Valid Reasons for Raising Rent and Key Negotiation Points: Risks and Countermeasures Explained

When managing rental properties over the long term, there are cases where rent needs to be reviewed due to rising neighborhood market rates, higher fixed asset taxes, or broader inflationary pressures. In this article, we explain the legal basis for raising rent, the legitimate grounds for doing so, the negotiation process, and practical ways to manage the risks.

Is raising rent legally permitted?

Under Article 32, Paragraph 1 of Japan’s Land and Building Lease Act, negotiating a rent increase is legally permitted. However, it requires a legitimate reason and the tenant’s agreement. A rent increase based solely on the owner’s personal circumstances is not allowed.

Three legitimate grounds for a rent increase

• Rising prices: When rents for similar nearby properties have increased
• Higher land and building valuations: When fixed asset taxes have increased due to environmental changes such as a new station or commercial facility
• A gap with surrounding market rates: When the current rent is significantly lower than the market rate for properties of similar age and size

When is the best time to raise rent?

The lease renewal period is generally the lowest-risk time to negotiate a rent increase. That said, many leases renew automatically, so owners should provide notice 3 to 6 months before the renewal date and create time for discussion. A change in ownership, such as after a property sale, can also be a practical opportunity to revisit lease terms.

What are the risks of raising rent?

Cash flow deterioration caused by tenant move-outs and rising vacancy

If a tenant moves out because of the increase, rental income drops to zero until a new tenant is secured. Because a prolonged vacancy period has a direct impact on cash flow, it is important to keep the increase within a range that aligns with market conditions.

The risk of escalation to mediation or litigation

A tenant who does not agree to the increase may continue paying what they consider to be the appropriate rent. Until a court rules on the increase, payment at the original rent continues, and once legal costs and time are taken into account, the owner may end up at a disadvantage in some cases.

Key points for successful rent increase negotiations

Provide written notice early

Send a written notice well before the renewal period, clearly stating the current rent, the proposed new rent, and the reasons for the increase.

Explain the case with supporting data

When you present objective support such as rent data for nearby properties or changes in fixed asset tax amounts, tenants are more likely to understand and accept the proposed increase.

Offer benefits to the tenant as well

If you pair the increase with benefits for the tenant, such as waiving the next renewal fee, adding free Wi-Fi, or installing security cameras, the likelihood of reaching agreement improves.

Frequently Asked Questions (FAQ)

Q. What happens if the tenant refuses the rent increase?

The tenant has the right not to agree to the increase. If discussions do not resolve the matter, it may proceed to rent increase mediation and then to litigation. Until a judgment is issued, payment at the original rent continues.

Q. How far in advance should a rent increase notice be sent?

There is no clearly defined statutory deadline, but in practice, sending the notice 3 to 6 months before the lease renewal is a reasonable guideline to allow sufficient time for negotiations.

Q. What should be included in a rent increase notice?

Four items are essential: the property location, the current rent, the revised rent, and the reason for the increase (with supporting data attached).

Q. What kinds of benefits can be offered to tenants during rent increase negotiations?

Effective examples include waiving the renewal fee, introducing free internet service, installing security cameras, and upgrading equipment or fixtures, such as adding a new air conditioner.