Japan’s Important Matters Report: What to Check Before Buying Property

You Must Review the “Important Matters Investigation Report” Before Buying Property in Japan

One step in the process of buying property in Japan is reviewing the unit’s Important Matters Investigation Report. Buyers are strongly advised to read this report carefully before purchase, because it covers the condition of the building and the unit itself, letting you see how the property is managed, its repair history, and any outstanding payments. This article walks through what to pay close attention to in the report.

Buyers should check the Important Matters Investigation Report carefully so that no party ends up in a difficult position after the transaction.

What the Important Matters Investigation Report Covers

1. How the building is managed, and information about the management company (the manager’s working arrangement and hours)
2. Information about the owners’ management association (such as the timing of the general meeting)
3. Information about the specific unit being sold (management fee, repair reserve fund, fees for using the rooftop terrace or private garden, when the management fee is collected, and whether there are any arrears)
4. Planned changes to the management fee and repair reserve fund (shuzen tsumitatekin)
5. The current balance of the repair reserve fund for the whole building
6. Whether the building has any outstanding loans (for example, how much the management association can borrow for large-scale construction work)
7. Any arrears owed across the whole building
8. Repair work history (the history and near-term plans for major construction work across the whole building)
9. Exclusive-use rights (private garden, rooftop terrace, backup electrical panel, car parking, bicycle parking, motorcycle parking — all used under an exclusive-use right)
10. Restrictions on the use of exclusively-owned parts
11. Rules about keeping pets
12. Rules about renovation work
13. Rules about playing musical instruments
14. Whether there has been any asbestos survey or seismic diagnosis, and its findings
15. Water leaks, psychological defects, and stigmatized-property history
16. Internet, signal reception and pay-TV channel information

Key Points Buyers Should Understand

Here are some points buyers should understand when purchasing.

How the Building Is Managed

The Important Matters Investigation Report records the building’s current management arrangement. It is common for this to be outsourced management, meaning a management company is hired to manage the building. The report will also disclose public information about the management company, such as its president, address and contact details. It will also list the on-duty staff’s working hours and how often common areas are cleaned.

Whether the Management Fee and Repair Reserve Fund Will Increase

Japanese property management fees and repair reserve fund contributions are not fixed and can change over time. But they are not changed on a whim, either — the management company will have a long-term management plan that schedules future repair work, and once a scheduled year arrives, the relevant repair work is generally carried out regardless of the building’s actual condition at that time. As a result, management fees and repair reserve contributions tend to rise, and the long-term management plan will also indicate when the management association’s fees are expected to change. When buying, check whether the management fee or repair reserve fund is likely to rise significantly in the near future, since this affects the property’s real return.

Arrears on the Unit and the Building’s Reserve Fund

The Important Matters Investigation Report clearly lists the current balance details of the management association’s funds (management fee and repair reserve fund). Before buying a unit, buyers should carefully check whether all payments on that specific unit have been settled, and whether there are any outstanding amounts owed. Note that any arrears on the unit are generally passed on to the new owner, though in most cases the seller can be asked to settle the arrears before the resale completes. The building’s management association records will also disclose the current reserve/repair fund and management fee balances, along with any arrears owed on those fees — representing what other owners in the building may owe. If the building’s total repair-reserve arrears are large, this can mean future repair work may not be able to proceed as planned, potentially requiring all owners to contribute extra funds. Because a large amount of unpaid arrears means the repair reserve fund is not being systematically built up, and unpaid management fees mean the burden shifts to other owners — and if unpaid management fees are large and the management company cannot recover them, this could lead to management-fee increases, since otherwise day-to-day management costs cannot be covered.

Whether the Management Association Has Any Loans or Debt

The building’s management association records will also disclose whether it has taken out any loans or carries any debt. It is not unusual for a Japanese building’s management association to have borrowed money or carry debt, but if a building does have a loan or debt, check the purpose of the borrowing, the building’s current repair-reserve balance, and its future repair plans, in order to assess whether the amount borrowed is reasonable.

Whether the Building Has Regular Repair and Maintenance

Japanese management companies typically set a long-term management plan from the outset, scheduling repair dates for all sorts of areas, both large and small. Exterior walls, for example, are typically scheduled for repair roughly every 5-10 years, while elevators are inspected and serviced by professionals every year. All of this large and small repair work will be listed in the Important Matters Investigation Report, letting buyers see the building’s repair history — if a building’s repair record is essentially blank, buyers should be cautious.

Seismic Diagnosis Report

Japan experiences occasional earthquakes, and if a building’s main structure is ever affected by an earthquake, a seismic diagnosis report will be produced to assess the safety of the building’s core structure. So if the Important Matters Investigation Report mentions that the building has a seismic diagnosis report, that means the building’s main structure has previously been affected by an earthquake in the past. So if there is no seismic diagnosis report on file, there is no need to be concerned on that specific point.

The Relationship Between Common and Exclusively-Owned Parts of the Building

The Important Matters Investigation Report will describe the unit’s exclusively-owned and commonly-owned parts. The exclusively-owned part refers to the interior floor area of the unit; the common part refers to the building’s shared spaces outside the unit. The exclusively-owned part will specify the intended use of the unit, including whether it may be used for residential lodging business — in other words, whether the unit may be operated as a short-term rental (minpaku). Beyond use, it will also set out rules such as whether musical instruments may be played, whether pets are allowed, and whether renovation work inside the unit requires permission. The common part covers usage rules for shared spaces such as the parking area, motorcycle parking, bicycle parking and laundry facilities.

Stigmatized Properties and Psychological Defects

Japan also has what would elsewhere be called “haunted” or troubled properties. Compared with a physical defect such as fire or earthquake damage, Japan collectively refers to this category as a “psychological defect” (shinriteki kekkan) — but where a death has occurred at the property due to suicide, homicide, or an accident, the property will specifically be labeled a “stigmatized property” (jiko bukken), and this will be disclosed in the Important Matters Investigation Report. Under Japan’s contract non-conformity liability rules (契約不適合責任, which replaced the older 瑕疵担保責任 terminology on April 1, 2020) and the Ministry of Land, Infrastructure, Transport and Tourism’s 2021 death-disclosure guideline, a real estate company or seller has a duty to disclose the property’s condition and any defects — such as termite damage or water leaks — to the tenant or buyer at the time of signing, and this includes known psychological defects. If this is concealed and not disclosed at the time of signing, the buyer may be entitled to cancel the contract or seek compensation.

Conclusion

All of the points above are things a buyer should pay close attention to in the Important Matters Investigation Report, and should be reviewed carefully once received. In general, reading the report closely will give you a deeper understanding of the property and help you avoid many potential pitfalls.

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