Rent arrears are one of the most common issues you're likely to encounter in rental property management. If a tenant falls behind on rent, the problem can drag on if not handled properly.
This article explains the common causes of rent arrears, how to respond, and what landlords should never do. Use it as a guide for managing risk in your rental business.
Why Does Rent Arrears Happen? 4 Common Cases
The causes of rent arrears can generally be grouped into four patterns. Because the appropriate response differs depending on the cause, it is important to first accurately understand the situation.
When the Tenant Simply Forgot to Pay
This covers cases where the tenant forgot to make a transfer or had insufficient funds in their account. Setting up automatic bank transfers or credit card auto-payments can prevent this. Landlords should confirm receipt on the due date and act promptly if payment has not arrived. Ignoring it can lead to a decline in payment discipline.
When an Unexpected Situation Makes Payment Impossible
This covers cases where payment falls behind due to unforeseen circumstances such as illness or injury. It is important to confirm emergency contacts — such as parents or relatives — at the time of signing the contract. Setting up automatic bank transfers can also prevent arrears even if the tenant is hospitalized.
When the Tenant Simply Cannot Afford to Pay
This covers cases where the tenant's ability to pay declines after moving in due to job loss or reduced income. Since this situation is likely to be prolonged, early action is essential — such as encouraging the tenant to move to a less expensive property. Depending on the circumstances, consider providing information about public assistance programs such as welfare benefits.
When the Tenant Has No Intention of Paying
This is the most difficult case to handle, and the prospects for improvement are extremely slim. It is advisable to move to legal proceedings as quickly as possible. Leaving it unaddressed can negatively affect other tenants and allow arrears to accumulate over the long term.
How Should You Adjust Your Approach Depending on the Tenant?
It is important to switch your approach based on whether the tenant intends to pay.
Responding to Tenants Who Intend to Pay
Contact them promptly to request payment and negotiate a payment deadline. If they do not have the funds on hand, sending a certified letter demanding payment and getting a commitment to a specific deadline is effective.
Responding to Tenants Who Do Not Intend to Pay
Since resolution through negotiation or discussion is unlikely, consider legal options such as a payment demand order, small claims action, or eviction lawsuit. To avoid wasting time and effort, it is important to move quickly to proceedings involving a third party.
How Can Rent Arrears Be Prevented in the First Place?
Preventive Measures During Tenant Screening
- Thorough screening: Focus not on the level of income, but on the ability to make consistent payments. Request income verification documents and confirm employment status.
- Choosing a property management company with a strong screening process: Companies that conduct in-person or video call interviews are preferable.
- Setting up a joint guarantor: Following the 2020 legal revision, setting a maximum liability amount is now mandatory. Be aware that a contract without this is invalid.
- Using a rent guarantee company: This allows you to accommodate tenants who have difficulty providing a joint guarantor, and gives landlords peace of mind in the event of non-payment.
Preventive Measures at the Time of Contract
- Specifying late payment penalties: Include provisions for late payment penalties in the lease agreement in accordance with Article 419, Paragraph 1 of the Civil Code.
- Fixed-term lease agreements: Since the tenant can be required to vacate at the end of the contract term, this helps prevent prolonged arrears situations.
- Negotiating a corporate housing arrangement: Since the tenant's employer handles payment, this eliminates the risk of individual non-payment.
Preventive Measures After Move-In
- Maintaining communication: Detect changes in the tenant's living situation early and introduce support resources as needed.
- Automatic bank transfers and card payments: Prevent accidental missed payments, and whether a card can be issued also serves as an indicator of creditworthiness.
- In-person rent collection: Creates touchpoints with tenants and provides an opportunity to notice any changes.
When Should You Respond to Rent Arrears? How to Read the Timing
Statute of Limitations on Rent Arrears
The statute of limitations on rent claims is set at five years. The statute of limitations runs individually, counting from the due date of each monthly payment. It can be reset through a payment demand order or court action. Additionally, if a partial payment is made on the overdue amount, it is treated as an acknowledgment of the debt, which resets the statute of limitations.
The Importance of Assessing the Tenant's Situation
Decide when to act based on your relationship with the tenant and their history of arrears. The priority level differs between a repeat offender and a first-time case. It is essential to understand the tenant's financial situation and identify the most appropriate course of action.
Benchmarks for Terminating the Contract
Contract termination is unlikely to be approved for two to three months of arrears, but if arrears extend to three months or more without a legitimate reason, there is a high likelihood it will be judged that the relationship of trust has broken down. If arrears reach three months to six months, consider pursuing an eviction claim through the courts.
What Is the Process for Responding to Rent Arrears?
- Demand notice by property management company: Notify of non-payment by phone, demand letter, or visit. Conduct within one week to one month of the arrears arising.
- Contact joint guarantor and rent guarantee company: If the tenant does not respond, the joint guarantor has an obligation to pay, and if a guarantee company is enrolled, you can claim surrogate payment.
- Send a demand letter by registered mail with delivery confirmation / certified mail: Prevents the tenant from claiming they never received it. Sending it in a lawyer's name is even more effective.
- Voluntary eviction request: Request the tenant to vacate under conditions such as waiving overdue rent, in order to avoid court costs.
- Legal action: Payment demand order (simplest), small claims action (up to 600,000 yen, in principle one hearing), eviction lawsuit (eviction order, six months to one year).
- Compulsory execution: A last resort for cases where the tenant refuses to vacate even after a court ruling. Requires a writ of execution, execution certificate, and proof of service.
What Actions Should Landlords Absolutely Avoid After Discovering Rent Arrears?
If a landlord takes inappropriate action, it may be considered illegal. The following actions must be avoided at all costs.
- Demanding payment in the early morning or late at night: Demands between 8 p.m. and 7 a.m. the following day are prohibited under the Money Lending Business Act. There are court precedents in which damages were awarded.
- Contacting or visiting multiple times in a single day: Excessive demands may be interpreted as intimidation.
- Posting notices: Considered an illegal act that disturbs an individual's private life and peace.
- Demanding payment from anyone other than the joint guarantor: Claims can only be made against the tenant themselves, the joint guarantor, or the rent guarantee company.
- Contacting the tenant's school or workplace: Disclosing facts to third parties is illegal.
- Entering the premises without permission: May constitute criminal trespass. You have no right of entry until you win a court judgment.
- Removing belongings from the unit: Violates the principle prohibiting self-help remedies. Subject to claims for damages and criminal charges of theft.
- Changing the locks without permission: Violates the principle prohibiting self-help remedies. Even if a special clause exists in the contract, it is highly likely to be ruled invalid.
- Negotiating directly without going through the property management company: Not illegal, but prone to escalating into disputes.
What Are the Benefits of Consulting a Lawyer?
Consulting a lawyer is an effective way to resolve rent arrears issues quickly. The main benefits are as follows.
- Increased likelihood of payment: A demand letter sent in a lawyer's name creates psychological pressure on the tenant.
- Reduced procedural burden: Delegating the drafting of demand letters and legal representation significantly reduces the burden on the landlord.
- Recommendations for the optimal recovery approach: Expert advice on negotiation and recovery strategies tailored to the tenant's situation.
- Maximizing the amount recovered: Aims for full recovery through appropriate legal means even in cases of payment refusal or unresponsiveness.
Frequently Asked Questions (FAQ)
What is the statute of limitations on rent arrears?
The statute of limitations on rent is five years. It runs individually from the due date of each monthly payment. It can be reset through a payment demand order or court action.
How many months of arrears are needed before the contract can be terminated?
There is no clear statutory standard, but in general, if arrears exceed three months without a legitimate reason, there is a high likelihood it will be judged that the relationship of trust has broken down.
Can a tenant who is in arrears be forcibly evicted?
Yes, it is possible through legal proceedings. If you win an eviction lawsuit and the tenant still refuses to leave, you can apply for compulsory execution. However, it is illegal for a landlord to evict a tenant by their own hand.
Can overdue rent be recovered in full?
Engaging a lawyer increases the likelihood of full recovery. Legal measures can be taken even in cases of payment refusal or unresponsiveness, and if a settlement cannot be reached, the matter can be taken to court to pursue recovery.
Does using a rent guarantee company eliminate the risk of arrears?
If you are enrolled with a rent guarantee company, the company will advance the overdue rent, which significantly reduces the landlord's financial risk. The guarantee company will then handle subsequent collection efforts.
