Signing a Lease
Check the building lessor and owner before signing the lease
Because of the asset liquidation (securitization) by real estate funds and listed J-REITs, it is no longer true in many cases that the lessor is also the owner of a property. There are also cases such as subleases, where the actual owner and the lessor are different, and more complex situations have been seen in recent years. When considering leases for buildings of this type, it is advisable to confirm the actual owner of the building before signing the lease. The owner of the building can be checked from a building registration, trust register, scheme diagram (securitization structure), or other similar document. It is also possible to confirm the building owner from the explanation of material matters that is conducted prior to signing the lease.
Confirm whether the lease is a term lease or general lease
The term building lease that went into effect in March 2000 is a non-renewable building lease. Prior building leases did not allow the landlord to refuse renewal of a lease upon request by the tenant without legitimate grounds. Under the new term building lease agreement, however, the lease terminates upon expiration of its term and the lease cannot be renewed. Also, under the term building lease, the rent is fixed for the lease term and cannot be raised, and early termination of the lease is not possible. It is important to confirm the lease format in advance. (Special agreements concerning the lease content are valid.)
Check whether there are depreciation expenses and if so, the conditions
Refund of the full amount of deposits such as key money and security deposits when a lease terminates is the usual practice among major landlords (such as buildings leased by real estate companies and insurance companies), but some landlords deduct from 10% to 20% of deposits as depreciation expenses. If the depreciation expenses are to be deducted, this will be stated in the lease agreement, so be sure to confirm the conditions in advance.
Check whether there is a renewal fee, and if so, whether it is one month of the old or new rent
In the Tokyo metropolitan region, a renewal fee of one month’s rent is charged in some cases when a lease is renewed. Renewal fees are not charged by major landlords (such as buildings leased by real estate companies and insurance companies), but if the landlord is an individual or a small company, a renewal fee may be charged. In addition, it is a general practice to change the rent when a lease is renewed. As a result, if there is a renewal fee and such fee is equal to one months’ rent, it is necessary to confirm whether the fee is one month of the old rent or the new rent.
Timing of deposit refund
Confirm when the security deposit will be refunded
A major function of deposits such as key money and security deposits is to serve as collateral deposited with the landlord when the lease agreement is signed to cover instances where the tenant is late in rent payments as well as compensation for damages in the case of willful misconduct or negligence by the tenant, and consequently, when the lease terminates, deposits are used to settle any charges and are refunded. Even so, deposits are not refunded immediately upon vacating the premises, and in many cases, deposits are refunded only after a delay of several months. This is because deposits are refunded only after construction to return the leased premises to their original condition (rent must be paid during the construction period) and the leased premises are vacated and delivered. When relocating to a new office, it is necessary to pay a deposit to the new landlord when the lease is signed. To prepare a funds plan, it is necessary to have a good understanding of when the security deposit will be refunded.
Notice of termination
Check the notice period and other conditions for termination
In general, notice of termination must be provided at least six months prior to vacating the leased premises. If there are explicit provisions regarding early termination in the lease agreement, the lease can be terminated immediately by paying rent and common charges (in some cases, rent only) for the termination notice period. In some cases, however, a penalty must be paid for early termination, so be sure to carefully check the conditions for termination.
Expenses other than common charges
Check if there are any expenses other than common charges
Common charges are expenses necessary for office building management such as maintenance expenses for elevators, air-conditioning equipment, water and sewer facilities, as well as electricity, gas, water, and cleaning expenses for common areas. In many cases, expenses in addition to common charges are imposed, and thus it is necessary to confirm whether common charges refers only to management expenses. For example, it should be confirmed whether air conditioning expenses during regular office hours are included in common charges. If they are not included, it will be necessary to pay expenses such as electricity fees. Also, even if air conditioning expenses are included, it is necessary to check whether air conditioning expenses outside of regular office hours must be paid. It is also advisable to confirm whether other expenses such as interior cleaning and security expenses must be paid.
Confirm the content of the management rules
Management rules, also referred to as building regulations and management regulations, specify the rules that tenants must comply with, together with the content of the lease agreement. Management rules specify a building’s hours of operation, matters concerning the use of air-conditioning and elevators, contact information in the event of emergency, and other details concerning the management and operation of the building. The management rules are just as important as the content of the lease for using a building. Be sure to confirm the content of the management rules in advance.