JAPAN Law and Practice Contributed by: Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada
Special Methods to Mitigate Tax Liability For tax treatments that can be accomplished by using a trust structure or a tokutei mokuteki kaisha (TMK), please see 8.2 Mitigation of Tax Liability . 2.11 Legal Restrictions on Foreign Investors There are no legal restrictions on the acquisition of real property in Japan by non-residents, except that such buyers are required to file a post-transaction report under the Foreign Exchange and Foreign Trade Law. 3. Real Estate Finance 3.1 Financing Acquisitions of Commercial Real Estate Please see 5.1 Types of Entities Available to Inves- tors to Hold Real Estate Assets . 3.2 Typical Security Created by Commercial Investors A mortgage is the most typical security interest cre - ated by a borrower who holds outright ownership of real estate. If the borrower and the lender intend to enter into financing transactions on a continual basis, a revolving mortgage may be created instead. If the borrower holds an interest in real estate in the form of a TBI, a pledge over the TBI is the principal security interest in place of a mortgage. Some lenders may require pledges over insurance claims. 3.3 Restrictions on Granting Security Over Real Estate to Foreign Lenders There are no special restrictions on granting security over real estate to foreign lenders. However, a licens - ing requirement applies if a foreign financial institution lends money in Japan as part of its money lending business, unless the institution is a licensed bank in its home country and has a Japanese branch. 3.4 Taxes or Fees Relating to the Granting and Enforcement of Security Formal (ie, non-provisional) registration of a mortgage is subject to a registration and licence tax at a rate of 0.4% of the secured amount. Due to the fact that this tax can be substantial depending on the secured obli - gation, some lenders may allow the borrower to make only a provisional registration, which costs JPY1,000
per property. Once the mortgage is formally registered based on the provisional registration, the mortgagee enjoys priority over other mortgagees who register their mortgages after the provisional registration. Judicial foreclosure of a mortgage involves various costs. The applicant has to prepay up to JPY2 million (in the case of the Tokyo District Court) to a competent court, which will be credited to the court’s expenses. 3.5 Legal Requirements Before an Entity Can Give Valid Security If minority shareholders in a company provide security to secure a debt owed by its parent company, the directors of the security provider usually obtain the minority shareholders’ consent to ensure they are not deemed to be in breach of their fiduciary duties and duty of care. 3.6 Formalities When a Borrower Is in Default In the event of a borrower’s default, a mortgagee would typically accelerate the entire outstanding debt pursuant to the credit agreement. After the secured obligation becomes due, the mortgagee may judicially enforce the mortgage by submitting the real estate registration certificate on which the mortgage is reg - istered. The priority of the mortgage vis-à-vis other mortgages is determined based on the order of mort - gage registration. There have been no specific gov - ernmental measures taken in response to pandemics to restrict a lender’s ability to foreclose or realise col - lateral in real estate lending. 3.7 Subordinating Existing Debt to Newly Created Debt Unless the existing lenders with perfected security interests agree, they do not become subordinated to any newly created non-preferred debt. 3.8 Lenders’ Liability Under Environmental Laws A financer, such as a lender, is not an “owner” for the purposes of the Soil Contamination Countermeasures Law; thus, a lender is not responsible for soil contami - nation investigations and countermeasures, unless it acquires the land from the borrower in default through the enforcement of a security.
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