Land Lease Rights have lower asset value than ownership, and it is commonly traded at around 60 to 70% of the market price as ownership in residential areas. The necessary expenses for a Land Lease Right are up-front payment as the purchase price, a contract renewal fee, a reconstruction consent fee, a change of condition consent fee and change of name consent fee due to inheritance or sale. Additionally, “Monthly rent” which a lessee pays on a regular basis while renting land is also required. The parties have discussed in advance about the conditions applying when selling the land lease, because the acceptance of the landowner will be needed at the time of sale and a name change consent fee will be charged.
Under the current Act on Land and Building Leases, there is a regulation called “Fixed Term Land Lease Right”. (定期借地権) In this regulation, the term of the Land Lease Right is determined and the contract will end at the fixed deadline, which there is no extension of the contract. In this scheme, when the land lease contract ends, the land surface should be cleared and returned to the landowner, and the lessee should undertake the cost of demolition of the building at their own cost.
However, the parties can agree with the special provisions for building transfer if the contract is agreed for thirty years or more. In this clause, a landowner promises to buy the building on the land that is the object of the Land Lease Right, which shall be transferred to the landowner for a reasonable price after the day that thirty years or more have passed since the contract was established. Land Lease Right will cease at the time of purchase.
Legal advice in connection with a lease agreement is essential, including drafting and preparing preliminary agreements.
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Tel: +81-(0)3-3249-1536 https://lawhelp4u.com/english/how-to-buy-a-property-in-japan/