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

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阿部国際法律事務所 · Accepted Answer

The deposit is returned after hand-back, less unpaid rent and restoration costs the tenant must bear. Normal wear and tear is, as a rule, the landlord's cost unless clearly agreed otherwise.

Under Japanese law, when a lease ends and the property has been handed back, the landlord must return the deposit after deducting the tenant's unpaid obligations (Civil Code, Art. 622-2(1)). Deductions cover items such as unpaid rent and restoration costs the tenant is responsible for. Wear and tear from ordinary use and ageing are excluded from the tenant's restoration duty (Art. 621). To make the tenant bear normal wear and tear, there must be a clear agreement, such as a specific description of its scope in the lease itself (Supreme Court, 16 December 2005).

When this becomes an issue

・Your company owns rental flats, and a tenant who has moved out disputes the amount of deposit returned.
・Your company handed back a flat it rented as employee housing and was charged for replacing all the wallpaper.
・You are moving offices and the landlord is demanding works to restore the premises to their original state.
・You have bought a building with tenants in it, and are unsure how to deal with the deposits the previous owner held.

1. What a deposit is and when it must be returned

A deposit is money, under whatever name, that the tenant gives the landlord to secure the tenant's obligations such as rent (Civil Code, Art. 622-2(1)). Money called a "guarantee deposit" or by another name is a deposit if it was given for this purpose. This definition and the return rules were written into the Code by the amended Civil Code (Act No. 44 of 2017), which came into force on 1 April 2020.

The landlord must return the deposit (Art. 622-2(1)):

・When the lease has ended and the property has been handed back, or
・When the tenant has lawfully assigned the lease

Under the Code, the obligation to return the deposit arises when the property has been handed back. Hand-back comes first, and return of the deposit follows.

2. What can be deducted

The landlord may deduct the tenant's monetary obligations arising under the lease (Art. 622-2(1)). Typical examples:

・Unpaid rent and service charges
・Restoration costs the tenant is responsible for

If the tenant does not pay rent, the landlord may apply the deposit to it. The tenant, however, cannot ask for this month's rent to be paid out of the deposit (Art. 622-2(2)).

3. Scope of restoration: normal wear and tear is, as a rule, the landlord's cost

The tenant must repair damage arising after the property was handed over. Wear and tear from ordinary use and ageing are excluded, and so is damage caused by circumstances for which the tenant is not responsible (Art. 621).

To prevent move-out disputes over private rental housing, the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) publishes guidelines on restoration disputes. They were first compiled in March 1998 and revised in February 2004 and August 2011. They are not law, but are presented as a general standard for dividing costs between landlord and tenant.

The basic distinction is:

・Usually the landlord's cost: things that happen through normal living, such as wallpaper or tatami fading in sunlight and marks left by furniture.
・Usually the tenant's cost: things caused by the way the tenant used the property, such as nicotine stains, scratches or odours from pets, dirt from failure to clean, and damage caused when moving.

Which category an item falls into depends on the cause and extent of the damage in each case. The same mark can lead to a different answer depending on whether it goes beyond ordinary use. Stating in the move-out statement which category you consider each item to fall into makes it easier for the tenant to accept.

4. Is a clause making the tenant pay for normal wear and tear valid?

A lease may include a clause making the tenant pay for repairing normal wear and tear. The Supreme Court has held, however, that for the tenant to bear restoration of normal wear and tear there must be a clearly agreed special clause, for example where the scope is specifically stated in the lease itself, or where the landlord explained it orally and the tenant clearly understood it and made it part of the agreement (Supreme Court, Second Petty Bench, 16 December 2005, Case No. 2004 (Ju) 1573).

A clause that simply says "the tenant shall restore the property on leaving" is unlikely to be treated as an agreement that the tenant bears normal wear and tear.

If the tenant is an individual renting to live in, not for business, the Consumer Contract Act applies (Art. 2(1)), and terms that unilaterally harm the consumer's interests are void (Art. 10). Where the tenant is a company (renting employee housing or an office in the company's name), it is not a consumer.

5. Restoration of offices and shops

The MLIT guidelines cover private rental housing. For offices and shops, the wording of the restoration clause in the lease matters even more. The works required on leaving can vary widely depending on the condition at move-in and the fit-out works carried out, so keep photographs from move-in and records of the works.

6. Deposits when a building is sold

When real estate subject to a lease that can be asserted against third parties is sold, the landlord's position passes to the buyer (Art. 605-2(1)), and so does the obligation to return the deposit (Art. 605-2(4)). When buying a building with tenants, confirm the deposits held as part of the sale terms and agree how they will be settled.

7. Points for landlord companies and property managers at move-out

Most move-out disputes arise because nobody can show when, and through whose use, the damage occurred. Landlords will find it easier to explain their position if they proceed as follows:

・At move-in, record the condition of the property in photographs and a checklist, and have the tenant confirm it.
・At the move-out inspection, point out each damaged area on the spot and photograph it.
・As a rule, limit repairs to the damaged part. If you require replacement across a whole room, be ready to explain why.
・Separate unpaid rent, restoration costs and other charges, and give an itemised statement with the amount and reason for each.
・If you deduct normal wear and tear under a special clause, show the clause and how it was explained at move-in.

8. Points for tenant companies

Where employee housing or an office is leased in the company's name, the tenant is the company. The person in charge often changes between move-in and move-out, and move-in records are frequently lost.

・Keep move-in photographs and records of fit-out works at company level.
・For employee housing, decide who attends the move-out inspection when an employee leaves.
・Check statements from the landlord for charges relating to normal wear and tear or ageing.
・For office leases, confirm at signing what restoration means (back to the condition at move-in, or to a set specification).

What you can do now

1. Read the restoration and deposit clauses in the lease and check whether the allocation of normal wear and tear is specifically stated.
2. Record the condition of the property in photographs at move-in and move-out, with both sides present.
3. Show deductions in an itemised statement giving the amount and reason for each.
4. Calculate unpaid rent and restoration costs separately.
5. When selling or buying a property, list the deposits held and write the transfer method into the contract.
6. For employee housing and offices, review special clauses on the basis that the lease is in the company's name.

When to consult a lawyer

・When a former tenant (or landlord) sends a demand for the deposit by certified mail.
・When the restoration estimate far exceeds the deposit.
・When, on an office move, the landlord demands restoration works you did not expect.
・When deposit transfer terms must be agreed on the sale of a rental property.

Frequently asked questions

Q. By when must the deposit be returned?
The Code says the obligation arises when the lease has ended and the property has been handed back (Art. 622-2(1)). The specific deadline depends on the lease. If preparing the statement takes time, telling the tenant when to expect it helps avoid disputes.

Q. Can the landlord claim restoration costs above the deposit?
Where restoration costs the tenant must bear exceed the deposit, the landlord can claim the excess from the tenant. Normal wear and tear and ageing are, as a rule, not the tenant's cost (Art. 621), so it is important to show the basis for each cost in a statement.

Q. Where can a deposit dispute be resolved?
A claim for payment of money of 600,000 yen or less can be brought as a small claims action in the summary court (Code of Civil Procedure, Art. 368(1)). Depending on the amount and the issues, an ordinary lawsuit or conciliation may be chosen instead.

Q. Is money paid as a "guarantee deposit" a deposit?
Money given to secure the tenant's obligations such as rent is a deposit whatever it is called (Civil Code, Art. 622-2(1)). Even if the lease calls it a "guarantee deposit", if it was paid for that purpose its return can be sought under the same rules as a deposit.

Q. We bought a building with tenants. Who returns the deposits the previous owner received?
When a building subject to a lease that can be asserted against third parties is sold, the landlord's position passes to the buyer, and so does the obligation to return the deposit (Civil Code, Art. 605-2(1) and (4)). The new owner returns the deposit when the tenant leaves. On the sale, confirm the deposits held and agree how they will be settled, for example through the purchase price.

Q. Do the MLIT restoration guidelines apply to offices?
The guidelines cover private rental housing. For offices and shops, the restoration clause in the lease is central, so check its wording before signing.

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

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