of new guarantee methods is progressing. For example, the introduction of AI-based credit scoring systems has enabled more precise risk assessment, making it possible to offer customized guarantee systems tailored to individual tenant profiles. Research into blockchain-based decentralized guarantee systems is also advancing, which could potentially fundamentally change conventional guarantee systems in the future.
Strengthening Support for Housing-Vulnerable Individuals
Supporting housing-vulnerable individuals — including the elderly, people with disabilities, foreigners, and families with children — is an important challenge going forward. These individuals often have difficulty finding joint guarantors and require special consideration. National and local governments are working to enhance guarantee systems for housing-vulnerable individuals. Various initiatives are underway, including the use of public guarantee systems and guarantee support by NPO corporations. The real estate industry is also called upon to actively participate in these initiatives from the perspective of social responsibility and contribute to creating an environment where everyone can secure a residence with peace of mind.
Utilization of Technology
The widespread adoption of IoT technology is also greatly changing property management methods. The introduction of smart locks and sensor technology has made it possible to grasp residents' living conditions in real time, enabling early detection and prevention of problems. These technologies are expected to reduce guarantee risks, potentially leading to lower guarantee fees and relaxed guarantee conditions. Additionally, the use of big data enables more precise risk assessment and the provision of guarantee systems optimized for individual tenants.
Ongoing Review of Legal Systems
Several years have passed since the Civil Code revision, and its effects and challenges have become clear. Ongoing reviews of legal systems reflecting changes in social conditions and practical challenges are expected to continue. In particular, further deliberation is considered necessary regarding standards for setting liability caps and the approach to guarantor protection. As industry practitioners, it is important to monitor these legal system developments and respond appropriately.
Summary
Key Impacts of the Civil Code Revision
The April 2020 Civil Code revision brought fundamental changes to the joint guarantor system. The mandatory establishment of liability caps clarified the scope of guarantors' responsibility and put in place a mechanism to prevent excessive burdens. On the other hand, for landlords, the scope of guarantees became limited, creating a new need for risk management. As a result, a new pattern of combining guarantee companies and joint guarantors has been increasing.
Changes in Usage Trends
Statistical data clearly shows that while the use of guarantee companies has increased dramatically, joint guarantors have not entirely disappeared. Rather, a more comprehensive guarantee framework has been built through the complementary relationship between the two. Currently, approximately 37% of rental contracts use a combination of a guarantee company and a joint guarantor, and this trend is expected to continue.
Future Challenges and Responses
Many challenges and opportunities exist, including responses to the aging society, support for housing-vulnerable individuals, and use of technology. It is necessary for the industry as a whole to proactively address these challenges and strive to create an environment where everyone can secure a residence with peace of mind.
Recommendations for Practitioners
For real estate industry practitioners, please keep the following points in mind. First, when setting liability caps, it is important to set an appropriate amount after fully considering the characteristics of the property and the attributes of the tenant. Please also pay attention to ensuring that the contract documents include detailed information reflecting the intent of the legal revision. Next, regarding the selection of guarantee systems, it is important to respond flexibly according to the tenant's situation. By proposing the optimal guarantee system for each individual case rather than a one-size-fits-all approach, it becomes possible to simultaneously improve tenant satisfaction and maintain stable property management. Finally, regarding legal system developments, continuous information gathering and response are necessary.
A Message to Our Customers
At INA&Associates Co., Ltd., we propose the optimal guarantee system tailored to each customer's individual circumstances. Whether you are having difficulty arranging a joint guarantor or are considering using a guarantee company, please feel free to contact us with any questions.
Frequently Asked Questions
Q1: How should I determine the liability cap?
A1: The liability cap should be determined by comprehensively considering the rental level, characteristics, and tenant profile of the property. Generally, approximately 12 to 24 months of monthly rent serves as a guideline, but the following factors must be considered: monthly costs such as rent and common area fees, as well as one-time costs like renewal fees, restoration costs, and compensation for damages. In particular, for properties with full amenities or special-purpose properties, higher liability caps are necessary due to the potential for high restoration costs. The stability of the tenant's income and their rental history are also factors. Importantly, a relative description such as "X months of rent" is insufficient — a specific monetary amount such as "2,000,000 yen" is required.
Q2: Why are both a guarantee company and a joint guarantor necessary?
A2: The reason for the increase in combining a guarantee company with a joint guarantor lies in the risk diversification that leverages the characteristics of each. Guarantee companies provide specialized services such as rapid responses to rent arrears and legal procedure representation, along with 24/7 coverage and nationwide service delivery that individual joint guarantors cannot match. Joint guarantors, on the other hand, provide coverage for debts that exceed the guarantee company's scope or for the risk of the guarantee company going bankrupt. Psychological deterrent effects based on the human relationship with the tenant are also expected. For high-end or commercial properties in particular, the combined use of both is often required as a more reliable guarantee framework due to the greater anticipated risks. However, as this creates a double burden for tenants, flexible responses based on property characteristics and tenant circumstances are important.
Q3: What should I do if I cannot find a joint guarantor?
A3: Even if you cannot find a joint guarantor, there are several ways to conclude a rental contract. The most common method is to use a rent debt guarantee company. Additionally, some local governments provide public guarantee systems for housing-vulnerable individuals. These may be available for the elderly, people with disabilities, foreigners, and families with children, and may have more relaxed conditions than private guarantee companies. There are also guarantee support systems provided by NPO corporations. These systems are provided from a social support perspective and may be available to those who find it difficult to pass regular guarantee company screenings. Most importantly, consult with the real estate company early to gather information about available systems.
Q4: Have the risks of becoming a joint guarantor been reduced since the Civil Code revision?
A4: The Civil Code revision has reduced the risks of joint guarantors to a certain degree, but has not eliminated risk entirely. The most significant change is that the upper limit of responsibility has been clarified by setting the liability cap. Previously there was the possibility of bearing unlimited responsibility for the borrower's debts, but now responsibility beyond the set liability cap is not incurred. However, within the scope of the liability cap, the same heavy responsibility remains. Also, even if the tenant goes bankrupt, the joint guarantor's responsibility continues. Furthermore, even now that the combined use with guarantee companies has increased, the responsibility of joint guarantors is not reduced. For areas where the guarantee company cannot respond, the joint guarantor still bears responsibility. Therefore, when becoming a joint guarantor, it is important to fully confirm the amount of the liability cap and the scope of the guarantee, and carefully consider your own ability to pay.
Q5: How is the joint guarantor system expected to change going forward?
A5: The joint guarantor system is expected to continue changing in response to changes in social conditions and technological progress. First, with the progress of an aging society, cases where it becomes difficult to obtain conventional guarantees from relatives are expected to increase. In response, enhanced public guarantee systems and the development of new guarantee methods are expected to progress. The use of technology is also an important factor — the introduction of AI-based credit scoring systems enables more precise risk assessment, making it possible to provide guarantee systems optimized for individual tenants. Research into blockchain-based decentralized guarantee systems is also advancing, which could potentially fundamentally change conventional guarantee systems in the future. In terms of legal systems, ongoing reviews reflecting practical conditions are expected. In particular, further deliberation is considered necessary regarding standards for setting liability caps and the approach to guarantor protection. However, the fundamental value of the joint guarantor system — trust based on human relationships — is thought to continue playing an important role going forward. Even as the system changes due to technological progress, its fundamental value will be maintained. As industry practitioners, it is important to respond flexibly to these changes and always prioritize the interests of both landlords and tenants.
