Your Key To Passive Real Estate Income

Property Owners’ Associations And Management Company Guide

Japanese real estate financial planning low-risk investment owners' associations management companies

What exactly are owners’ associations and management companies? When you buy a house things are simple. The building and the land are yours to do with as you please. However, when you buy a unit in a building, things get more complicated. If buying a unit in a larger building, you decide what to do with the interior of your property. You can remodel it/basically use it as you see fit, as long as it doesn’t infringe on others’ rights. Everything from the centre of each of the walls inward is yours. However, there are common areas, as well. Hallways, stairs, mailboxes, a laundry area, a rubbish disposal area, gardens, parking— who makes decisions about those? The answer is “the owners’ association”. In 98% of Japanese buildings, the owners’ association outsources some of the administration of the building to a management company.

What Are ‘Owners’ Associations’, Or ‘Management Associations’ In Japan?

property guide japanFirstly, “owners’ association” and “management association” are equivalent terms with the same meaning. The Japanese word is 管理組合 (kanrikumiai). Don’t confuse “management association” with “management company”—they’re two different things. Each unit owner is a member (and one vote) in the owners’ association (though owning multiple units means multiple votes). The owners’ association controls the building, not the management company. At least in legal theory- management companies sometimes overstep their bounds. It derives its legitimacy from Article 3 of the Condominium Ownership Act. The specific part of the Act is the “Act On Building Unit Ownership, etc.”. According to these Acts, “all of the unit owners together may organise an association to manage the building, its grounds, and its ancillary facilities and, pursuant to the provisions of this Act, may hold meetings, establish bylaws, and assign a manager”.

What Is A Management Company?

A management company (管理会社, kanri gaisha) is a company to which the owners’ association outsources its work. The owners’ association still holds the power, and the management company just derives its legitimacy from the owners’ association. The management company manages the building, conducts the actual labour (e.g cleaning), doing things the owners’ association has neither the time nor inclination to do.

What Do Owners’ Associations Do?

An owners’ association deals with activity reports, board member elections of the management association, budgetary discussion, and financial results. Hopefully when the building has had a good, long life, they hold a vote. The vote is about whether or not to tear it down and build another one. For this to happen, 80% of the owners’ association members must agree (except in cases of a government order).guide tips tokyo

What kinds of activity reports do owners’ associations deal with? Here are some examples:

  • There was a bitterly cold winter. The temperatures went down to -9°C. Four units’ pipes froze and burst. It wasn’t just a problem for those units’ owners. The water began to seep down into the lower levels, affecting even owners and tenants whose pipes hadn’t burst. The owners’ association acted quickly and had the pipes repaired out of the repair reserve fund to curtail the damage.
  • The owners’ association decided to convert from fluorescent lights to LED lights in the common areas such as the hallways. LED lights are brighter and more energy-efficient.
  • The owners’ association held a vote on minpaku (民泊). Minpaku is when private homeowners who usually do not hold hotel licenses host lodgers, for example tourists. One prominent example is Airbnb. Especially during 2018 and 2019, minpaku became a major source of controversy. Many owners’ associations across Japan held votes on it. Usually, they ban it.

The Structure And Politics Of An Owners’ Association

An owners’ association is basically a small democratic government that governs your building(s). For each unit that belongs to you, you get one vote. Unlike Japanese national or local elections, being a foreigner doesn’t matter. You’re just as much a “citizen” of your complex as any other owner there.

In the beginning…

In the beginning, there isn’t an owners’ association yet, because there aren’t any owners. There’s just the developer. The developer appoints a management company. The management company might be a subsidiary of the developer. The management company decides the initial management fees and repair (reserve) fund fees.

The Structure Of The Owners’ Association

Once individuals buy units, then there are owners, and therefore, an owners’ association has just formed. Like any community, there must be a “government”. This means a “leader”, and a “legislative body” to pass “laws” (or in this case, by-laws). The legislative body is the board (理事会, rijikai). The board consists of several board members (理事, riji). For example, if there are 420 units in the building, then there might be 12 board members. Unit owners elect a president of the board (理事長, rijichō). He/she is in charge of the association seal and can also call board meetings. Typically, they’re once a year, e.g. on June 30, but could be more frequent.

At this point, if the owners vote to do so, they can change the management company. In fact, they can get rid of the management company and just have no management company at all. This accounts for only 2% of the buildings in Japan to which the Condominium Unit Ownership Act applies. Be careful of such management company-less buildings, though, because they are often less transparent and accountable. Anyhow, back to the board…

kanri guide overseas

…can the owners fire the president of the board?

This very issue made it to the Supreme Court. No, not the kangaroo court of some building’s board, the real Supreme Court. Of Japan.

Relatively recently, there was a court case. In it, the by-laws of a building stated that owners could elect a president of the board. However, there were no clauses about firing him/her. Therefore, when the owners’ association voted to fire their president of the board, the ousted former president resisted. Initially, a lower court sided with the president. However, it made it to the Supreme Court, which overturned the lower court’s decision.

Yes, the owners have the authority to fire the president of the board by popular vote. Even if there are no such clauses in the by-laws.

Usually, the owners’ association, the board, and the management company get along well, but not always. For example, a developer built a building in Fukuoka in 1973. Unfortunately for the owners, the president of the board was corrupt. He collected fees, but didn’t perform any more than the legal minimum of repairs on the building. He died in 2011. He had used nearly all the building’s money on himself. There was basically nothing left in the building’s repair reserve fund. This meant that the owners had to foot the bill for future maintenance, repairs, and refurbishments.

Fortunately, now, the Japanese Supreme Court backs the democratic power of the owners. “The Act on Advancement of Proper Condominium Management” (first enforced in 2001) also keeps management companies in check.

Owners’ Associations, Management Associations, and Management Companies: Summary

A building, much like a town, city, prefecture, or nation, has its own “voters”, “electorate”, “government”, and elected “leader”. Correspondingly, the owners are the “voters”; their “electorate” is the owners’ association. The “government” is the board, and the “highest office” on the board is that of president of the board. The owners’ association has the power to elect and fire the president of the board and change the management company. Hopefully none of that will be necessary, as most owners’ associations, boards, and management companies work together very harmoniously and you will probably never consider the structure of these associations ever again after you have bought the property.

Should I Invest In Real Estate For Retirement?

Buying Old Vs. New Property

Other Than Tokyo, Where Should I Invest In Japan?

How Much Of My Portfolio Should Be In Real Estate?

How Do I Set Up Life Insurance For My Mortgage?

Does Japanese Real Estate Decrease In Value?

Should I Buy Or Rent In Japan?

How To Buy A Home In Japan

How Long Do Japanese Buildings Last?

How To Reduce Your Health Insurance Or Pension Premiums In Japan (Part 2)

Get In Touch

Share This