When entering into a real estate sale contract, one important legal obligation borne by the seller is "contract non-conformity liability." By properly understanding this framework, which was introduced in the 2020 amendment to the Civil Code to replace the former "defect warranty liability," parties can prevent sale-related disputes in advance.
What Is Contract Non-Conformity Liability?
Contract non-conformity liability is the legal liability a seller bears when the subject matter of the sale does not conform to the contract.It was established under the revised Civil Code in April 2020. The following cases fall under "contract non-conformity."
- Delivering goods whose quality or quantity differs from the contract
- A defect existed in the land or building that was sold
- An inappropriate issue existed in the construction work or delivered items
How Do the Time Limit and Disclaimer Work for Contract Non-Conformity Liability?
Time Limit for Contract Non-Conformity Liability (Exclusion Period)
As a general rule, the deadline for exercising contract non-conformity liability is "notice within one year from the time the defect became known" (the same applies to both sales contracts and work contracts). However, because a shorter or longer period may also be set in the contract, it is essential to confirm this at the time of contracting.
Disclaimer of Contract Non-Conformity Liability
Because contract non-conformity liability is a default rule, if the contract contains a separate provision, that provision takes priority. However, if another law does not permit a disclaimer or a change to the period, that law must be followed.
What Is the Difference from Defect Warranty Liability?
Under the Civil Code before the amendment, "defect warranty liability" was prescribed, and if a hidden defect existed, the buyer could claim damages or cancel the contract. However, repair costs or replacement costs could not be claimed.
Under the revised contract non-conformity liability framework, the following four rights were granted to the buyer.
- Right to demand cure (repair, replacement, or delivery of the missing portion)
- Right to demand a price reduction
- Right to claim damages
- Right to cancel the contract
The biggest change is that the buyer's rights have been significantly expanded.
What Should You Watch Out for in Real Estate Transactions?
Clearly State Special Provisions
Under the revised Civil Code, it is important to clearly and specifically state special provisions and accepted conditions in the sale contract. The seller should list all areas of concern and make sure there is no discrepancy from the property's actual condition.
Confirm the Scope of Liability for Equipment
In the case of used properties, it is not unusual for equipment to have some issues. By clearly stating in the contract that no liability will be assumed for equipment, the transaction can proceed more smoothly.
Use an Inspection
An inspection is a visual and measured assessment conducted by a housing specialist of major structural components and areas intended to prevent rainwater intrusion.It was formalized under the April 2018 amendment to the Building Lots and Buildings Transaction Business Act. The cost is approximately JPY 50,000 for a visual inspection. It is an effective way for both the seller and the buyer to proceed with greater confidence.
For risk management related to real estate transactions, it is also worth reviewing five measures to prevent land-title fraud.
Related Reading
- What Is Land-Title Fraud? A Guide to Common Tactics and Five Defensive Measures for Real Estate Transactions
- What Are the Rent Reduction Guidelines? Explaining the Impact of the 2020 Civil Code Amendment and How Landlords Should Respond
- The Complete Guide to "Pre-Move-In Checks" That Can Determine the Success of Rental Property Management
Frequently Asked Questions (FAQ)
Q. When buying a used condominium, are equipment defects also covered by contract non-conformity liability?
With respect to equipment, it is common for the contract to include a special provision stating that "the seller will not bear responsibility for equipment defects after handover." If this provision is included, equipment falls outside the scope of contract non-conformity liability.
Q. If notice is not given within one year, does the right disappear completely?
Notice within one year is a prerequisite for pursuing liability. Specific claims made after notice, such as damages, may still be exercised afterward within a certain period. However, if the notice itself is not given within the deadline, the right is extinguished.
Q. Is there a difference between a real estate business operator as seller and an individual as seller?
Under the Building Lots and Buildings Transaction Business Act, when a licensed real estate business operator is the seller, buyer-protection rules apply, such as requiring the contract non-conformity liability period to be at least two years. Compared with a private sale between individuals, the buyer's rights are more strongly protected.
Q. Is an inspection mandatory?
An inspection itself is not mandatory. However, due to the amendment to the real estate brokerage law, intermediaries are required to explain whether they can arrange an inspection provider. Although optional, it is well worth considering.
