A person has died in a property we own or manage. Must we tell the next tenant or buyer? Disclosure of "stigmatised properties" and the MLIT Guidelines, for landlords and real estate businesses

Question

阿部国際法律事務所 · Accepted Answer

Natural deaths and accidental deaths in daily life generally need not be disclosed. Other deaths, or deaths requiring special cleaning, must be disclosed where they would significantly affect the other party's decision; for leases, generally not after about three years. Always disclose if asked (MLIT Guidelines).

A death in a property does not always have to be disclosed. Under the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) "Guidelines on Disclosure of Deaths by Real Estate Brokers", natural deaths (old age, illness) and accidental deaths in daily life (such as a fall or choking) generally need not be disclosed. Other deaths, and cases where special cleaning was needed because the death went unnoticed, must be disclosed where they are likely to significantly affect the tenant's or buyer's decision. For leases, disclosure is generally no longer required once about three years have passed since the death (or its discovery), but if a tenant asks, you must answer regardless of the time elapsed. A licensed real estate business that intentionally fails to disclose a material fact breaks the law and can face criminal penalties (Real Estate Brokerage Act, Article 47(i)(d) and Article 79-2).

When this becomes an issue

- A tenant has died in a unit of a rental building your company owns, and you are unsure what to tell applicants for the next lease.
- A solitary death went undiscovered for some time, and special cleaning and interior replacement were carried out.
- You have been asked to broker a property; the seller says "nothing happened", but you have heard rumours locally.
- You bought a property for employee housing or investment and later learned of an incident that had not been disclosed.

1. Who must disclose, and under which law

When soliciting a sale, exchange or lease, a licensed real estate business must not intentionally fail to disclose, or misrepresent, matters that would significantly affect the other party's decision (Real Estate Brokerage Act, Article 47(i)(d)). Violation is punishable by imprisonment of up to two years, a fine of up to JPY 3 million, or both (Article 79-2). It can also lead to a supervisory instruction or a suspension of business for up to one year (Article 65(1) and (2)).

The Act covers those who, as a business, sell or exchange real estate, or act as agent or intermediary in its sale, exchange or lease (Article 2(ii)). A landlord that simply leases out its own property is not a licensed real estate business for this purpose.

Landlords and sellers are not free of disclosure obligations, however. The Guidelines explain that, in past court decisions, whether there is a duty to disclose under the principle of good faith has been decided by considering the purpose of the transaction, the nature of the incident, the time elapsed and how widely it is known in the neighbourhood. The Civil Code requires rights to be exercised and duties performed in good faith (Article 1(2)).

2. Status of the MLIT Guidelines

On 8 October 2021 MLIT issued the "Guidelines on Disclosure of Deaths by Real Estate Brokers". They set out what is generally considered reasonable, in light of court decisions and market practice, as the interpretation of a licensed business's obligations under the Act.

They apply to residential property. Offices and similar properties are excluded because the effect on contract decisions varies.

Not following the Guidelines does not in itself amount to a breach of the Act. But if a dispute arises, the Guidelines are taken into account in administrative supervision. Following them also does not necessarily protect a business from civil liability.

3. When disclosure is generally not required

The Guidelines identify three cases in which disclosure is generally not required:

- Natural deaths and accidental deaths in daily life: death from old age or illness, a fall down the stairs at home, drowning in the bath, choking while eating and so on. This applies to both leases and sales, except where the body was left undiscovered for a long time and special cleaning or major renovation was carried out.
- Leases, after about three years: for other deaths, or deaths that required special cleaning, disclosure to a tenant is generally not required once about three years have passed since the death (or, for special cleaning cases, its discovery). Common areas the tenant uses daily, such as the entrance, lifts and corridors, are treated the same way.
- Incidents in a neighbouring unit or in common areas not used daily: disclosure is generally not required for either leases or sales.

The second and third cases do not apply to incidents with particularly high criminality, notoriety or social impact. There is no "three years" guide for sales.

4. When disclosure is required, and what to disclose

In other cases, you must disclose where the incident is likely to significantly affect the other party's decision. In addition, regardless of time elapsed or cause of death, you must disclose if the tenant or buyer asks whether there was any incident, or if you recognise special circumstances, such as major social impact, that they ought to know about.

What to disclose: when it happened (or, for special cleaning cases, when it was discovered), where, the cause of death, and whether special cleaning was carried out. "Cause of death" means the category (natural death, homicide, suicide, accident and so on); if unknown, say so. Out of respect for the dignity and privacy of the deceased and their family, the name, age, address, family composition, the specific manner of death and how it was found need not be disclosed. Disclosure in writing is recommended.

5. How far you must investigate

A licensed business must gather information in the ordinary course. Unless there are special circumstances suggesting an incident, however, it is not required to make enquiries of neighbours or search the internet on its own initiative.

A broker fulfils its ordinary duty to investigate by asking the seller or landlord to record past incidents in a disclosure statement (property condition report) or similar document. If an unrecorded incident later comes to light, the investigation is still regarded as proper unless the broker was grossly negligent. On the other hand, if there is reason to suspect an incident even though nothing is recorded, the broker must ask the seller or landlord. The Guidelines also point out that a court has held a broker obliged to disclose an incident it learned of after the contract but before handover.

6. Civil liability for non-disclosure

If a contract is made without disclosing a fact that should have been disclosed, the other party may argue:

- rescission for mistake (Civil Code, Article 95), subject to requirements such as the circumstance forming the basis of the contract having been indicated;
- rescission for fraud (Article 96);
- in a sale, that the property does not conform to the contract, giving rise to claims for cure, price reduction, damages or termination (Articles 562 to 564). These provisions apply mutatis mutandis to other contracts for value, including leases, unless the nature of the contract does not permit (Article 559);
- damages for non-performance (Article 415) or termination (Articles 541 and 542).

Which claims succeed, and the amount of any damages, depend on the facts and the history of the contract.

7. Disclosing everything is not the answer either

To avoid the risk of non-disclosure, some businesses disclose every past death. The Guidelines note, as part of their background, criticism that this places an excessive burden on transactions, and reports that landlords who believe any death must be disclosed, whatever the cause, tend to avoid accepting older people who live alone.

Even when disclosing, you must respect the dignity and privacy of the deceased and their family. The Guidelines state that enquiries of neighbours, and searches of the internet or past news reports, call for particular care because their accuracy is hard to confirm. The scope of disclosure should be decided property by property, based on the Guidelines' criteria and the other party's wishes.

Steps you can take now

- Set an internal procedure for recording, when someone dies in a managed property, the date, location, cause of death (as far as known) and whether special cleaning was done.
- Prepare a standard disclosure wording for new leases and a form recording when and how disclosure was made.
- When instructing a broker, record past incidents accurately in the disclosure statement. Write "unknown" where you do not know.
- Even where the "about three years" guide is near, answer truthfully if asked.
- Before buying property for employee housing or investment, review the disclosure statement and raise any concerns in writing.

When to consult a lawyer

- A tenant or buyer has sent a letter seeking termination, a price or rent reduction, or damages for non-disclosure.
- You cannot decide whether, or for how long, to disclose, for example because of possible criminality or media coverage.
- You have discovered an undisclosed incident in a property you bought and are considering a claim against the seller or broker.
- The supervisory authority has asked you for an explanation or report about a disclosure.

Frequently asked questions

Q. If a tenant died of illness, must we tell the next tenant?
Generally not. But if the death went unnoticed and special cleaning or major renovation was carried out, disclosure needs to be considered. If the next tenant asks, you must tell them.

Q. Does the "three years" guide apply to sales?
No. The "about three years" guide in the Guidelines is for leases. No time guide is given for sales, so the question is whether the incident would significantly affect the other party's decision.

Q. Do the Guidelines apply when a landlord finds tenants itself?
The Guidelines set out the obligations of licensed real estate businesses, so a landlord leasing its own property is not directly covered. Courts have, however, considered landlords' and sellers' duty to disclose under the principle of good faith, and the Guidelines are a useful reference for landlords too.

Q. Do the Guidelines apply to offices and shops?
No. They cover residential property; offices and similar properties are excluded because the effect on contract decisions varies. The Guidelines state that such cases should be handled appropriately in light of the parties' wishes.

Q.A person has died in a property we own or manage. Must we tell the next tenant or buyer? Disclosure of "stigmatised properties" and the MLIT Guidelines, for landlords and real estate businesses

Related Questions

Q. How much of the security deposit must be returned on move-out in Japan? What can be deducted, normal wear and tear, and when special clauses are valid

Free Tools