Background of the Condominium Ownership Act Reform
In recent years, condominiums are aging rapidly while unit owners are also growing older simultaneously. The shortage of people willing to serve as officers has become a serious issue, and cases where management associations struggle to operate are increasing.
Against this backdrop, the "management company administrator system," where management companies are appointed as administrators, is spreading. Cases where management companies are appointed as administrators from the initial sale of newly built condominiums have also begun to emerge.
What Is the "Management Company Administrator System"?
Traditional condominium management generally involved the management association, composed of unit owners, taking the lead and selecting a board president from among themselves. However, under the management company administrator system, the management company also serves as that administrator.
While this reduces the operational burden on the management association, it also creates serious problems. Since the management company is both the administrator and the party awarding and receiving work orders for construction, "conflicts of interest" are unavoidable.
Specific Examples of Conflicts of Interest
- The management company awards and approves its own renovation work contracts
- Construction work is preferentially awarded to affiliated companies of the management company
- The structure allows the administrator themselves to check the appropriateness of management costs
What Changes Under the Legal Reform
1. Obligation to Explain Administrator Consignment Contracts
When a management company is appointed as administrator, they will be obligated to explain the contents of the administrator consignment contract to unit owners. The purpose is to allow unit owners to make informed decisions about the appointment after understanding the scope of management operations, compensation, contract period, and other terms.
2. Prior Explanation of Conflict of Interest Transactions
When a management company intends to conduct transactions with itself or affiliated companies, prior explanation to unit owners will be required. Legal transparency will now be required for areas that were previously gray zones.
3. Additions to Important Matter Explanations
From April 1, 2026 (Reiwa 8), the Real Estate Brokerage Act Enforcement Rules will be revised, and "whether or not the management company administrator system is adopted" will be added to important matter explanations in the sale and exchange of condominiums.
Real estate brokers will be obligated to investigate whether the target condominium has adopted the management company administrator system and to explain this to buyers. Furthermore, it is considered desirable to also explain the contents of the management operations consigned to the management company.
Impact on Rental Property Management Operations
Enhanced Information Provision to Owners
For investors in investment condominiums, the management system is an important matter directly related to asset value. For condominiums that have adopted the management company administrator system, the need to provide owners with information on the presence or absence of conflict of interest risks and the actual state of the supervisory structure is increasing.
Impact on Real Estate Sales Brokerage
As an additional item in important matter explanations, investigation and explanation of the management system will become necessary. When conducting real estate sales brokerage, operations requiring confirmation not only of management rules but also of the contents of administrator consignment contracts will be required.
Building Relationships with Management Associations
In condominiums with the management company administrator system, the supervisory structure of unit owners over the administrator becomes important. As a rental management company, regularly confirming general meeting minutes and accounting reports of management associations and providing feedback to owners will contribute to building trust.
Frequently Asked Questions (FAQ)
Q. Should condominiums with the management company administrator system be avoided?
It cannot be said categorically. There are merits in reducing the operational burden on the management association. What is important is whether a supervisory structure to prevent conflicts of interest is in place. Check whether the monitoring function by unit owners is working and whether accounting transparency is ensured.
Q. Will existing condominiums also be affected?
Yes. Condominiums that have already adopted the management company administrator system will also be subject to the obligation to explain and the prior explanation of conflict of interest transactions. Additionally, since the management system must be recorded in important matter explanations at the time of sale, this will affect the entire second-hand condominium market.
Q. What should rental property management companies prepare?
First, confirm and organize the management systems of the condominiums you manage. If there are condominiums that have adopted the management company administrator system, it is a good opportunity to review the information provision structure for owners. If you conduct real estate sales brokerage, updating the format of important matter explanation documents will also be necessary.
