【Leasehold Rights】The right to lease land from the landowner
①Types of Leasehold Rights
【Leasehold Rights Under the Old Law】
If the land has been leased since before August 1992, the former Land Lease Law applies.
Buildings are classified as solid buildings, such as steel-framed and reinforced concrete buildings, and non-solid buildings, such as wooden buildings. Solid buildings have a minimum term of 30 years, while non-solid buildings have a minimum term of 20 years.
They can also be renewed, with a minimum term of 30 years for solid buildings and 20 years for non-solid buildings.
If the duration is shorter than this period, the period is invalid and the minimum duration applies.
If no duration is stipulated at the time of contract, the duration is set at 60 years for solid buildings and 30 years for non-solid buildings.
Under the old leasehold law, the lessor cannot refuse to renew the lease without justifiable reasons, and the leasehold is renewed almost permanently.
【Act on Land and Building Leases】
If you started renting land after August 1992, your tenancy is bound by the Act on Land and Building Leases. Act on Land and Building Leases is divided into following five types of legal tenancies.
(1) Standard Leasehold Right
A leasehold right based on the content of the former Land Lease Act.
There are differences with the old leasehold act in terms of duration: standard leasehold right have a minimum duration of 30 years, irrespective of the structure of the building.
If the lease is renewed, the first renewal is for a period of 20 years, the second and subsequent renewals are for a period of 10 years, or longer if agreed with the lessor.
As with the old legal lease, the lessor cannot refuse to renew the lease without justifiable reasons.
At the end of the duration of the lease, it is also possible to demand that the lessor purchases the building.
(2) Fixed Term Land Leasehold Right (General Fixed Term Land Leasehold Right)
A leasehold right with no renewal of the contract.
A long term of 50 years or more is provided for the lease instead of no renewal.
When the contract ends, the lessee must clear the land and return it.
(3) Fixed Term Land Leasehold Right for Business Purposes
Fixed-term leaseholds when rented for business use. As it is for business use, it cannot be rented for residential use.
The term of duration is between 10 to 50 years. (For contracts concluded before 31 December 2007, the duration is between 10 to 20 years).
The contract must be notarised and the land must be cleared and returned.
(4) Land Leasehold Rights with Special Provisions for Building Transfer
This is one of the fixed-term leaseholds with a duration of 30 years or more and a stipulation at the time of contract that the building on the leased land is to be sold to the lessor at the end of the lease.
(5) Land Leasehold Right for the Purpose of Temporary Use
Leaseholds used for the temporary use of land for the purpose of temporary building ownership, such as construction and other temporary facilities or prefabricated warehouses. There are no restrictions on the contract method.
Duration is only permitted for short periods of 10 years or less, and the contract cannot be renewed.
②Pros and Cons of Land Leasehold Rights
【Pros】
(1) Tax Payments on Land Can Be Reduced
When you own land, you must pay various taxes such as property tax and city planning tax on the land you own.
In contrast, leaseholds are the right to use the land, so there is no need to pay property tax or city planning tax on the land.
(2) Cheaper than Buying a Building with Ownership Rights
Leasehold buildings can be purchased at a lower cost.
In some cases, it is possible to purchase a building with leasehold rights at a price 70% lower than that of a building with ownership rights. (Depends on the area)
The monthly land rent due to leasehold is also fixed, making it easy to plan for income and expenditure.
(3) Semi-Permanent Tenancies Protected by Law
Except for fixed-term leaseholds, leaseholds can generally be renewed and the lessor cannot refuse to renew the contract without justifiable reasons, so the lease can be renewed semi-permanently.
Although land leaseholds have an image of a weak position for the tenant, the tenant is protected by law, unlike a typical leasehold.
【Cons】
(1) Subject to Certain Restrictions
The landlord's consent is required on all occasions, including when extending or renovating the building, selling or transferring it. In some cases, an approval fee may also be required.
(2) Burden of Land Rent
As the leasehold is not your land, you must always continue to pay land rent. Although there are benefits in terms of property tax and the amount of money saved on building purchases, there may be psychological reluctance to continue paying for land that you do not own.
(3) Bank Financing May Be Difficult to Obtain
As a leasehold building is not an ownership interest in the land, it may lose its
collateral value and it may be difficult to obtain a loan from a bank as intended.
Thus, a prior confirmation is necessary before purchasing a building with a loan.
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