Formerly the building which housed Japan's Ministry of Justice

Civil Code Amendment

The Ministry of Justice’s amendment to Japan’s Civil Code will be put into action April 1, 2020, the start to Japan’s calendar year. The revision to Japan’s Civil Code will be the first since 1890, the first revision in 120 years.

For information directly from the Ministry of Justice regarding the revision click here

One of the RE/MAX office’s in Osaka, Japan has shared a summary on the revision in a simple and clear manner. We will translate the Japanese text to English for you, our English speaking readers.

The Broker/Owner of RE/MAX L-Style, Masaki Ohnishi was the original author to the summary. This will be a two part summarization of Japan’s Civil Code, to match the original, we will make our English summary two parts as well.
For the original summary click here.

The summary will focus on the legal matters in relation to real estate transaction, mainly the details written within the real estate sales contract. Questions might arise such as what to keep in mind when you are involved in a real estate contract, both sales and lease.

Part 1 will focus on three topics:

  1. Defective Liabilities to Conformance/Non-Conformance Liabilities
  2. The notification period for Non-Conformance Liabilities
  3. The buyers right to claim any “defects” from the seller in the event of a “failed” contract. (Contract Disputes)
When investing, taking responsibility, accounting for your liabilities is quite important

1.Defective Liabilities to Non-Conformance Liabilities

You may have heard of the phrase “defective liabilities” (瑕疵担保責任) in the past. From April, the wording will change from Defective Liabilities (瑕疵担保責任) to Non-Conformance Liabilities (契約不適合責任).

Many people may believe the Ministry of Justice changed the wording and not the meaning behind the change in wording.
Conventional thinking says real estate is an irreplaceable “object” (unique), and even if there are hidden defects, the seller should not be held liable for the hidden defects. Simply put, the seller is to transfer the rights and keys to the buyer.

With the conventional thinking, it might have seemed “unfair” to the buyer who only has two options when a defects is found, the right to claim damages or contract termination.

The premise behind the revision to Japan’s Civil Code is for the seller to not only deliver the piece of real estate as is, but also bear the contractual obligation to deliver the property which matches the contents or description written in the real estate contract. If the property is found to have a “defect,” the seller will be held liable.

In a sales contract, if the object (property) delivered to the buyer does not “match” the contents in the contract in terms of type, quality or quantity, the buyer gives the seller the contents of the original obligation under the contract.

Formerly a written request (claim) for supplemental repairs would be made to the seller if any defects were found. With the new revision to Japan’s Civil Code, the buyer has the right to request for a price reduction. Price in the sale of real estate.

From April 1, 2020, the buyer will now have the right to request a price reduction as well as the right to claim any damages or defects as well as cancel the sales agreement.

The period where you have to notify the other party depends on the said agreement between parties. These announcement are vital when defects are found

2.Notification Period for Non-Conformance Liabilities

The seller not liable for defects (瑕疵担保責任), and in the case where the seller is held liable, the notification period for the buyer to exercise the right to claim any defects, the seller to be liable for any defects will be written in the sales agreement.

The revision, a description for the notification period for Non-Conformance Liabilities (契約不適合責任).
In principle, the concept is based on the premise where the seller will be liable for any non-conformances.

*A separate agreement will be negotiated for any exemptions.

*The notification period for agencies which hold a brokerage license will be unchanged. (2 year notification period)

This photo depicts a contracting situation where both parties have agreed upon the clauses and conditions prior to signing.

3.The Buyer’s right to claim any “defects” from the seller in the event of a “failed” contract. (Contract Disputes)

Buyers now have the right to repair any defects. In addition, if the seller does not agree to repair the defect because of contract non-conformance, the buyer has the right to reduce the selling price.

The describe the actual flow when a defect or when the contents of the sales contract are different to the actual property the buyer can,

Defects to the property is found
⇒ The right to request repairs

If the seller is found negligent or at fault
⇒ The right to claim damages

The seller is not responding to the request for repairs or claim to damages. As a result the purpose of the contract cannot be achieved
⇒ The right to cancel the contract

When there are damages even when the contract has been cancelled (the seller is at fault or found negligent)
⇒ The right to claim damages

Under the amended Civil Code, the seller is not exempted from any defects even if the buyer is aware of the nonconformity at the time of entering into the contract.

Therefore, it is extremely important to have the resolution in writing within the real estate contract.

As real estate agents, our due diligence is extremely important. We have a fiduciary duty for our clients as well as our own.

To conclude Part 1

If the quality of said property is not indicated in the sales contract, the terms of special clauses and conditions, and those contents are not disclosed to the other part, it is highly likely there will be defects found or breach of contract.

It is our fiduciary duty as a real estate brokerage to avoid such risks on behalf of our sellers.

The contents of the contract is not to merely have the defects written, having the clauses and conditions in place if and when defects are found, having the buyer understand the “risk” involved, and having the seller free of all liabilities, but to have both parties in agreement on the transfer of real estate rights. It is extremely important to have these agreements, both the buyer and sellers, in writing within the real estate contracts.

The responsibility of real estate brokerages are increasing, and the sellers’ selection of real estate agents is extremely important as well. Not selecting the correct representation will cause harm in the future. Harm in the sense of the seller being held liable for any defects and undisclosed information.

We believe this is a great opportunity for us, RE/MAX JAPAN and all the affiliated agents and brokerages.
Brokerages who do not have the knowledge or the will to investigate what is not know, those who do not take the fiduciary duty seriously will disappear.

This concept can and will help to improve the “health” of the real estate industry in Japan.

Continued on Part 2

Once again for the original summary of the revision to Japan’s Civil Code, please take a look at RE/MAX L-Style’s post here.

For additional information, information relating to Osaka, please contact us here