JAPAN Law and Practice Contributed by: Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada
Title Insurance Title insurance is not commonly used in the Japanese real estate market. 2.4 Real Estate Due Diligence A real estate due diligence process usually involves some or all of the following elements. • Document review: documents to be reviewed include publicly available materials, such as a certified copy of the real estate registration, as well as contracts entered into in respect of the subject property. An “explanation sheet of important mat - ters” ( juyo jiko setsumei sho ) prepared by a broker or the seller is usually one of the major documents that should be reviewed, as it is supposed to provide an orderly overview of the property (includ - ing pre-closing or post-closing requirements under public laws applicable to the transfer of the prop - erty) and highlight issues relating to the property. • On-site inspection: the buyer often retains and brings to on-site inspections an appraiser and a property inspector, who will prepare the necessary third-party reports. • Question-and-answer sessions: these are conduct - ed in writing, through email, telephone or online meeting software, or at face-to-face meetings. • Third-party reports: for commercial real estate, the buyer often arranges for professional service pro - viders to prepare a real estate appraisal report and an engineering report. 2.5 Typical Representations and Warranties Under the Civil Code, the seller is liable for any defect in the subject property. This defect liability may be lim - ited by agreement on the scope, duration or amount of liability. This defect liability is referred to as “non- conformity liability” in the Reformed Civil Code. Aside from this statutory liability, the seller and the buyer often agree on contractual representations and war - ranties regarding the subject property. The scope and duration of the seller’s property representations and warranties vary from deal to deal. The primary remedies for statutory liability and seller’s misrepresentations are termination of the purchase agreement and compensation for damages (or indem - nity). It is uncommon for parties to use representation
acquire a trust beneficial interest (TBI) in respect of the entrusted real property. Under a trust arrangement, the real property is owned by the trustee (usually a licensed trust bank in Japan) as part of the assets of the trust and the investor becomes a beneficiary of the trust by acquiring the TBI. 2.2 Laws Applicable to Transfer of Title The Civil Code generally governs title transfers. Other laws may also be relevant, depending on the owner - ship structure. For example, the Law on Unit Owner - ship of Buildings specifies certain rules for the transfer of unit ownership. Specific restrictions may apply to specific types of real estate. One such restriction is the requirement under the Agricultural Land Law that the acquisition of agri - cultural land is subject to governmental permission. 2.3 Effecting Lawful and Proper Transfer of Title How to Effect a Title Transfer A transfer of title to real estate is effected pursuant to an agreement between the seller and the buyer. Most sale and purchase agreements provide that the transfer of title takes effect upon the full payment of Japan has a real estate registration ( toki ) system in which the title to real estate and certain other interests (such as mortgages) are registered. In practice, parties to a real estate transaction usually rely on real estate registration because it is generally the best indica - tion of the true owner or holder of an interest in real property. Registration of a Title Transfer A transfer must be registered pursuant to the real estate registration system in order for it to be per - fected. If a transfer of real property is not registered, the buyer cannot assert its title against a third party. Applications for registration of title transfer can be completed online, but the use of registered seals to execute the documents required for registration remains the prevailing practice. the purchase price by the buyer. Registration of Title to Real Estate
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