Handling Rent Arrears: From Initial Response to Legal Enforcement

In real estate management, rent arrears are one of the unavoidable problems. Rent payments may become delinquent due to deterioration of the tenant's financial situation or various other circumstances. However, rent is an important source of income for owners, and continued nonpayment of rent can seriously affect cash flow. Understanding the legal procedures from rent arrears to compulsory execution, and responding at the appropriate time, is essential to stabilize real estate management. This article explains the sequence of events from the occurrence of rent arrears to the compulsory execution of surrender, taking into account the legal aspects.

1. initial response to rent delinquency

1-1. demand by management company

When rent arrears occur, the basic response is to first send a demand to the tenant through the management company. At this stage, it is advisable to ask the management company to do this, rather than the owner himself contacting the company directly.

The management company will usually use the following means to make the demand

• Contact by phone
• Visiting to meet with the owner
• Sending a demand letter

At this time, it is important to not only ask for payment, but also to confirm the reason for the delinquency and the prospects for future payment.

1-2. contacting the guarantor

If there is no response from the tenant himself/herself or there is no prospect of payment, contact the joint guarantor. The joint guarantor has the same obligation to pay as the tenant, and can be notified of the fact that rent is overdue and asked to pay.

It is especially important to note that contacting the joint guarantor requires the setting of a limit amount due to a revision of the Civil Code. The maximum amount is the maximum amount for which the cosigner is liable, and must be clearly stated in the contract.

1-3. actions to be taken when a guarantee company intervenes

Rent guarantee companies are increasingly being used in recent rental contracts. If a rent guarantee company is attached, the management company will contact the guarantee company as soon as a delinquency occurs. The guarantee company pays the owner the rent in arrears according to the contract, and the guarantee company then sends a reminder to the tenant.

In cases where a guarantee company is used, the impact on the owner is relatively small, but it should be noted that the scope and duration of the guarantee by the guarantee company is limited.

2. preparatory stage of legal procedures

2-1. demand by content-certified mail

If rent arrears continue for more than one month, consider sending a demand by content-certified mail. Content-certified mail is a mail service in which the post office certifies "who sent a document with what contents to whom and when.

Points to consider when sending a content-certified mail:

• Clearly state the fact (period and amount) of the delinquency.
• Set a clear deadline for payment.
• State the measures to be taken (contract cancellation, etc.) if payment is not made by the due date.
• Attach proof of delivery to confirm that the mail has been delivered to the recipient.

This certified mail will be very important evidence in a later trial. Since you can specifically prove "when" and "what kind of notice" was given, be sure to keep it in a safe place.

2-2. sending a notice of demand and contract termination

When rent arrears exceed two to three months, a "notice of demand and termination of contract" will be sent by content-certified mail. This is to notify the tenant that if payment is not made within a certain period of time (usually about one week), the lease contract will be terminated.

Items to be included in the notice:

• Amount and period of rent in arrears
• The due date for payment
• If payment is not made by the due date, the contract will be cancelled.
• A request to vacate the building after the contract is terminated
• The same information must be notified to the guarantor.

This notice is the first step in the legal process, as it serves as both a notice of demand for performance and a notice of intent to terminate in accordance with Article 541 of the Civil Code.

2-3. cancellation of lease contract

If payment is not made within the notice period, the lease contract will be cancelled. Cancellation of the lease contract is not permitted merely for nonpayment of rent, but it is necessary to fulfill the legal requirement of "breaking the relationship of trust.

Court decisions tend to recognize a breach of trust if the tenant has been in arrears for three months or more, but the decision may differ depending on the circumstances of the arrears and the tenant's attitude.

The following factors are important for a contract termination to be effective

• Appropriate notice (demanding payment within a reasonable period of time) was given.
• Failure to pay after the notice
• The degree of nonpayment must be serious enough to destroy the relationship of trust.
• The intention to terminate the contract must have been clearly communicated to the other party.

After the contract is terminated, the tenant is required to vacate the building. 3.

3. lawsuit demanding vacating the building

3-1. filing a lawsuit demanding surrender of the building

If the tenant does not voluntarily vacate the premises after the notice and termination of the contract, a "lawsuit demanding surrender of the building" will be filed with the court. This lawsuit demands that the tenant vacate the building and pay the rent in arrears.

The complaint should include the following information

• Information about the parties (lessor and lessee)
• A summary of the lease agreement
• Fact and amount of rent arrears
• History of the demand and termination of the contract
• Details of the judgment sought (surrender of the building and payment of delinquent rent)

When filing a lawsuit, you will need to pay for revenue stamps (varies depending on the amount of the suit) and postage stamps (about 6,000 yen). If the amount of the suit is relatively low, it is possible to use a simplified procedure called a lawsuit on small claim, but for building surrender, it is common to go through the ordinary lawsuit procedure.

3-2. proceeding of the trial

After the complaint is filed, the court will serve a duplicate copy of the complaint to the defendant (tenant) and designate the first date for oral argument. The trial generally proceeds as follows

1. First oral argument: Both parties appear in court and confirm the purpose and cause of the claim.
2. Submission of written answer: If the defendant disputes the claim, the defendant submits a written answer.
3. Examination of evidence: Examination of witnesses and examination of documentary evidence are conducted as necessary.
4. Conclusion of pleadings: When it is judged that both sides have exhausted their arguments, the case is concluded.
5. Rendition of judgment: Judgment is usually rendered about two weeks after the conclusion of the trial.

If the defendant refuses to accept the complaint or does not respond to it, the procedure of service of public notice or summary judgment may be taken.

In most cases of rent arrearage cases, since there are clear facts, a judgment is usually obtained within one to two months after the first oral argument.

3-3. possibility of settlement

During the course of the trial, the court may recommend settlement. Especially in cases where the defendant attends the trial and offers to pay rent in installments, a settlement may be sought.

The main contents of a settlement include the following

• Paying the rent in arrears within a certain period of time and continuing the contract
• Promise to move out voluntarily after a certain period of time
• Establishing a plan to pay the delinquent rent in installments

There are two types of settlements: judicial settlements, which are enforceable, and out-of-court settlements, which are simply promises. If enforcement is a prerequisite, a judicial settlement is preferable. 4.

Procedures for Compulsory Execution

4-1. preparation for petition for compulsory execution

If the resident does not voluntarily move out even after the judgment becomes final and binding, the procedure for compulsory execution is to be taken. To file a petition for compulsory execution, the following documents are required

1. An authenticated copy of the judgment with a sentence of execution attached
2. A certificate of service (proof that the judgment has been served on the other party)
3. A petition for compulsory execution

The grant of a certificate of execution is filed with the clerk of the court that rendered the judgment. A certificate of service is likewise issued by the court.

4-2. notice by a court execution officer

Once the petition for compulsory execution is accepted, a bailiff is appointed by the court and conducts an on-site inspection. The bailiff will issue a "notice" to the tenant and urge him/her to voluntarily vacate the premises.

At the time of the notice, the bailiff visits the subject property and meets with the resident. At this stage, if the resident voluntarily vacates the property, enforcement can be avoided. However, if the resident does not respond to the notice, a date and time for enforcement will be set.

Generally, it takes about two weeks from the filing of a petition to a demand, and about one month from the demand to the date of execution (actual date of eviction). 4-3.

4-3. execution of compulsory execution (execution of surrender)

If the tenant does not vacate the premises even after the demand notice, compulsory execution (execution to turn over the property) will finally be carried out. Compulsory execution is carried out in the presence of a bailiff, with the cooperation of movers, key changers, etc.

Flow of compulsory execution:

1. The bailiff and relevant personnel arrive at the subject property
2. The bailiff orders the resident to vacate the premises
3. Remove the tenant's possessions (storage space for belongings is required)
4. Change the locks
5. The condition of the property is checked and the execution is completed

In principle, the cost of compulsory execution is borne by the debtor (resident), but in practice, the lessor will bear the cost temporarily and will be charged at a later date.

4-4. costs for compulsory execution

The following costs will be incurred for compulsory execution:

1. Prepayment to the court: approximately 70,000 yen
2. Cost to the moving company:
   • Property for one person: about 200,000-300,000 yen
   • Family type (3LDK): about 500,000-600,000 yen
   • If you have a lot of luggage: 1,000,000 yen or more
3. Key replacement cost: about 10,000-20,000 yen

Since these costs vary greatly depending on the size of the property and the amount of luggage, it is recommended that an estimate be obtained in advance.

5. points of caution that property owners should be aware of

5-1. responding at the appropriate time

Early response to rent arrears is extremely important. It is necessary to contact the property owner through the property management company as soon as the delinquency begins and ascertain the situation. The longer the arrears are in arrears, the more difficult it becomes to collect, so it is recommended that legal proceedings be considered within three months.

In particular, it is important to note that there is a statute of limitations (5 years) for delinquent rent. If left unattended for a long period of time, the right to claim may be extinguished by the statute of limitations.

5-2. compliance with laws and regulations

When dealing with rent arrears, it is essential to comply with laws and regulations. The following actions are considered abuse of rights and may result in legal liability, and should be avoided at all costs:

• Contacting anyone other than your employer, school, or cosigner
• Early morning or late night (8pm-7am) calls or visits
• Multiple calls or visits on the same day
• Posting reminders in common areas or at the front door
• Changing locks or entering a room without permission
• Unauthorized removal of household goods
• Threats or sitting out of the apartment

These acts violate tenants' privacy and right of occupancy, and may be subject to a claim for damages as a tort.

5-3. consultation with specialists

Legal procedures from rent arrearage to compulsory execution are complex and require specialized knowledge. In particular, it is advisable to consult an attorney or other specialist in the following cases

• When there are high arrears
• If the problem with the tenant is complicated
• When enforcement action may be necessary
• If the whereabouts of the tenant are unknown
• If you are concerned about preparing legal documents

Estimated costs for hiring a specialist:

• Consultation fee: free of charge - 5,500 yen (first 30 minutes)
• Initial fee: 220,000-330,000 yen
• Contingency fee: 220,000-440,000 yen
• Daily allowance: 10,000 to 30,000 yen

Although these fees may seem expensive at first glance, they are considered to be beneficial in the long run if appropriate legal action results in the collection of delinquent rent and early vacating of the property.

5-4. preservation of evidence

Preservation of evidence is very important when proceeding with legal proceedings. Be sure to keep the following documents and records:

• A copy of the lease agreement
• Records of rent transfers (payment status)
• Records of demand for payment (telephone records, visitation records)
• Copies of certified mail and proof of delivery
• Notes and records related to interactions with tenants
• Photographs and videos (condition of the property, etc.)

These evidences will be important materials to support your claim in court.

6. recent judicial precedents and trends of legal amendments

6-1. important judicial precedents on lease contracts

Recent precedents have provided some important decisions regarding rent arrears and demands for surrender.

For example, the Supreme Court ruled that a clause in the contract of a rent guarantee company that deems a tenant to have vacated the property when he or she is two months in arrears of rent and cannot be contacted is illegal. This decision reaffirms the principle that proper legal procedures are necessary for vacating the property.

6-2. Impact of Amendments to the Civil Execution Law

In March 2021, a rent delinquent was sent to the Tokyo Metropolitan Police Department for prosecution, which attracted attention as the first event after the revision of the Civil Execution Law. It is expected that the amendment of the Civil Execution Law will strengthen the procedures for disclosure of debtors' assets and make the collection of delinquent rent more effective.

6-3. Civil Code Amendment on Guarantees

The April 2020 amendment to the Civil Code requires that a maximum amount be set for individual revolving guaranty contracts. This has resulted in the establishment of an upper limit to the joint guarantor's liability. For example, when the maximum amount is set at 1.2 million yen, even if the rent in arrears reaches 1.5 million yen, the maximum amount that can be claimed from the joint guarantor is 1.2 million yen.

This amendment is intended to clarify the burden on the guarantor in the lease contract and to avoid excessive liability. As a real estate owner, it is important to consider setting an appropriate maximum amount and using a guarantee company.

7. Conclusion

The process from rent delinquency to compulsory execution is based on legally established procedures. This process involves the following steps

1. Discovery of delinquency and initial response (reminder, contact with joint guarantor)
2. Preparation for legal proceedings (content-certified mail, notice of contract cancellation)
3. Filing of a lawsuit demanding surrender of the building and proceeding to trial
4. Realization of surrender by compulsory execution

By taking appropriate measures at each stage, collection of delinquent rent and early surrender of the property can be realized. At the same time, we must not forget that we must comply with laws and regulations and respect the rights of tenants.

The issue of rent arrears is a major challenge for property owners, but with proper knowledge and early action, losses can be minimized. In particularly complex cases, professional assistance can help to resolve the issue more effectively.

About INA&Associates K.K.

INA&Associates K.K. is a general real estate company that develops real estate brokerage, rental brokerage, and property management. INA&Associates was established in February 2020.

At INA&Associates, "human resources" and "trust" are at the core of our management, and we aim to be a good partner that brings value to our clients' lives, not just a mere property transaction. Based in Osaka, Tokyo, and Kanagawa, INA&Associates is actively developing a business that combines real estate and IT, providing innovative services such as "Town Map," an online real estate service, "INA WEB," a website development service for real estate companies, and "INAA Rental Management," a flat-rate rental management business. INAA offers innovative services such as "Town Map," an online real estate service, and "INA WEB," a website building service for real estate companies.

If you have any questions about rental management or real estate investment, please contact INA & Associates, Inc. Our professional staff will be happy to assist you.