Have you ever heard the term "defective property"?
You might be more familiar with it as a "stigmatized property" or "accident property."
If you are involved in buying or selling real estate, it is important to deepen your understanding of defective properties.
It is also reassuring to know how to handle issues if they arise.
With that in mind, this article answers questions such as what defective properties actually mean, whether there are any standards, and how to prevent disputes from occurring.
What Is a Defective Property?
A defective property is a term used when a property has some kind of deficiency in the quality, performance, or condition it should originally possess, and the buyer cannot satisfactorily obtain the expected benefits.
In most cases, there appears to be no particular problem on the surface, so buyers may unknowingly enter into contracts.
Even if you sign a contract without knowing it is a defective property, unexpected problems may arise later and cause serious issues, so caution is necessary.
Properties with issues such as roof leaks, deterioration of major structural components (roofs, pillars, etc.), termite damage to the subfloor or foundation, or malfunctioning water supply and drainage pipes are called defective properties.
Additionally, soil contamination and insufficient seismic resistance are also highly likely to be considered defects.
When selling or renting a defective property, you are required to disclose this to the other party in order to prevent disputes.
Failing to disclose may result in claims for damages or contract cancellation, which can lead to significant losses for sellers and landlords.
To prevent this from happening, make sure to properly disclose the fact that the property is defective.
Defective Properties Come in Different Types!
Defective properties are often grouped under one category, but there are actually different types.
Let's take a look at the types of defective properties.
Psychological Defects
A psychological defect refers to a condition in which there is a risk that people living in a property may feel psychological resistance due to suicides, murders, accidental deaths, or similar events that occurred inside the building or in the vicinity.
Properties located near facilities that cause noise, unusual odors, or vibrations, bases of anti-social forces such as organized crime groups, or cemeteries and other avoided facilities also fall under psychological defects.
Since the threshold for discomfort varies from person to person, disputes may arise even after disclosure has been made in advance.
Psychological defects in the place where one lives can become a significant source of stress.
Some people may think, "I would not have signed the contract had I known."
To prevent anyone from saying "I was never told about this" after signing, it is an important point to properly disclose what kind of property it is.
Physical Defects
A physical defect means that there is a deficiency that has a significant impact on the use of the land or building.
Examples include termite damage, roof or water leaks, structural defects, and the building itself being tilted.
Roof leaks in areas such as the ceiling that are rarely checked in daily life are often not noticed by sellers even at the time of the contract.
Termite damage may also go unnoticed until it has spread significantly, leading to frequent disputes after the fact.
Tilting is also difficult to notice unless it is quite severe.
However, these can all become serious defects when using the property.
Some buyers and renters would not have signed the contract had they known about the defects.
Even if a contract is made, it is generally expected to include a discount.
Since both parties only suffer disadvantages if defects are discovered after the fact and claims for damages or contract cancellation are made, make sure to disclose the existence of any defects.
Legal Defects
A legal defect refers to a property that has legal problems.
This most commonly refers to properties that violate the Building Standards Act, the Fire Services Act, the City Planning Act, or other laws.
Properties that do not meet the safety standards or road access requirements under the Building Standards Act, properties that do not meet fire equipment installation standards under the Fire Services Act or have outdated equipment, or properties built in urbanization control zones under the City Planning Act all constitute legal defects, so keep this in mind.
Non-buildable properties in older downtown areas also fall under legal defects.
Whether a legal defect exists must be confirmed by contacting the relevant department of the local government where the property is located.
No Clear Standards? What Qualifies as a Psychological Defect?
Psychological defects may cause stress for those living in the property, but no clear standards have been established.
So in what situations do psychological defects apply?
Murder Cases
A property where a murder has occurred becomes a psychologically defective property.
If you are told "A murder took place in this house five years ago," most people would not want to go near it.
According to statistics from the National Police Agency, approximately 900 to 1,000 murders occur in Japan each year.
There is a possibility that a property you are considering selling may be among them.
Among murder cases, there are many that are brutal and heinous, such as family murders or serial killings.
In such cases, the interior is cleaned and renovated before sale, but it is natural to feel resistance when thinking "someone was killed here."
In the case of murder, there are instances where information can be found online even without being told it is a defective property.
The shock of discovering after the fact that a property was defective without being informed is immeasurable.
Suicide
A property where a suicide has occurred also becomes a psychologically defective property.
There are virtually no people who would want to live in a home where someone has taken their own life.
Depending on the method of suicide, bloodstains or bodily fluid stains may remain on the floor or elsewhere.
The property is renovated before sale, so the appearance may not reveal anything, but if told of such a fact, how many people could positively consider purchasing it?
The reality is that very few people could, and properties where a suicide has occurred also carry a disclosure obligation as psychologically defective properties.
Accidental Death
Defective properties also include those where accidental deaths have occurred.
Cases such as someone falling and dying inside the property or drowning in the bathtub also make a property defective.
While these are unforeseen accidents, the fact remains that a death occurred inside the property.
Many people feel uncomfortable knowing that someone has died there.
As a result, many people want to avoid properties where a death occurred indoors regardless of the cause of death.
Fire
A property that has had a fire is also considered a psychologically defective property.
A small-scale fire such as a minor blaze is rarely treated as a problem.
However, if there were fatalities in a fire accident, the property becomes a psychologically defective property.
It is natural to think "I would rather not live there" upon hearing something like "There was a fire in this unit two years ago and one woman died."
Fire accidents are often covered in the news, so there is a high possibility of finding information if you search.
If you hear such stories from those around you, some people will research to verify the credibility of the information before signing a contract.
Near Anti-Social Organization Offices
A property located near the office of an anti-social organization is also considered psychologically defective.
How many people would actively want to live somewhere after hearing "the house next door is a yakuza office"?
Almost no one would be pleased by this — most would feel strongly averse.
Having organized crime members in one's living area creates anxiety about when one might get caught up in trouble.
This stress may make time spent at home feel unbearable.
Another disadvantage is that having an organized crime office nearby can reduce the property's value as bank collateral and its overall asset value.
For families with children, this is a particularly undesirable property, making it more difficult to secure tenants.
Near Sewage Treatment Plants, Waste Incineration Facilities, etc.
Having undesirable facilities nearby is also included in psychological defects.
Undesirable facilities include waste incineration plants, sewage treatment plants, funeral halls, crematoriums, nuclear power plants, adult entertainment establishments, and gas tanks — all of which tend to be avoided.
Elementary and middle schools are also included.
The surroundings of these facilities have a high possibility of causing bad odors, noise, air pollution, and soil contamination.
If a seller does not disclose these risks and the buyer finds out later, it can lead to disputes.
How Do Buyers Research Defective Properties?
Defective properties are not something only sellers know about — buyers cannot be kept in the dark simply because the seller says nothing.
Many people looking for apartments or condominiums prefer to research before making a decision.
Let's look at how buyers research defective properties.
Inquiring at a Real Estate Agency
Inquiring at a real estate agency is the easiest method.
If you ask a real estate agency "Do you handle stigmatized properties?", you will generally be given an answer.
However, in some cases agencies may not provide information because they suspect you are not serious, so the timing of when you ask is important.
To avoid being viewed with suspicion by the real estate agency, it is ideal to bring it up after completing the initial questionnaire and when asked about the type of property you are looking for.
It is also conceivable that agents may introduce properties with some kind of issue to people who say they are "looking for a bargain property" without directly using the terms "stigmatized property" or "defective property."
Searching Online
You can also search for defective properties online.
Try searching real estate portal sites using keywords such as "disclosure items" or "psychological defect."
Searching with these keywords will bring up properties that require some form of disclosure.
Properties that require disclosure are very likely to be defective properties.
However, not all results will necessarily be psychologically defective stigmatized properties — some may have disclosure requirements due to other types of defects.
There is a website frequently used when searching for stigmatized properties online.
That is "Oshima Teru."
Oshima Teru is a stigmatized property information sharing site that covers properties not only in Japan but around the world.
Information is posted when a resident has died by suicide, murder, fire, or similar causes.
The site lists not just the target property but also the specific unit number, so you can obtain detailed information.
It is free to view, so anyone can access it.
It is frequently used by people considering a move or by those who want to check if there are any stigmatized properties in their current area.
The very high number of daily visits to Oshima Teru indicates that a large number of people are interested in stigmatized properties.
The release of films based on stigmatized properties has also garnered attention, likely increasing interest among more people than before.
Checking Special Recruitment Housing
Public rental housing and UR rental housing managed by the Urban Renaissance Agency, an independent administrative institution, publicly discloses information under the name "Special Recruitment Housing" when a resident has passed away.
Special Recruitment Housing offers discounted rent for one to two years, making it an affordable option.
People who want to rent a property at a reasonable price even if something troubling has occurred there often check Special Recruitment Housing listings.
While the number of listings is not particularly large, properties in regional areas are also included, so it is worth checking if you are looking across a wide range of areas.
Many people associate UR rental housing with the image of public housing complexes, and some may be put off by that alone.
Indeed, that image was once accurate.
However, recently there has been an increase in UR rental housing properties that have been renovated with beautiful interiors.
There is nothing inconvenient about UR rental housing, and it is gradually gaining in popularity.
Researching Through Specialized Stigmatized Property Real Estate Companies
Recently, there are also real estate companies that specialize in stigmatized properties.
These specialized companies handle not only properties for individual buyers but also properties for investors.
The number of listings handled is not particularly large, and since there are several such companies, it may be worth comparing them.
Among the most well-known is Jobutsu Fudosan (Salvation Real Estate).
Jobutsu Fudosan operates under the concept of "Making stigmatized properties a choice to be proud of," handling property purchases and memorial services.
Memorial services are available not only for the deceased and their ancestors but also for the land and buildings themselves if requested.
A "Jobutsu Certification" is issued for items that have undergone memorial services, making it easier to connect them to sales as "redeemed properties."
Defective properties known as stigmatized properties inevitably carry a negative image.
However, by properly evaluating the intrinsic value of the property and adding value to it, they make it easier to find buyers.
In addition to buying and selling properties, they also operate businesses related to special cleaning and estate organization.
Once a stigmatized property is purchased, the company is set up to provide total support throughout the process.
How Should Psychological Defects Be Handled?
Psychological defects, where knowing the facts may cause hesitation in real estate transactions, carry a disclosure obligation.
Here, we will explain in detail the content that gives rise to a duty of explanation as a psychological defect, the required disclosure period, and more.
We will also introduce cases where no disclosure obligation arises, so please use this as a reference.
Psychological Defects Carry a Disclosure Obligation
There are virtually no people who would willingly want to live in a room that was used for criminal activity or where someone has died.
Therefore, the party renting out a room is required to disclose to the next tenant the circumstances that led to the property becoming psychologically defective — such as the reason a person died there.
This is called the disclosure obligation, and generally the details are recorded in the important matters explanation document, with evidence that the explanation was given; in some cases, it may also be included in the rental contract.
This applies not only to rentals — the same disclosure obligation arises when selling a property.
If the disclosure obligation is neglected, there is a possibility that the buyer or tenant may later file a claim for damages or seek contract cancellation.
Content That Gives Rise to a Duty of Explanation
With psychological defects, determining from what point the disclosure obligation arises is extremely difficult.
Cases of suicide inside the property, murder, suspicious death, unnatural death, death by fire, and similar incidents are judged to give rise to a disclosure obligation, and the same applies when an incident or accident occurs in an adjacent unit.
On the other hand, cases where a person attempted suicide inside the property and later died at the hospital to which they were transported, or where a person jumped from the rooftop or another location outside the property, are generally considered not to give rise to a disclosure obligation.
However, since no clear legal standards have been established, depending on the case it may be necessary to examine each situation individually with reference to past legal precedents.
Required Disclosure Period
There are two ways of thinking about the period during which disclosure is required.
The first is the number of years elapsed since the incident.
For example, in the case of a suicide inside the property, it is generally considered that the disclosure obligation applies for approximately three years after the incident for rentals, and approximately six years for sales.
The second is a change of tenant or resale.
It is generally considered that the disclosure obligation no longer applies after the tenant who was informed of the psychological defect has moved out, and the same applies when a stigmatized property has been purchased.
Upon subsequent resale, it is considered that the disclosure obligation no longer applies.
In this way, the disclosure obligation for psychologically defective properties ceases after a certain period of time.
However, the criteria for judging that certain period differ depending on whether it is a rental or a sale, and they are only a rough guide.
It is not the case that passing this period guarantees everything is fine — there are quite a few people who remain concerned no matter how much time has passed.
If you want to prevent disputes, it is reassuring to be as honest as possible.
Natural Death Does Not Give Rise to a Disclosure Obligation
While a disclosure obligation arises when murders or suicides occur inside a property, according to Ministry of Land, Infrastructure, Transport and Tourism guidelines, it is generally considered that no obligation arises in the case of natural death.
Therefore, cases involving death from accidents occurring during daily life — such as falling on stairs or falling during bathing — as well as death at a hospital after being transported there, or death in an accident that occurred outside the property, are generally considered not to give rise to a disclosure obligation.
However, even without any criminal element, there are cases where a disclosure obligation has been judged necessary when, for example, a body was not discovered until a long time after death.
While there is no clear standard for what constitutes "a long period," cases where the body had decomposed and special cleaning was required at the time of discovery are generally judged to require disclosure.
Failing to Disclose Defects Leads to Disputes! What Are the Causes?
The disclosure obligation for psychologically defective properties is not stipulated by law, leaving many ambiguous areas, and how much to disclose varies by real estate company.
However, there are many cases where failure to disclose leads to disputes.
Here, we explain the causes that lead to disputes.
Ambiguity of Disclosure Regulations
The Real Estate Brokerage Act does not clearly specify the scope of incidents requiring disclosure or the required disclosure period.
Therefore, while deaths from murders or suicides are generally judged to constitute psychological defects, natural death and death from illness are often considered not to fall under the category.
In other words, death from illness or death during the course of daily life is not subject to the disclosure obligation.
Even if a death occurred inside the same property, whether disclosure is required differs depending on the circumstances.
Furthermore, while disclosure may be made for properties where an accident or incident just occurred, disclosure is often omitted once a certain amount of time has passed.
Some landlords choose to disclose even natural deaths to avoid potential disputes from withholding information.
However, since many people react negatively upon learning the facts and the specifics are not clearly defined, how to handle the situation also varies by real estate company.
Perceived as Insufficient Precautions
In today's aging society, the tenant population is aging and the possibility of a solitary death is not zero.
Even if natural death does not give rise to a disclosure obligation, if the body goes undiscovered for a long time and decomposes to the point where special cleaning is required, the obligation does arise.
If such a thing happens at a property, the management may be perceived as having taken insufficient precautions, risking a loss of tenants.
To avoid such a situation, it is important to communicate as much as possible on a regular basis, obtain emergency contact information in preparation for unexpected events, and maintain an environment where family members can be reached.
Recently, various local governments have also been implementing programs and services to prevent isolation.
There are also private companies offering monitoring services, and it is important to take measures while making good use of such services.
May Be Charged with Violation of Disclosure Obligation
In renting or selling real estate, if there are defects they must be properly communicated and explained.
If defects are not disclosed and the other party finds out later, there is a risk of disputes arising because "I would not have signed the contract had I been told."
In such cases, a violation of the disclosure obligation may be claimed, and the tenant or buyer may seek repair claims, price reduction claims, or claims for damages, as well as contract cancellation.
What Happens If a Defective Property Is Handed Over As-Is?
Regardless of whether the defect is psychological, physical, legal, or environmental, when renting or selling, the tenant or buyer must be informed of the defect.
If the disclosure obligation is neglected and the defective property is handed over as-is, the seller may be required to bear liability for non-conformity with the contract.
Here, we explain liability for non-conformity with the contract and the former warranty against defects.
Liability for Non-Conformity with the Contract Must Be Borne
Liability for non-conformity with the contract is a system to protect ordinary consumers, stipulating that when a sold property is in a condition that does not conform to the terms of the contract, the seller must take responsibility toward the buyer.
For example, if termite damage or roof leaks in a sold property were concealed or discovered after the fact, there is a high possibility of being subject to a repair claim requesting the cost of fixing the defect or damage, or a contract cancellation dissolving the sales contract.
Furthermore, if the contract is cancelled due to a violation of the disclosure obligation, the buyer may file a claim for damages covering costs such as revenue stamp fees, registration expenses, moving costs, and consolation money incurred for the purpose of the contract.
When renting or selling to a private individual through a real estate agency, liability for non-conformity with the contract will certainly be an issue if anything arises.
However, when the counterparty is a real estate company, there are cases where liability is exempted on the grounds that they are not a party eligible for protection, so if you wish to avoid disputes with buyers, instructing a real estate company rather than a private individual is one option.
Difference from Warranty Against Defects
Warranty against defects refers to the seller's obligation to the buyer when there is a defect in a sold property that cannot easily be discovered from the outside — that is, a hidden defect.
In other words, if a hidden defect existed, the buyer could assert a claim for contract cancellation or damages against the seller.
However, since the warranty against defects only applied when there was a hidden defect, liability for non-conformity with the contract was newly created during the 2020 amendment to the Civil Code.
Liability for non-conformity with the contract, as explained above, means "when a sold property is in a condition that does not conform to the terms of the contract, the seller must take responsibility toward the buyer."
Unlike the warranty against defects, liability can be pursued without exception when a defect exists.
Once a dispute arises, responsibility is strictly pursued and severe countermeasures are often taken, making it riskier than ever to sell a defective property to a private individual.
What Can Sellers Be Held Liable for Under Liability for Non-Conformity with the Contract?
If the disclosure obligation is neglected, the seller may be held liable for non-conformity with the contract and face demands for contract cancellation or damages.
Here, we explain in detail what liability may be pursued.
Repair Costs
For physically defective properties, the seller can be held responsible for repairing the defect that arose, or for the associated repair costs and damages.
Contract Cancellation
Contract cancellation means, as the name suggests, cancelling the sales contract.
If the seller does not comply with the buyer's demands such as repair claims or price reduction claims, there is a high possibility the contract will be cancelled.
Damages
If the contract is cancelled due to a violation of the disclosure obligation, the buyer can assert a claim for damages covering the various expenses paid to conclude the sales contract.
Furthermore, if psychological distress or mental suffering has been experienced due to a psychological defect, a claim for consolation money can also be asserted, and there are actual cases where such payments have been made.
Additionally, claims for damages are not limited to the seller — the real estate company that acted as intermediary may also be held responsible.
Therefore, violating the disclosure obligation risks claims for damages from not only the buyer but also the real estate company, so caution is necessary.
When Selling a Defective Property, Turn to a Property Buying Company! What Are the Benefits?
Selling a defective property to a private individual carries significant risk, as liability for non-conformity with the contract may be pursued.
For this reason, turning to a property buying company is recommended for sales.
Freedom from Mental Distress
In transactions with property buying companies, which are professionals in real estate, liability for non-conformity with the contract is highly likely to be exempted, freeing you from the anxiety of "What if the buyer sues me for a disclosure obligation violation?" that arises when selling a defective property.
Furthermore, a real estate company that has handled many defective properties in the past will also have extensive knowledge of property renovation and remodeling.
Knowing that they will draw out new appeal while making the most of the property's strengths gives you hope, and the transaction should proceed smoothly.
Easier Price Negotiation
While instructing a real estate agency generally puts you in a passive position, instructing a property buying company has the advantage of allowing you to actively negotiate the price.
Particularly in the case of real estate companies that plan to renovate and resell defective properties, the other party is often positively inclined toward purchasing and negotiates the price actively.
You may even have hope that the low sale price — a common concern when selling a defective property — will be somewhat offset.
Able to Keep It Private
When selling a property through ordinary channels, it is often listed on local real estate websites and draws public attention.
However, when selling to a property buying company, negotiations proceed directly, so there is no concern about neighbors or those around you finding out that you are trying to sell.
Particularly for properties associated with suicide or murder, which already attract attention from neighbors, using a property buying company to sell discreetly — avoiding further publicity and preventing additional negative rumors from spreading — will likely make the process go more smoothly.
Summary
This article has covered the types of defective properties, how to identify them, and particularly how to handle psychologically defective properties.
Defective properties fall into four categories: psychological defects, physical defects, legal defects, and environmental defects.
Regardless of the type, any property with defects gives rise to a disclosure obligation requiring that the issues be properly communicated to the other party at the time of sale.
If the disclosure obligation is neglected, a violation of the disclosure obligation may be alleged, and contract cancellation or claims for damages may be sought.
Depending on the defective property, claims for consolation money on grounds of mental suffering or stress are also a possibility, so caution is necessary.
You may worry that disclosing defects will make the property harder to sell or to find tenants for.
However, in order to avoid the possibility of disputes arising later, it is important to fully fulfill the disclosure obligation.
If you are struggling with selling, turning to a property buying company is also a recommended option.
Frequently Asked Questions About Defective Properties
Q1. How long does the disclosure obligation for a defective property last?
According to Ministry of Land, Infrastructure, Transport and Tourism guidelines, for rentals there is a disclosure obligation for approximately three years from the time of the incident. For sales, there is no defined time limit.
Q2. What should you do if you have purchased a defective property?
Based on liability for non-conformity with the contract, you may seek one of the following from the seller: a repair claim, a price reduction claim, a claim for damages, or contract cancellation.
Q3. How much cheaper are defective properties compared to market value?
For psychological defects, it is common for the price to be approximately 20–50% below market value. For physical defects, the price is set taking into account the cost of repairs.
