Planning to rent out a property you bought? For your business or personal reasons? In either case, Japan currently requires no specific qualifications to become a landlord, as long as you remain compliant with the laws. Here, we’ve compiled key points and preparations to help you start smoothly and avoid trouble.
1. Things to know before renting out a property
2. Key points of determining rental terms and conditions
3. Taxation on rental income
4. To-Do list for starting your property rental
1. Things to know before renting out a property
No qualifications are required to rent out your property.
Currently, no special qualifications are required to lease residential real estate. You can rent your property by complying with laws, primarily the Civil Code (民法) and the Land and House Lease Act (借地借家法). Landlords, whether they’re businesses or individuals, need to follow these laws.
If your property has an existing mortgage, review your loan agreement and consult your bank before proceeding.
A mortgage is a loan you take out to buy your home. Many mortgage agreements do not allow you to turn your home into a rental property without the lender's approval. If you rent out your home without permission, you could break your contract, and the lender may ask you to repay the loan in full. In some cases, you will need to switch to an investment loan. So be sure to consult with your financial institution beforehand.
Vacation rental (Minpaku/Rental villas) is a hotel business, different from "house rental."
If you rent out your home as accommodation for a few weeks, such as when you are on holiday, you need to follow the Residential Accommodation Business Act (New Minpaku Act) and hotel-related laws. Vacation rentals are considered a type of hotel business under the New Minpaku Act that offer stays of less than 180 business days. To operate a vacation rental legally, you must follow the Fire Service Act, the Building Standards Act, and local rules. You also need to apply to the Minister of Land, Infrastructure, Transport and Tourism to register as a "Residential accommodation management business."
Does the tax office require a housing-rental business registration? - Yes and No.
Those who begin renting properties as a business need to register their business with the tax office. However, if your rental property is recognized as small-scale, it will not be classified as a business, and you will not need to register. The definition of a rental business includes criteria such as owning more than 10 detached houses, having apartments with 10 or more rooms, or managing parking lots with 10 or more spaces. If you are only renting out a single detached home, it will not qualify as a rental business.
2. Key points of determining rental terms and conditions
A rental contract is required for every rental, no matter its size.
Rental laws mainly protect tenants by preventing landlords from setting unfair rental terms. For example, they prevent sudden evictions and unreasonable rent hikes. While tenants have legal protections, landlords should take precautions to avoid disadvantages, where signing a rental agreement is crucial.
Create a rental agreement tailored to the rental's purpose.
Creating a rental agreement is essential not only for rental businesses but also for personal rentals. Without one, it may cause unexpected problems, especially when renting your home for a short period. There are generally two typical types of rental agreements: an ordinary lease contract and a fixed-term rental contract, and you should choose the one that suits the purpose of the rental.
- Ordinary lease contract: Suitable for long-term lease
The contract is automatically renewed if the tenant wishes. The landlord cannot terminate the contract unless there is a valid reason (such as the property becoming too old to maintain and unsafe for tenants). While the ordinary lease contract allows landlords to secure a stable, long-term lease, it can be difficult to ask tenants to move out.
- Fixed-term rental contract: Suitable for short-term rentals
The rental period is specified in the contract and ends without automatic renewal. The landlord can ask the tenant to move out at the contract’s end without reason. This option suits temporary rentals when you may want to use or sell the property later, such as during a job transfer. The fixed-term rental allows tenants not to refuse to move out as specified in the contract. It may be less appealing to those looking for a long-term place to live.
Clarify the manner of use in addition to the conditions.
When signing an agreement, it is important to clearly outline the terms of use alongside the financial aspects. This includes pet policies, smoking regulations, and guidelines for office use. Additionally, the agreement should explicitly state the tenant's responsibility to restore the property to its original condition. While landlords are responsible for repairs (e.g., for roof leaks, broken water heaters), tenants must cover any damage caused by their negligence.
Prevent illegal subletting
Subletting, or Matagashi (又貸し), is when a tenant rents the property to others without landlord approval and is illegal. State clearly in your contract that you do not allow subleasing without permission.
3. Taxation on rental income
When leasing personally, you are not required to pay business taxes.
Business tax applies only if you register as a real estate rental business. If your property qualifies as small scale, you do not need to register or pay this tax.
However, you are responsible for paying taxes on your rental income.
Even if not registered as a rental business, you must pay taxes on rental income. If income exceeds 200,000 JP yen annually, file an income tax return (Kakutei Shinkoku 確定申告) between February 16 and March 16 at the end of the fiscal year in Japan. When filing your taxes, remember to include certain costs as expenses. You can deduct property taxes, fire insurance premiums, and fees you pay to your management agency. Repair costs can also be deducted if they are for rental properties.
If you have difficulty filing your tax return in Japanese, please contact us. We can connect you with an English-speaking tax accountant.
4. To-Do list for starting your property rental
In addition to the key points mentioned above, we have outlined the steps for renting a property. This will help you understand the overall process.
1. Confirm you can rent out your property
2. Decide on the rental type and conditions
3. Determine the contract details
4. Prepare the property e.g. by cleaning, repairing, renovating, and recording the existing room condition to provide evidence for restoration requests.
5. Tenant recruitment and screening
6. Signing the contract with the necessary clarification, then handover
After the lease begins:
- Management: Collecting payments, handling complaints
- Cleaning and repairing the property (upon move-out)
- Filing tax returns and paying taxes
While some property management tasks can be done by owners, it is advisable to hire a management company. Certain responsibilities, such as creating contracts, screening tenants, and preventing future problems, need special skills. Our company specializes in rental recruitment, ongoing rental management, and managing vacant homes during relocations. Please feel free to contact us with any inquiries about our rental services and vacant home management.
