When Can I Raise My Tenant’s Rent?
When can you raise your tenant’s rent? Is it even legally possible to do so? What are the laws regarding raising a tenant’s rent?
First, two scenarios:
- James vs. Haruto
James is a landlord, and Haruto is his tenant. They have a Regular Lease Agreement. In the past, James charged Haruto only ¥50,000 in rent. However, recently, the taxes James pays have gone up (for example, Fixed Asset Tax). All the other units in the building are renting for ¥60,000, ¥70,000, or even ¥80,000. James feels like he has the right to increase Haruto’s rent. Haruto isn’t thrilled about the idea. What will happen next?
- Christopher Kennedy Eustace Amherst III vs. Yui
Christopher, a man of fine breeding, comes from a long line of distinguished real estate investors. He has invested a tiny percentage of his family’s vast estate in the Japanese market. He has a renter, named Yui, with whom he has a Regular Lease Agreement. One day, he is dining upon filet mignon at the Tokyo American Club. His friend boasts to him about the purchase of yet another brand new Lamborghini! Christopher takes this as a challenge… When it comes to conspicuous consumption, no one may outdo him! However…where’s the money going to come from? Perhaps…if he just raised the rent on Yui’s unit… Sure, it’s already overpriced as it is, but what’s Yui going to do about it? Disrupt her busy schedule, rent a moving truck, pay key money elsewhere, and move, all for a marginally cheaper place?
Can both landlords raise the rent? One of them? Neither of them? Let’s find out…
The Rules On Raising Rent
The Leased Land And House Lease Law permits rent increases in Regular Lease Agreements (Fixed-Term Contracts: different rules, see below). In Japanese, this law is “Shakuchi Shakuya Hō” (借地借家法). The landlord (or landlady) has the right to request a rise in the rent. The tenant also has the right to request a lowering. However, in order for the landlord to raise the rent, there should be mutual consent. To quote the law, “Raising the rent can be done at the discretion of the landlord if there is a good reason, but it cannot be established without agreement between the two.” Without such agreement, the process becomes much more complicated, and may result in arbitration/mediation or even litigation. If it gets to that point, a valid reason is a requirement.
Valid Reasons To Raise Rent
- Taxes on land and buildings have increased, or will increase.
- Taxes paid by the landlord have increased, or will increase.
- Economic conditions have changed (the prices have risen or will rise).
- There are clearly higher rents on similar nearby properties.
If the landlord has the right to request a rise in rent, does the tenant also have the right to request a lowering in rent?
Yes, he/she does. However, that’s a topic for another day.
Rent Negotiations Usually Happen Around Renewal Time
“Mutual consent” is a legal requirement to raise rents in a Regular Lease Agreement (except in cases of litigation). This includes renewal time (usually every two years). A landlord cannot simply say “It’s renewal time, so either agree to this rise in rent, or hit the highway.” However, in a Fixed-Term Contract (定期借家契約, teiki shakuya keiyaku), a landlord can request to raise the rent, with reasonable notice of course, and if the tenant doesn’t like it, he/she can simply not renew. It seems like a Fixed-Term Contract would be best from the owner’s perspective, so why aren’t all leases Fixed-Term? Because prospective renters consider them less appealing. The landlord might be unable to fill a vacancy quickly/command his/her desired rent amount, with a Fixed-Term Contract.
Rules When Notifying The Tenant About A Rise In Rent
There are no fixed rules when notifying the tenant. However, the rise in rent must pertain from now on, or in the future. It can’t be retroactive.
Does the tenant have the obligation to respond to a request to raise rent?
No, he/she does not. It’s better for the tenant not to stubbornly reject or ignore it so as to preserve harmony with the landlord. Japanese society prizes harmony, or wa (和). Both parties should speak calmly, without emotion. However, it’s not a requirement.
What happens if there’s no agreement about whether or not to raise the rent?
If the landlord requests a rise in rent and the tenant refuses or ignores the request, then what? Well, the tenant can continue to pay the originally agreed-upon amount. Maybe the landlord thinks he/she can play hardball by refusing to receive what he/she considers a “partial” amount. This would allow him/her to claim that the tenant is “in arrears,” and evict the tenant, right? Actually, that depends on whether or not the tenant makes use of the “Deposit” system at the Legal Affairs Bureau. For example, imagine that you insist on an increase from ¥90,000 to ¥100,000 and the tenant refuses. The tenant tries to pay you ¥90,000, but you refuse. Then you try to argue that the tenant is in “arrears.” This would only work if the tenant has not paid into the Legal Affairs Bureau’s “Deposit” system.
Arbitration And Legal Action
What if you feel you have a valid reason for raising the rent and the tenant either doesn’t respond, or rejects it? If you want to push this, then the next step is arbitration or mediation (調停, chōtei).
Each side can gather evidence to support his/her claim. Check the rent market on a real estate information portal site, for example, SUUMO, at home, or LIFULL HOME’S. The tenant and/or the arbitrator can ask the landlord to show supporting data. A real estate appraiser’s written appraisal is also helpful in supporting one’s case.
If the court establishes that the rise in rent doesn’t have a valid reason, the rent will stay the same. However, the landlord will not be responsible for the tenant’s legal fees. The legal fees are theoretically optional, because a tenant can represent himself/herself. If the tenant loses, then he/she must pay not only the difference, but also 10% in “interest.” Which, if you consider Japan’s current extremely low interest rates (0% for a bank account, 1~1.5% for a mortgage), is really quite generous to the landlord…
When Can I Raise My Tenant’s Rent? Conclusion: What happens to James, Haruto, Christopher, and Yui?
Hopefully, the parties from both Scenario 1 and 2 (from before) can come to an amicable agreement. What if they can’t, though?
James has a valid reason to raise Haruto’s rent. If it goes to arbitration, and, Heaven forbid, litigation, how much will Haruto have to pay if he paid ¥50,000 instead of ¥60,000 for six months?
¥60,000 after the rise in rent – ¥50,000 that Haruto was willing to pay = ¥10,000 difference
6 months × ¥10,000 difference = ¥60,000 difference over a period of 6 months
Then Haruto will need to pay interest:
¥60,000 difference over a period of 6 months × 10% = ¥6,000 in interest
Total Haruto will have to pay to James: ¥66,000
However, in the case of Christopher vs. Yui, Christopher’s reason… Wanting the money for yet another brand new Lamborghini… That reason would not hold up in court. Therefore, poor Yui won’t have to pay even one yen more in rent than she already does… Though it has probably left a bitter taste in her mouth, and she’s still out her legal fees…ouch! Sorry, Yui.
In summary, a landlord and tenant must mutually consent to raise the rent (exception: Fixed-Term Contracts at renewal time). Otherwise, a valid reason, arbitration, and possibly even litigation will be necessary.