Contract renewal fees violate tenant rights

Friday, July 24, 2009

KYOTO (Kyodo) In what experts termed a landmark ruling, the well-established practice of landlords collecting renewal fees in the housing rental industry was judged illegal Thursday and a violation of tenants' rights.

Key money nullified: Lawyers for a Kyoto apartment tenant who had demanded his landlord return his contract renewal fees and key money face the media Thursday in Kyoto after the court ruled for the plaintiff. KYODO PHOTO

The point of contention in the Kyoto District Court ruling Thursday was the "contract renewal fees" for renting houses and apartments, which tenants are obliged to pay their landlords every time their contracts are renewed.

In many cases, the fees are equal to two months' rent and must be paid by lump sum, putting a heavy financial burden on tenants every few years, in addition to the "key money" that is required when a tenant first enters into a contract.

Legal experts said the ruling is rare in that it is based on the consumer protection law rather than the law to define the rights of landlords and tenants in house deals. The ruling is expected to affect similar lawsuits pending nationwide.

In April 2006, the man made a two-year contract to rent an apartment in the city and paid about ¥110,000 — the equivalent of two months' rent — to his landlord in January 2008, when the initial contract approached renewal. But he terminated the contract four months later and vacated, the court said.

"Reasons for charging contract renewal fees must be clearly explained to tenants and agreed upon between the two sides," the judge said.

Praising Thursday's ruling, lawyers for the plaintiff told reporters later Thursday that the Kyoto case would become a significant step forward to reform the country's housing rental industry, which they said has many traditional unwritten codes and rules not accompanied by clear explanations.

"Renewal fees are charged in a lump sum regardless of the span of contracts. In reality, landlords rarely give advance notice until a renewal approaches in a few months, and tenants are effectively forced to pay the fees," they said in a statement.

People in the housing rental industry, which has already been forced to lower rents because of the recession and land price falls, were quick to slam the Kyoto court ruling.

"This case will surely affect our business," one industry official said.

A spokesman at a Tokyo-based industry group supporting landlords justified the practice, saying renewal fees are part of funds for long-term repair of properties.