JAPAN Law and Practice Contributed by: Eriko Ozawa, Satoru Hasumoto, Takahiro Sato and Fuyuki Uchitsu, Mori Hamada & Matsumoto
where the land lease is a Category 3 Fixed-Term Land Lease. Building leases are typically for a much shorter term. Office space leases are often for a short term (most commonly two to five years), while building leases for retail or commercial facilities tend to be longer, for ten to 20 years. The maintenance and repair of the premises actually occupied by the tenant are typically the responsibility of the tenant. However, if cer - tain renovation works are required by the ten - ant before it can start using the premises, the allocation of the responsibility and the cost for such works is negotiated before entering into the lease agreement. Monthly payment is the most typical payment term. It is not common in Japan for lease agreements to address issues relating to the COVID-19 pandemic or other future pandemics, except in cases where parties have agreed on special treatment for these events, such as expanding the definition of force majeure to include the Lease agreements usually schedule a regular rent review, which is conducted every three to five years in many cases. During a rent review, the parties will negotiate an increase or decrease in the rent for the next three to five years. Aside from a contractual rent review, the Land Lease and Building Lease Law entitles either party to a lease to demand that the rent be increased or decreased in response to market conditions. If the parties cannot come to an COVID-19 pandemic. 6.5 Rent Variation
agreement, a court may order an adjustment after considering the following: • any change in tax or other liabilities imposed on the leased real estate (or the underlying land in the case of a building lease); • the value of the leased real estate (or the underlying land in the case of a building lease), and other relevant economic condi - tions; and • rents in neighbouring areas. If the lessor and tenant specifically agree not to increase the rent for a certain period, the lessor cannot exercise its right to demand an increase in the rent but, with respect to a land lease and a general building lease, the tenant cannot be deprived of the right to demand a decrease in the rent, even if it has explicitly agreed not to exercise that right under the lease. However, a different rule applies to a Fixed-Term Building Lease, under which the lessor and the tenant may exclude the application of the rule on rent adjustment described above by setting forth
express provisions on rent revisions. 6.6 Determination of New Rent Please see 6.5 Rent Variation . 6.7 Payment of VAT
Consumption tax (which is equivalent to VAT) is payable on the rent on building leases other than for residential purposes. The rent on land leases is exempted from consumption tax. 6.8 Costs Payable by a Tenant at the Start of a Lease Typical costs payable by a tenant at the start of a lease include a deposit (often calculated by a multiple of the monthly rent, depending on the type of lease and the real estate), brokerage
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