In Japan’s real estate market, most properties are held under freehold ownership, but not every property carries a permanent title. Some are held under a leasehold right known as “shakuchiken” (借地権), which itself splits into three distinct types. Understanding these ownership types can help investors make better-informed decisions.
Freehold Ownership in Japan — Shoyuken
Japan’s permanent ownership right is called “shoyuken” (所有権). It is the right to freely use, profit from, and dispose of a property, as defined by Japan’s Civil Code, and it does not diminish over time. Shoyuken can be understood as complete control over a property: the holder can mortgage it, rent it out for profit, sell it, or transfer it as a gift. That said, ownership rights are subject to certain restrictions where the public interest takes priority — land, for example, is subject to various legal restrictions under Japan’s Building Standards Act, City Planning Act, Land Expropriation Act, and other laws.
When buying, selling, or inheriting real estate in Japan, ownership is confirmed through a “transfer of ownership registration” (所有権移転登記) or, for a newly built property, a “preservation of ownership registration” (所有権保存登記). Registration is subject to a registration and license tax (“tourokumenkyozei,” 登録免許税), and the registration process is generally handled by a judicial scrivener (shiho shoshi), who charges a fee for the service. Documents required at this stage include a registration application signed by both the buyer and seller, seal certificates from both parties, and, of course, the sale and purchase agreement.
Leasehold Ownership in Japan — Shakuchiken
Japan’s leasehold right is defined, protected, and regulated by the Act on Land and Building Leases (“Shakuchi Shakuya Ho”). It is defined as a right of superficies or a land lease right held for the purpose of owning a building. It can be divided into a right of superficies, which is a real property right giving free control over the building standing on the land, and a land lease right. Note that in Japanese, “shakuchikensha” (借地権者) refers to the leaseholder, while “shakuchiken settei-sha” (借地権設定者) refers to the party who grants the leasehold — that is, the landowner. The two terms look similar but carry entirely different rights, so care is needed.
Old-Law Leasehold in Japan
This is the leasehold right that applied before the Act on Land and Building Leases took effect in Heisei 4 (1992). Under the law in force at the time, tenant rights were more strongly protected: once a lease term ended, the landowner could not refuse to renew the contract without a legitimate reason. Likewise, if the landowner did not object promptly when the building was rebuilt, the landowner could not terminate the contract, and the contract term would automatically extend after the rebuild. The lease term was set at 30 years for solid (durable) buildings and 20 years for non-solid buildings.
Ordinary Leasehold in Japan
This is the leasehold right implemented after the Act on Land and Building Leases took effect, and it revised the old-law leasehold in the landowner’s favor. Once the lease term ends, the landowner may refuse to renew not only for a legitimate reason but also by paying the tenant a sum to vacate. If the building is rebuilt after the tenant’s first renewal without the landowner’s permission, the landowner can apply to cancel the contract and terminate the leasehold. Where the landowner consents, the contract can be extended by 20 years. If the rebuild happens before the first renewal and without the landowner’s consent, the tenant retains only the leasehold rights for the remainder of the original contract term.
Fixed-Term Leasehold in Japan
This leasehold right also came into effect after the Act on Land and Building Leases took effect in Heisei 4, but differs in that the lease is not renewed once it ends — the land reverts to the landowner. It can be thought of as a long-term lease that is not extended by a rebuild, and the tenant has no right to require the landowner to purchase the building when the contract ends. It is further divided into three types depending on the intended use.
General Fixed-Term Leasehold
The contract term is 50 years or more, with no restriction on use, though it is mostly used for residential land. The biggest difference from the ordinary leasehold is that the land must be returned unconditionally once the contract ends, with no right of renewal; a rebuild or renovation during the term does not affect the original return date, and the tenant has no right to require the landowner to purchase the building on the land at return (the “building purchase demand right”). All three fixed-term leaseholds below must be confirmed in a notarized written document, so a holder of a general fixed-term leasehold must demolish the building and return the land to the landowner when the contract ends.
Business-Purpose Fixed-Term Leasehold
This is a fixed-term leasehold for a building intended for commercial use; it cannot be used for residential purposes. The contract term is 10 years or more and up to 50 years. There is likewise no right to renew, a rebuild does not affect the contract term, and the tenant cannot require the landowner to purchase the building on the land when the contract ends. This right must also be confirmed in a notarized written document.
Special Leasehold with Building Transfer
There is no restriction on land use. The difference is that once the contract reaches the 30-year mark, the building on the land is sold to the landowner. However, if the tenant requests to continue using the building under lease, that interest is protected.
The obligations that come with freehold and leasehold ownership in Japan also differ. A freehold owner must pay fixed asset tax and city planning tax to the government on a regular basis, while a leaseholder does not need to. The landowner who grants a leasehold can, in turn, enjoy a discount on these taxes, reducing the cost of holding the land. Japan’s fixed asset tax is paid annually regardless of whether the land has been developed, so holding undeveloped land in Japan carries a fixed annual cost — which is one reason landowners choose to grant leaseholds over their land.
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