In real estate transactions, knowledge of land use rights is extremely important. In particular, a proper understanding of superficies is essential for those who are considering real estate investment and land use .
Although superficies are one of the rights to use land owned by others, they have characteristics that are very different from general lease rights. Understanding this right will broaden your options in real estate transactions and enable you to make more appropriate investment decisions.
In this article, based on our many years of experience in the real estate industry as INA&Associates, we will explain everything from the basic concepts of superficies to practical considerations in an easy-to-understand manner for the general public. We hope that by acquiring specialized knowledge of real estate, you will find it useful for your asset building and business development.
Superficies is a right stipulated in Article 265 of the Civil Code, and is defined as "the right to use land in order to own structures or bamboos on another person's land. This right is positioned as a type of usufructuary right and is a powerful right that allows direct control over land.
Because superficies are classified as a property right, they have very strong rights compared to a leasehold right, which is a claim. A property right is the right to directly control a specific thing and is an absolute right that can be asserted against third parties.
This legal nature allows the holder of superficies to freely use the land without the consent of the landowner. It is also possible to construct, renovate, or extend a building, sell the building to a third party, or create a mortgage on the building.
The Civil Code has detailed provisions on superficies in Articles 265-269. These provisions clearly define the content, duration, and grounds for extinguishment of superficies.
Of particular importance is the fact that superficies can be registered to provide third-party opposition requirements. Properly registered superficies can be asserted against the new owner even if the ownership of the land is transferred to a third party.
Article 2 of the Land and House Lease Law defines a land lease as "a superficies or a lease of land for the purpose of owning a building. In other words, superficies are positioned as a type of land lease, and the Land and House Lease Law is applied when the purpose is to own a building.
In practice, however, leasehold contracts are overwhelmingly based on the right to lease land, and leasehold contracts based on superficies are relatively rare. This is because the creation of superficies is risky for the landowner.
Understanding the difference between surface rights and lease rights is extremely important in real estate transactions. The following table summarizes the main differences between the two.
| Item | Superficies | Leasehold |
|---|---|---|
| Legal Nature | Property right (absolute right) | Claim (relative right) |
| Assignment and sublease | Landlord's consent not required | Landlord's consent required |
| Sale of building | Landlord's consent not required | Landlord's approval required |
| Establishment of mortgage | Landlord's approval not required | Landlord's approval required |
| Land rent payment | Depends on contract | Necessary in principle |
| Renewal fee | Not required in principle | Usually required |
| Acceptance fee | Not required in principle | Necessary |
| Registration | Possible | Not possible |
As can be seen from the table, superficies are very advantageous to the lessee, while they are risky for the landowner.
There are several types of superficies depending on the scope of use and the method of establishment. By understanding the characteristics of each type, it is possible to grasp the specific usage scenarios and points to note.
Ordinary superficies are the most common form of superficies and are rights to use the surface of the land. It is often established for the purpose of constructing buildings such as residences, commercial facilities, factories, etc., and is a comprehensive right of use covering the entire land.
One of the characteristics of ordinary superficies is that the holder of superficies is relatively free to determine the type and structure of the building as long as it is within the scope of the granted land. However, if the use or structure of the building is restricted in the contract, it is necessary to comply with those restrictions.
It is also possible to establish an ordinary surface right as a perpetual right. If the term of duration is not specified, the court will determine the term of duration to be between 20 and 50 years at the request of the parties.
Compartmentalized surface rights are rights to use a specific area of land underground or above the ground. It is a system newly established by the 1992 amendment of the Civil Code for the purpose of effective use of land in urban areas.
The following are examples of specific uses of condominium interests in superficies.
Example of underground use:
Examples of above-ground use:
Compartmentalized superficies play an important role in land utilization, especially in urban areas, as an epoch-making system that enables three-dimensional use of land.
Statutory superficies are superficies that are naturally established under the provisions of the law. The most typical case is when land and buildings are owned by the same person and either one or both of them are mortgaged, and the owners of the land and buildings are different due to the execution of the mortgage.
In such a situation, the building owner loses the right to use the land, so a statutory superficies right is established pursuant to Article 388 of the Civil Code to protect the rights of the building owner.
The term of the statutory superficies is 30 years according to the Land and House Lease Law, and the provisions of the Land and House Lease Law also apply to subsequent renewals.
The characteristics of the various types of superficies are summarized in the table below.
| Type | Scope of use | Main use | Establishment Method | Characteristics |
|---|---|---|---|---|
| Common surface rights | Entire surface of land | Building construction | Creation by contract | Comprehensive right of use |
| Compartmentalized superficies | Specific scope of underground and overhead | Infrastructure development | Settlement by contract | Three-dimensional use |
| Legal surface rights | Land Surface | Building protection | Automatically established by law | at the time of mortgage execution, etc. |
Each of these superficies has different purposes and characteristics, and must be appropriately selected according to the specific land use situation.
When establishing superficies, it is important to follow the appropriate contractual and registration procedures. Proper understanding and implementation of these procedures will ensure that the rights of the superficies holder are protected.
Creation of superficies is done through a contract between the landowner (settlor) and the superficies holder (grantee). In this contract, the following items must be clearly stipulated.
The main matters to be stipulated in the contract:
(1) Purpose of the surface right
The type, use, and structure of the building should be specifically described. Clarifying the use of the building, such as residential, commercial, industrial, etc., will prevent problems at a later date. 2.
2. scope of surface rights
Specify the exact extent of the subject land. In the case of a condominium interests, the specific scope of the underground and overhead areas must also be clearly stated.
Duration
Specify the term of the superficies. If no term is specified, the court will determine the term to be between 20 and 50 years in accordance with the Civil Code.
4. rent
The amount of rent, the time of payment, the method of payment, etc. are stipulated. Although the payment of ground rent is not a legal obligation under superficies, it is common practice to stipulate the amount of ground rent.
Structure and size of building
If there are any restrictions on the structure (wooden, reinforced concrete, etc.) or scale (number of floors, total floor space, etc.) of the building, these should be clearly stated.
It is important to apply for registration of superficies as soon as possible after the conclusion of the superficies agreement. By registering the superficies, the rights of the superficies holder can be reliably protected against third parties.
Procedures for applying for registration:
1) Prepare an application for registration
Prepare an application for registration according to the format prescribed by the Legal Affairs Bureau. The application should state the purpose, scope, duration, land rent, and other details of the superficies. 2.
Preparation of necessary documents
Prepare the following documents
Payment of registration tax
Payment of registration and license tax equivalent to 0.1% of the assessed value of the fixed assets. 4.
Application to the Legal Affairs Bureau
Submit the application for registration and necessary documents to the Legal Affairs Bureau.
The following items will be registered in the registry.
| Matters to be registered | Description |
|---|---|
| Purpose of registration | Creation of superficies |
| Cause of registration | Date of contract and contract of creation |
| Purpose of superficies | Specific purpose of building ownership, etc. |
| Scope | All or part of the land |
| Duration | Term of establishment (if any) |
| Land rent | Annual amount and payment date |
| Superficially right holders | Name and address |
The importance of registering the creation of superficies lies in the following points.
Fulfillment of Requirements for Opposition to Third Parties
Registration allows the holder of superficies to assert his/her rights against third parties. Even if the land is sold to a third party, the registered superficies remain effective against the new owner.
Clarification of rights
Registration makes the details of superficies publicly known, thus clarifying rights and improving the security of transactions.
Collateral value for financing
Registered superficies may be valued as collateral for loans from financial institutions.
There are a few practical points to note when creating and registering superficies.
Detailed description of the agreement
It is important to be as detailed as possible in the agreement establishing superficies in order to prevent problems at a later date. In particular, it is necessary to clearly stipulate restrictions on the use and structure of the building, the method of revising the land rent, and the treatment of the building upon termination of the contract.
Tax Treatment
The establishment of superficies may have various tax consequences. It is recommended that you consult with a tax accountant or other specialist regarding income tax, corporate tax, inheritance tax, fixed asset tax, etc. in advance.
Compliance with Building Standard Law and Other Laws and Regulations
When constructing a building with superficies, it is necessary to comply with the Building Standard Law, Urban Planning Law, and other related laws and regulations. It is important to fully investigate building feasibility in advance.
When considering the establishment of superficies, it is important to fully understand the advantages and disadvantages for both the superficies holder and the land owner. By properly evaluating these advantages and disadvantages, it is possible to negotiate better contract terms and avoid risks.
Significant reduction in initial investment
The biggest advantage of superficies is that there is no need to purchase land. Since land prices in urban areas are extremely high, the ability to reduce land purchase costs is a major advantage when raising funds at the start of a project.
For example, if a building is to be constructed on land worth 100 million yen in central Tokyo, superficies eliminate the need to purchase the land, and that amount can be allocated to building construction costs and business operation funds.
High degree of freedom of use
Because superficies are a property right, you can construct, renovate, or expand a building without obtaining the landowner's consent. In addition, the building can be sold to a third party or mortgaged at will.
This degree of freedom is extremely important to ensure flexibility in business development. It allows for quick changes in business strategies in response to changes in market conditions.
Ensuring long-term stable use
Properly established surface rights ensure stable land use over the long term. Unlike leaseholds, there is less risk of unilateral termination of the contract due to the convenience of the landowner, making long-term business planning easier.
Reduced burden of consent fees, etc.
In the case of leaseholds, an approval fee must be paid to the landowner when selling or mortgaging the building. In principle, there is also no obligation to pay a renewal fee at the time of contract renewal.
Restrictions on financing
Buildings with surface rights may be subject to restrictions when obtaining financing from financial institutions. Since there is no ownership of the land, the collateral value tends to be assessed lower, which may lead to stricter financing conditions.
Risk upon expiration of term
When the term of superficies expires, in principle, the building must be removed and the land returned. Since the cost of removing the building is borne by the superficies holder, a large cost burden may be incurred when the term expires.
Restrictions on Sale
Buildings with surface rights tend to be valued at a lower market value than those with ownership rights. Also, the number of prospective buyers may be limited, and it may take time to sell the property.
Burden of Land Rent
If the contract stipulates the payment of ground rent, there will be an ongoing burden of ground rent. If there is a clause to revise the land rent, there is a risk that the land rent may increase in the future.
Effective use of land
Land that is not planned to be used for personal use can generate income by establishing superficies. In particular, for land in a good location, it is possible to secure stable income by establishing superficies.
Securing lump-sum income
When superficies are established, upfront payment (rights fee) may be received. This lump sum can be a significant source of income for the landowner.
Retention of land ownership
Since ownership of the land is retained when superficies are established, the land is returned to the owner at the end of the term. This can be used as part of a long-term asset holding strategy.
Reduction of management burden
The use of the land by the surface rights holder reduces the burden of land management. Especially for land located in remote areas, the management effort and cost can be reduced.
Restriction of use
During the period when surface rights are established, the landowner is not free to use the land. The options for land use are limited due to restrictions on personal use and sale to third parties.
Limitation of Profit
With superficies, continuous income from ground rent and renewal fees may not be expected as in the case of leaseholds. In particular, in the case of a contract that does not stipulate ground rent, the only income is a lump-sum payment at the time of establishment.
Difficulty in selling the land
Land with surface rights is difficult to sell to third parties. Since the number of potential buyers is limited, the market value of the land may decline.
Uncertainty at expiration of term
If the superficies holder does not properly remove the building at the expiration of the term, the land owner may have to bear the removal costs.
| Standpoint | Advantages | Demerit |
|---|---|---|
| Superficies | Reduction of initial investment Freedom of use Stable long-term use No approval fees, etc. required |
Financing restrictions Term Expiration Risk Constraints on sale Land rent burden |
| Land Owner | Effective use of land Lump-sum income Retention of ownership Management Burden Reduction |
Restricted use Limited income Difficulty of sale Uncertainty at expiration of term |
It is important to comprehensively consider these advantages and disadvantages and determine whether the establishment of superficies is appropriate in light of your specific business plan and asset strategy.
Understanding the duration and renewal of surface rights is critical to long-term land use planning. Appropriate term setting and renewal procedures will ensure stable business operations.
The Civil Code and the Land and House Lease Law provide the following principles for the duration of superficies.
Principle of freedom of contract
The duration of superficies can be freely determined by agreement between the parties. Both short and long terms are possible, and in theory, perpetual superficies can be established.
This principle of freedom of contract makes it possible to set the optimal duration depending on the nature of the project and the investment payback period. For example, a long-term term of 50 years or more can be set for the construction of a large-scale commercial facility, while a short-term term of a few years can be set for a temporary building.
Treatment of cases where no term is stipulated
If the parties have not stipulated a term of duration, the court will stipulate a term of duration between 20 and 50 years at the request of the parties, pursuant to Article 268 of the Civil Code.
In this case, the court will determine the term by comprehensively considering the following factors
The following special provisions apply to superficies for the purpose of building ownership, subject to the Land and House Lease Law.
Minimum Duration
According to Article 3 of the Land and House Lease Law, the term of a superficies right for the purpose of building ownership must be at least 30 years; even if a term of less than 30 years is stipulated, it may be extended to 30 years by law.
The purpose of this provision is to ensure a payback period for the building owner's investment and to promote stable land use.
Cases in which no term is stipulated
In the case of superficies for the purpose of building ownership with no fixed term, a 30-year term is set in accordance with Article 4 of the Land and House Lease Law.
Renewal of superficies under the Civil Code and the Land and House Lease Law are treated differently.
Renewal of Civil Code superficies
There is no automatic renewal provision for pure civil law superficies. If renewal is desired at the expiration of the term, a renewal agreement must be concluded by agreement between the parties.
The terms of renewal can be freely determined between the parties. It is possible to form a new agreement on the duration, ground rent, and other conditions.
Renewal of superficies subject to the Land and House Lease Law
The renewal provisions of the Land and House Lease Law apply to superficies for the purpose of owning a building.
1. renewal by agreement
In the case of renewal by agreement between the parties, the duration after renewal is as follows
2. statutory renewal
Legal renewal is granted when the surface right holder wishes to continue to use the land at the expiration of the term and the landowner does not object without justifiable reason.
The following principles apply to the treatment of superficies upon expiration of the term of superficies.
Obligation to remove the building
In principle, the superficies holder is obligated to remove the building at the expiration of the term and return the land to its original state. The cost of removal shall be borne by the superficies holder.
Right to demand purchase of the building
In the case of superficies subject to the Land and House Lease Law, the superficies holder may demand the landowner to purchase the building if certain requirements are met (Article 13 of the Land and House Lease Law).
This right enables the superficies holder to sell the building at a fair price without having to bear the cost of removing the building.
In practice, the following factors must be comprehensively considered when setting the duration of superficies
Consistency with the business plan
It is important to ensure a sufficient term of duration, taking into consideration the useful life of the building to be constructed and the payback period of the project.
Impact on financing conditions
When obtaining financing from a financial institution, the duration of the lease may affect the terms of the loan. In general, long-term surface rights tend to be valued more highly.
Tax Treatment
Tax treatment may differ depending on the length of the term of duration. In particular, duration is an important factor in the assessment of inheritance and gift taxes.
When renewing superficies, the following points should be noted.
Review of renewal conditions
At the time of renewal, it is important to review the revision of land rent, building use restrictions, and other contract terms.
Registration procedures
If the renewal changes the duration of the superficies, it is necessary to apply for registration of the change of superficies.
Tax Declaration
If there is a transfer of rights due to the renewal, appropriate tax reporting is required.
Proper understanding and planning for the duration and renewal of superficies can ensure stable land use over the long term. It is recommended to set the most appropriate terms and conditions with the advice of an expert.
This article has provided a comprehensive explanation of superficies, from basic concepts to practical considerations. As a powerful right to use another person's land, superficies play an important role in real estate transactions.
Essence of superficies
A superficies right is a usufructuary right stipulated in Article 265 of the Civil Code, and is a right to own structures or bamboos and trees on another person's land. Due to its nature as a property right, it has a very strong right compared to the right of lease, which is a claim.
Difference between superficies and lease rights
A superficies holder is free to sell, mortgage, transfer, or sublease the building without the consent of the landowner. On the other hand, leaseholds require the consent of the landowner and payment of a consent fee.
Types of superficies
There are three types of superficies: ordinary superficies, compartmentalized superficies, and statutory superficies, each of which has different characteristics and situations of use. Particularly, the compartmentalized superficies are an important system for multi-level land use in urban areas.
Importance of Establishment and Registration
Proper contract execution and registration procedures ensure the protection of the rights of the superficies holder. It is essential to ensure the stability of the rights by registering them to ensure that they are enforceable against third parties.
If you are considering a specific study of superficies, we recommend that you proceed with the following steps
Consult with a specialist
When considering the establishment or acquisition of superficies, please consult with a real estate specialist, judicial scrivener, tax accountant, or other expert. You will receive the best advice for your individual circumstances.
Conducting a detailed survey
It is important to conduct a detailed survey of the subject land regarding legal restrictions, building feasibility, tax treatment, etc.
Formulate a financial plan
A comprehensive financial plan should be developed that includes the initial costs associated with the establishment of superficies, ongoing ground rent obligations, and future renewal costs.
INA&Associates Inc. supports our clients with our extensive experience and expertise in real estate rights, including superficies. Please feel free to contact us if you have any questions about complex rights relationships in real estate transactions.
A1: Ground rights and land lease rights are two different concepts. Leasehold is a superordinate concept that refers to "superficies or lease of land for the purpose of owning a building," and surface rights are a type of leasehold. In practice, land lease contracts based on leasehold rights are overwhelmingly common, while land lease contracts based on superficies are relatively rare.
While superficies have strong rights as physical rights, leaseholds remain relative rights as claims. This difference results in significant differences in the degree of freedom of transfer and sublease, the necessity of the landowner's consent, the obligation to pay a consent fee, and so on.
A2. No. Under a surface right, the payment of rent is not a statutory obligation. The payment of rent is determined by contract between the parties. It is legally possible to establish a surface right without payment.
However, in practice, it is common to stipulate a ground rent, and in many cases, especially in the case of superficies for commercial purposes, a substantial amount of ground rent is set. The amount of ground rent and the method of payment are determined based on comprehensive consideration of the location of the land, the intended use of the land, and the duration of the lease.
A3. Mortgages are available for buildings with surface rights, but the financing conditions may be more stringent than for buildings with ownership rights. Financial institutions will carefully evaluate the collateral value and may reduce the loan amount or increase the interest rate.
When obtaining financing, it is important to explain in detail to the financial institution the duration of the superficies, the burden of ground rent, and the possibility of renewal, and to undergo a thorough screening process. In some cases, you may be able to find more favorable terms by consulting with multiple financial institutions.
A4: When the term of the surface right expires, the surface right holder is obligated, in principle, to remove the building and return the land to its original condition. However, in the case of superficies subject to the Land and House Lease Law, statutory renewal and the right to demand purchase of the building are possible if certain requirements are met.
Renewal is generally discussed before the expiration of the term, and the superficies can be continued under new conditions by agreement between the parties. If renewal is difficult, it is important to consider measures such as sale or transfer of the building in advance.
A5: Surface rights are inherited by the heirs as inherited property. The consent of the landowner is not required for the inheritance of superficies, and the rights are transferred by inheritance registration.
In the calculation of inheritance tax, the assessed value of the superficies is the taxable value of the superficies. The valuation of superficies is based on the value of the land, the duration of the superficies, and the burden of land rent, etc. In general, superficies are valued lower than land ownership rights. At the time of inheritance, it is important to consult a tax accountant or other specialist for proper valuation and declaration.
For more detailed information or individual consultation regarding surface rights, please contact one of these professional organizations or experts. With the support of professionals with the appropriate expertise, you will be able to utilize your surface rights safely and reliably.