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.
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
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.
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.
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.
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:
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.
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:
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.
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
After the contract is terminated, the tenant is required to vacate the building. 3.
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
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.
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
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.
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
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.
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
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.
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.
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:
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.
The following costs will be incurred for compulsory execution:
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.
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.
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:
These acts violate tenants' privacy and right of occupancy, and may be subject to a claim for damages as a tort.
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
Estimated costs for hiring a specialist:
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.
Preservation of evidence is very important when proceeding with legal proceedings. Be sure to keep the following documents and records:
These evidences will be important materials to support your claim in court.
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.
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.
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.
The process from rent delinquency to compulsory execution is based on legally established procedures. This process involves the following steps
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.
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.
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