Issues Revealed from the Ministry of Land, Infrastructure, Transport and Tourism Survey Results

The “Basic Housing Plan” (Basic Plan), which was approved by the Cabinet in March 2021, outlines various goals and initiatives to address the current situation and challenges surrounding housing and living conditions.

In the “Basic Housing Plan” (Basic Plan) approved by the Cabinet in March 2021, various goals and initiatives have been set to address the current situation and challenges related to housing and living conditions. Specifically, eight goals have been established from three perspectives, and comprehensive measures are being promoted.

Among these are the establishment of safety net functions for individuals in need of housing, the creation of high-quality housing stock towards achieving a carbon-neutral society, and the resolution of vacant house issues. Furthermore, as part of the measures to promote the revitalization of existing housing markets, “the spread of sound leaseback” is also positioned as an initiative.

As indicated by the term “sound,” various troubles have arisen with leaseback arrangements. For example, in 2023, the number of consultations related to leasebacks at the Tokyo Consumer Life Center reached 113, nearly double the previous year, highlighting a significant increase in issues.

In fact, many inquiries have been received by the author, such as, “I was told the lease could be renewed when I agreed to the sale contract, but it was actually a fixed-term lease, and now I’m being forced to vacate,” as well as, “I realized after signing the contract that the price was much lower than market value, and I asked for a cancellation, but it was not accepted,” and “I was pressured into agreeing to the contract after being forced to stay in my home for a long time.” Leaseback-related troubles are happening in close proximity.

While the Consumer Affairs Center and consumer centers across the country have not published statistics on the number of consultations received, it is certain that the number is on the rise. In response, the Ministry of Land, Infrastructure, Transport, and Tourism (MLIT) took various measures, including compiling a “Guidebook on Housing Leasebacks” in June 2022 to promote consumer understanding.

Although leasebacks are generally seen in a negative light, when properly managed, they can be a contract method with many benefits for consumers, such as receiving lump-sum funds while continuing to live in their familiar home and not having to pay property taxes.

The Ministry of Land, Infrastructure, Transport, and Tourism recognizes the need for actual investigations to promote the spread of sound leasebacks. Through real estate guarantee associations, an online survey was conducted with real estate agents, and the results were published on February 17, 2025.

According to the survey, issues have been highlighted, such as 44% of agents responding that they either “did not explain the cooling-off period” or only “explained it when asked.”

Based on these survey results, this article will discuss the necessary mindset changes to conclude sound leaseback agreements.

Many businesses want to take action in the future.

A total of 586 businesses responded to the survey. According to the Ministry of Land, Infrastructure, Transport and Tourism, the number of real estate transaction businesses as of the end of March 2024 is 130,583, which has increased for 10 consecutive years. Statistically speaking, the survey results may not fully represent the trends of all businesses, but they can still provide a useful reference.

Firstly, while only 10% of respondents indicated they are currently engaged in leaseback, 25% of businesses expressed interest in pursuing it in the future.

Generally, the purchase price for leasebacks is set at about 60% to 80% of the market value. After the purchase, the original owner continues to live in the property as a tenant, so immediate income gains are not realized. However, since occupancy is guaranteed and higher-than-average rent can often be set, there is a high potential for favorable capital gains.

In recent years, rental yields for well-located and aesthetically pleasing investment properties are typically around 4% to 6%. In contrast, leaseback offers the potential for both future income gains and capital gains, making it a highly attractive investment strategy for businesses.

If a business manages more than 200 units, they must be registered as a property management business, but if they manage only a few leaseback properties, registration is not required.

As long as the necessary purchase funds are secured, businesses can expect high-yield rental income, and if they accurately assess the purchase price, they can also look forward to potential income gains from resale, which is why many businesses are interested in pursuing leaseback deals.

Issues related to explanation

If the rent is set higher than the market rate and the purchase price is kept lower than the typical purchase amount, the profit that can be earned becomes significant.

The leaseback agreement itself is not illegal; if the seller agrees to the sale price and the set rent, and the contract is concluded willingly, there is no issue. However, in reality, many problems have occurred.

“A leaseback agreement is structured with both a sales contract and a specific lease contract being separately signed. The real estate company that purchases the property is considered a “specific sublease business operator” in the lease agreement, so when entering into the specific lease agreement, they have an obligation to provide a document outlining the specific contents of the contract and related matters before the contract is signed, and explain them beforehand (pre-contract explanation of important matters for specific lease agreements).”

However, due to information asymmetry, misuse of legal knowledge, and contracts that favor one side, the profit margin from both income gains and capital gains can increase significantly. As a result, discrepancies between the explanation and contract terms occur, and aggressive solicitation happens.

In this survey, when asked whether they explained that cooling-off is not possible at the time of the purchase contract, 56% of the companies responded that they “always explain,” while 22% responded that they “do not explain,” and 22% said they “explain only if asked.” This means that 44% of the companies do not actively explain.

Cooling-off is a system that allows consumers to freely withdraw from a contract within a certain period after the contract is signed. This system is designed to protect consumers from situations where they were “strongly solicited and reluctantly agreed to the contract” or “signed the contract without fully understanding the contents.”

However, cooling-off is only applicable in real estate sales contracts when the seller is a licensed real estate company, and the contract is signed at the real estate company’s office or at a location other than the buyer’s home or workplace. If the conditions for applying cooling-off are not met, the failure to explain it does not immediately violate the Real Estate Transaction Act.

However, actions like staying at the consumer’s home for a long time may fall under the criminal offense of “unlawful stay” under Article 130 of the Penal Code. Also, if a different explanation is given regarding important matters (false disclosure), or if the contract is signed while the consumer is confused, the contract may be canceled based on consumer protection laws.

In this survey, there was an open-ended question asking about the “issues related to leaseback.” Among the responses, some pointed out concerns such as: “The businesses only convey the benefits of leaseback and do not mention the risks or disadvantages,” “Consumers are signing contracts without understanding the terms,” and “There are discrepancies between the explanations given and the terms listed in the contract.” These responses indicate potential violations of the Real Estate Transaction Act or consumer contract laws.

There are multiple issues.

The purchase price, the planned rent setting, and the method of solicitation are all causes of problems. However, what should not be overlooked are the terms of the lease agreement and the matters related to penalties for breach of contract.

Regarding the form of lease agreements used in sublease rentals, the survey results from multiple answers showed that 71% of respondents use “standard lease agreements” and 48% use “fixed-term lease agreements,” but no one selected “lifetime lease agreements.” On the other hand, a similar survey conducted by Kachi General Research Co., Ltd. in 2020 showed that “fixed-term lease agreements” accounted for 80%, overwhelmingly surpassing “standard lease agreements.”

While it is understandable that the number of respondents and the timing of the survey may have influenced the results, it would be preferable if the higher occurrence of problems with fixed-term lease agreements was explicitly clarified. However, the lack of clear reasoning raises questions.

In fact, to the best of the author’s knowledge, most lease agreements based on lease-back arrangements are concluded using “fixed-term lease agreements.”

Additionally, the lack of clarity regarding buy-back arrangements has led to problems. The “Guidebook on Housing Leasebacks” published by the Ministry of Land, Infrastructure, Transport and Tourism also points out these issues.

Real estate agents have the obligation to properly explain the respective contract forms, whether “standard lease” or “fixed-term lease,” based on the type of lease agreement. However, in reality, the problem arises when businesses emphasize only the benefits of lease-back arrangements and fail to communicate the risks or disadvantages.

Additionally, in the survey, when asked about requests for cancellation after the sales contract was concluded, 49% of respondents answered “they would agree if payment is made,” while 11% answered “they would agree unconditionally.” However, most real estate agents begin fulfilling tasks such as preparing payment funds and completing registration procedures immediately after the contract is concluded, which often leads to a penalty of 20%. If the penalty can be prepared, there is no problem. However, if not, consumers may find themselves in a situation where they are forced to accept an unsatisfactory settlement.

These are also points where problems arise, and they should not be overlooked.

Summary

In this article, based on the results of the Ministry of Land, Infrastructure, Transport and Tourism’s “Survey on the Actual Situation of Housing Leaseback,” we have discussed the issues and challenges associated with leaseback contracts. The author does not deny leaseback itself but believes that, if appropriately utilized, it can be an effective method for promoting the activation of the existing housing market.

However, the essential premise is the widespread use of “healthy leasebacks,” and it is crucial for both businesses and consumers to have proper understanding and information.

To correct the information gap and knowledge imbalance between consumers and businesses, the Consumer Contract Act has been enforced, and various obligations for real estate agents are specified in the Real Estate Brokerage Act. These laws provide a basic framework to protect consumers, but unfortunately, there are loopholes in the law. In particular, businesses with expertise in legal knowledge can exploit legal boundaries to disadvantage consumers without violating the law, and this potential for unethical practices should be carefully watched.

Of course, pursuing profit is the essence of commercial activity, but at the same time, ensuring consumer benefit should be the top priority. As stated in Article 1 of the Real Estate Brokerage Act, the purpose of the law is “to promote the sound development of real estate brokerage and thereby protect the interests of buyers and facilitate the smooth distribution of land and buildings.” Given this goal, businesses must fulfill their responsibility to explain and ensure consumers do not suffer disadvantages.

The spread of healthy leasebacks requires a shift in mindset and the provision of information to both businesses and consumers. If proper understanding and transparency in contract terms are ensured, leaseback contracts could become a method that brings significant benefits to consumers. To achieve this, the entire industry must prioritize consumer protection in its practices.

Original Article: 【リースバック契約における説明義務の不履行】国土交通省調査結果から見えた課題

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