If you want to continue living in a rental property, it is important to understand the timing of your lease renewal properly. If you are not familiar with renewal fees, procedures, and the legal framework, you could face unexpected costs or disputes. This article explains in detail how rental renewals work and what points require attention.
How do rental property renewal rules work?
Some residential lease agreements can be renewed, while others cannot.
- Standard lease agreement (renewable): This is the typical rental contract. After the contract term ends (usually 2 years), you can continue living there by completing the renewal procedures. If the tenant wishes to stay, the landlord generally cannot refuse renewal unless there is a legally justified reason.
- Fixed-term lease agreement (not renewable): The contract period is set in advance, and the agreement ends when that period expires. However, if both parties agree, a new contract can be signed. These properties also tend to offer relatively lower rent.
The reason the renewal term for a standard lease is often set at 2 years is that the Land and Building Lease Act provides that “a contract for less than one year is regarded as a contract without a fixed term.”
How much is the typical renewal fee? Are there regional differences?
A renewal fee is not prescribed by law but is based on long-standing business custom. In 2011, the Supreme Court of Japan held that “a renewal fee has the character of supplemental rent or advance payment and is valid when there is an agreement.”
The following figures provide a rough indication of the share of properties that require a renewal fee by region.
- Kanagawa Prefecture: about 90% (required for almost all properties)
- Tokyo: about 65%
- Chiba Prefecture: about 83%
- Kyoto Prefecture: about 55%
- Osaka Prefecture: about 0% (no customary practice)
- Fukuoka Prefecture: about 23%
The typical renewal fee is often 1 to 2 months’ rent, and in some cases this is combined with a renewal administration fee payable to the management company (0.5 to 1 month’s rent).
What should you do if you cannot pay the renewal fee?
If paying the renewal fee is difficult, consider the following options.
- Consult the landlord or management company: In some cases, they may agree to reduce the renewal fee or allow installment payments. It is important to discuss this early.
- Move to a property with no renewal fee: Another option is to move to a property that does not charge a renewal fee or to a property under a fixed-term lease agreement.
- Negotiate for rent-free periods: At renewal, this can also be discussed together with requests for facility improvements or lower rent.
Can the contract terms change at renewal?
At the time of renewal, terms such as rent, management fees, and guarantor company requirements may be reviewed. For long-term tenants in particular, renewal can also be an opportunity to negotiate rent. Review the renewal documents carefully, and if there are any changes, resolve your questions before signing.
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Frequently Asked Questions (FAQ)
- Q. Can I refuse to pay the renewal fee?
- A. If the lease agreement includes a renewal fee provision, you are generally obligated to pay it. Unless the amount is clearly excessive, it is difficult to refuse payment.
- Q. What happens if I forget the renewal procedures?
- A. In the case of a standard lease agreement, the contract continues automatically as a “statutory renewal” even if you do not complete the renewal procedures. However, you should still confirm how the renewal fee will be handled.
- Q. Does that mean a fixed-term lease property cannot be renewed?
- A. It cannot be renewed, but a “new contract” can be entered into if both parties agree. The terms for recontracting vary depending on the property and the landlord.
- Q. Can I negotiate the rent at renewal?
- A. Yes. This is possible. In particular, for long-term tenants or in areas where market rents are declining, negotiating a rent reduction at renewal can be effective.
