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Change of law and Guarantor’s Responsibility in Japan

What is a joint guarantor in a lease contract?

Suppose you invest in real estate in Japan. You receive rental fee from the renter (Mr. Yamada) of the property.

You would require Mr. Yamada, the renter, to provide you with a joint guarantor (連帯保証人) in case the renter fails to pay the rent.

If the renter does not pay the rent, the joint guarantor is obligated to pay the rent to you on behalf of the renter. Then, you (landlord) can lend the property to Mr. Yamada with peace of mind, can’t you?

A joint guarantor is not a renter, but has the same heavy responsibility as a renter for the payment of rent.

If Mr. Yamada fails to pay the rent, the joint guarantor must repay it on his behalf.

For example, if you are unable to contact Mr. Yamada, you may demand repayment from your joint guarantor.

Even if Mr. Yamada is richer than the joint guarantor, the joint guarantor is obligated to pay the money to you if he does not pay the rent.

So even if a renter is a friend of joint guarantor, a person should not be his joint guarantor.

Also, when I rent a property I never ask my friend to be my guarantor. If I do so, my relationship with my friend will be badly damaged.

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Joint guarantor’s responsibility in a lease contract

Suppose Mr. Yamada, the renter, fails to pay 100,000 yen of rent. In such a case, you (landlord) may demand the joint guarantor to pay the rent before you demand it to Mr. Yamada.

Because you no longer trust Mr. Yamada, or you may know that Mr. Yamada has no money.

Amendment of the law and joint guarantor’s responsibility

The revised Civil Code came into effect in April 2020.

Prior to the amendment of the Civil Code, joint guarantors were liable for all of Mr. Yamada’s obligations arising from the lease contract.

Suppose that Mr. Yamada, a renter, rented a room with a rent of 100,000 yen. If Mr. Yamada failed to pay the rent for three years, the joint guarantor was required to pay 3.6 million yen on Mr. Yamada’s behalf.

This is too much responsibility for the joint guarantor.

Therefore, a law called the Civil Code was revised and came into effect in April 2020.

In the case that the joint guarantor is an individual (not including a company. This amendment is intended to protect individual joint guarantors), it is necessary to determine, clarify the limit of the joint guarantor’s liability.

If the joint guarantor’s liability limit is not specified in the guarantee contract (the contract in which the joint guarantor becomes the guarantor), then the guarantee contract is void.

If the guarantee contract becomes invalid and Mr. Yamada fails to pay the rent of 3,600,000 yen, you will not be able to claim 3,600,000 yen against the guarantor.

So, you must state the limit of liability in the guarantee contract with your joint guarantor.

There is no upper limit of the amount of the limit of liability. Even if the rent per month is 100,000 yen, it is possible to make the limit amount of responsibility 10 million yen.

But if you put such a high limit as 10 million yen in the contract, Mr. Yamada may not be able to find someone to be his joint guarantor.

This is because the joint guarantor will realize the weight of his/her responsibility.

So, it may a good idea to limit the amount of liability to about two years’ rent.

If the monthly rent is 100,000 yen, it is 2.4 million yen. (This is still a large enough liability, though).

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Let’s clearly state the limit of joint guarantor’s liability.

When you decide the limit of joint guarantor’s liability, do not state “the amount equivalent to two years’ rent shall be the limit of liability.

Because the monthly rent can be changed if you and Mr. Yamada agree. So, it is not clear at the time of making a guarantee contract how much the amount of two years’ rent is.

Such a guarantee contract could be invalid.

Therefore, let’s describe “The limit of the liability is 2.4 million yen” properly in the guarantee contract.

If the renter can not find a suitable guarantor in Japan

In that case, Mr. Yamada will request a guarantor company to become his guarantor in Japan.

On the other hand, if you hope to rent an office space without a guarantor in Japan, you may see this page.
Office space where you can rent without a Guarantor in Japan“.