9-1 Concluding a Sales Contract
After receiving an explanation of important points and both the buyer and seller agree on the terms of the contract, a sales contract is concluded. Once a contract is concluded, it cannot be easily cancelled. Therefore, it is important to fully confirm its contents beforehand. Keep in mind that although the real estate company provides an explanation, the contract is ultimately concluded on self-responsibility.
Point 1: Know the basics of the sales
The content of the contract is unrestricted in principle.
The content of the contract between the seller and the buyer is unrestricted as long as it does not violate laws and regulations, offend public order and morals, or otherwise cause problems. Conversely, the principle is that the contract should be concluded at one's own risk. There are certain laws and regulations in place to ensure that consumers are not unilaterally disadvantaged by contracts, but they do not cover everything. It is important that you confirm the contents of the contract and conclude the contract at your own risk.
Matters not stipulated in the contract are to be determined upon consultation in accordance with the Civil Code and other related laws and regulations. Therefore, if important contract terms are unclear, it may lead to problems after the contract is signed.
Restrictions on contracts when the seller is a real estate agency
When a real estate company is the seller, the Real Estate Brokerage Act provides certain restrictions so that a disadvantageous contract will not be concluded for the buyer. This protects the buyer who concludes a contract directly with the real estate company, which is the expert in real estate transactions.
The Consumer Contract Act applies to contracts between business entities and consumers.
Since there are differences in the ability to access information and negotiate between business entities and consumers, the Consumer Contract Act establishes specific contract rules for contracts between business entities and consumers (referred to as "consumer contracts") with the aim of protecting consumers, and also affects real estate purchase and sale contracts. For example, the Act provides that a contract can be rescinded if the consumer has misunderstood the contract, and that clauses that are disadvantageous to the consumer (such as clauses that exempt the business entity from liability for contractual nonconformity, etc.) become invalid.
Although a consumer under the Consumer Contract Act refers to an individual who concludes the contract for business purposes is not covered by the protection of the Consumer Contract Act. The Consumer Contract Act applies to contracts concluded by individuals for purposes other than business. It is important to understand that it also applies to real estate sales contracts.
The content of the contract is unrestricted in principle.
The content of the contract between the seller and the buyer is unrestricted as long as it does not violate laws and regulations, offend public order and morals, or otherwise cause problems. Conversely, the principle is that the contract should be concluded at one's own risk. There are certain laws and regulations in place to ensure that consumers are not unilaterally disadvantaged by contracts, but they do not cover everything. It is important that you confirm the contents of the contract and conclude the contract at your own risk.
Matters not stipulated in the contract are to be determined upon consultation in accordance with the Civil Code and other related laws and regulations. Therefore, if important contract terms are unclear, it may lead to problems after the contract is signed.
Restrictions on contracts when the seller is a real estate agency
When a real estate company is the seller, the Real Estate Brokerage Act provides certain restrictions so that a disadvantageous contract will not be concluded for the buyer. This protects the buyer who concludes a contract directly with the real estate company, which is the expert in real estate transactions.
The Consumer Contract Act applies to contracts between business entities and consumers.
Since there are differences in the ability to access information and negotiate between business entities and consumers, the Consumer Contract Act establishes specific contract rules for contracts between business entities and consumers (referred to as "consumer contracts") with the aim of protecting consumers, and also affects real estate purchase and sale contracts. For example, the Act provides that a contract can be rescinded if the consumer has misunderstood the contract, and that clauses that are disadvantageous to the consumer (such as clauses that exempt the business entity from liability for contractual nonconformity, etc.) become invalid.
Although a consumer under the Consumer Contract Act refers to an individual who concludes the contract for business purposes is not covered by the protection of the Consumer Contract Act. The Consumer Contract Act applies to contracts concluded by individuals for purposes other than business. It is important to understand that it also applies to real estate sales contracts.
An overview of a real estate sales contract
Point 2: Understand the deposit
In a real estate sales contract, it is common for the buyer to pay a "deposit" to the seller at the time the contract is concluded.
There are three types of deposits:
(1) Deed deposit
(2) Cancellation deposit
(3) Penalty deposit
Generally, in a real estate sales contract, the deposit is given and received as the "cancellation deposit" described in (2). The Civil Code also states that in the absence of any special provisions regarding the nature of the deposit, it is presumed to be a cancellation deposit.
A "cancellation deposit" is a deposit that allows the buyer to cancel the sales contract by waiving (not requesting the return of) the deposit already paid, and the seller to return to the buyer twice the amount of the deposit already received. However, a contract can be canceled by the deposit only until the other party executes the contract. In other words, if the other party has already fulfilled the promises stipulated in the contract, the contract cannot be cancelled by the deposit.
In a real estate sales contract, it is common for the buyer to pay a "deposit" to the seller at the time the contract is concluded.
There are three types of deposits:
(1) Deed deposit
(2) Cancellation deposit
(3) Penalty deposit
Generally, in a real estate sales contract, the deposit is given and received as the "cancellation deposit" described in (2). The Civil Code also states that in the absence of any special provisions regarding the nature of the deposit, it is presumed to be a cancellation deposit.
A "cancellation deposit" is a deposit that allows the buyer to cancel the sales contract by waiving (not requesting the return of) the deposit already paid, and the seller to return to the buyer twice the amount of the deposit already received. However, a contract can be canceled by the deposit only until the other party executes the contract. In other words, if the other party has already fulfilled the promises stipulated in the contract, the contract cannot be cancelled by the deposit.
Point 3: Once a contract is signed, it cannot be easily cancelled.
Especially when conducting large transactions such as real estate sales, a contract is an important promise based on the relationship of trust between the seller and buyer. Therefore, once a contract is concluded, it generally cannot be easily canceled for the convenience of one party. The main types of contract cancellations are as follows.
Especially when conducting large transactions such as real estate sales, a contract is an important promise based on the relationship of trust between the seller and buyer. Therefore, once a contract is concluded, it generally cannot be easily canceled for the convenience of one party. The main types of contract cancellations are as follows.
*The above table is a general guideline, and the procedures for cancellation differ for each individual contract.
Point 4: Understand contractual non-conformity
What is contractual non-conformity liability?
Defects in properties, such as leaks or corrosion caused by termites, have been referred to as "defects," and the seller's liability for such defects has been called "liability for defects. However, due to the revision of the Civil Code enforced on April 1, 2020, not only the name but also the content of this liability has been drastically changed.
The revised Civil Code is based on the premise that the seller is obligated to deliver a property that conforms to the terms of the contract with respect to "type, quality, and quantity" of the subject matter of the sale, and that if the seller delivers a property that does not conform to the terms of the contract with respect to those items, the seller is liable for default. For example, if the seller delivers a building that has leaks or corrosion caused by termites, the seller is in default of his/her obligation to deliver an object that conforms to the terms of the contract with respect to quality.
Contents of contractual non-conformity liability
When the subject matter of the contract is nonconforming as described above, the buyer can demand the repair of the nonconformity, and when the seller does not do so even after the repair is demanded, or when the repair itself is impossible, the buyer can demand a reduction of the purchase price. In addition, under the general principle of default, a claim for compensation for damages can be made, and the contract can be terminated. However, compensation for damages cannot be claimed if the seller is not responsible in any way. Cancellation is also not allowed when the nonconformity is minor.
Period during which the seller is liable for nonconformity with the contract
Under the Civil Code, the buyer must notify the seller of the nonconformity within one year of becoming aware of it, because it is considered unreasonable for the seller to be liable for the nonconformity for a long period of time, and because it is appropriate to settle such disputes arising from the sale as early as possible.
Special provisions in sales contracts
This provision of the Civil Code is an optional provision, meaning that it can be changed or modified at will, so another provision can be made by a special agreement between the parties. Especially in the case of an existing house (used house), it is difficult or impossible to determine whether a certain defect or other event constitutes a non-conformity to the contract due to age-related deterioration, natural wear and tear, etc. Therefore, in general transactions, the scope of the seller's liability is limited or the period of liability is shortened. In some cases, there is also a provision that the seller is not liable at all. Even in such cases, the seller is not exempt from liability if he/she knew of the nonconformity and failed to inform the buyer, but otherwise, the seller is exempt from liability as per the special provision.
When a real estate agent (real estate company) is the seller
With regard to liability for nonconformance with contract in cases where a real estate agency or a real estate company is the seller and the buyer is not, under the Real Estate Brokerage Act, a provision to the effect that the seller is liable for nonconformance with contract is valid only if the seller is notified within two years of the date of delivery. However, other than that notice period, provisions that are less favorable to the buyer than those of the Civil Code, such as "only repair claims" or "the contract can be terminated if the seller approves" other than during such notice period, is invalid.
When a business entity is the seller and a consumer is the buyer
All corporations are "business entities" under the Consumer Contract Act, including those that are not real estate companies. In a contract in which a business entity acts as the seller and sells to a consumer, a contract provision stating that the business entity is not liable for nonconformance is considered invalid under the same Act.
Special provisions for new housing under the Housing Quality Assurance Promotion Act
In the case of a newly built house, the real estate company that is the seller must assume liability for defects (*) for 10 years for the main structural parts, etc. (foundation, pillars, roof, exterior walls, etc.) of the house. In order to avoid a situation where the seller cannot fulfill its liability for defects due to bankruptcy, etc., the seller is obligated to sign an insurance policy or deposit a security deposit at the time of delivery to the buyer. The seller is required to explain to the buyer which measure, insurance or deposit, will be applied at the time of the important points explanation and the sales contract, so make sure to check the details carefully.
*The Housing Quality Promotion Act uses the term "liability for defects," but the revised Civil Code uses the term "liability for nonconformity of contract as to type and quality.
What is contractual non-conformity liability?
Defects in properties, such as leaks or corrosion caused by termites, have been referred to as "defects," and the seller's liability for such defects has been called "liability for defects. However, due to the revision of the Civil Code enforced on April 1, 2020, not only the name but also the content of this liability has been drastically changed.
The revised Civil Code is based on the premise that the seller is obligated to deliver a property that conforms to the terms of the contract with respect to "type, quality, and quantity" of the subject matter of the sale, and that if the seller delivers a property that does not conform to the terms of the contract with respect to those items, the seller is liable for default. For example, if the seller delivers a building that has leaks or corrosion caused by termites, the seller is in default of his/her obligation to deliver an object that conforms to the terms of the contract with respect to quality.
Contents of contractual non-conformity liability
When the subject matter of the contract is nonconforming as described above, the buyer can demand the repair of the nonconformity, and when the seller does not do so even after the repair is demanded, or when the repair itself is impossible, the buyer can demand a reduction of the purchase price. In addition, under the general principle of default, a claim for compensation for damages can be made, and the contract can be terminated. However, compensation for damages cannot be claimed if the seller is not responsible in any way. Cancellation is also not allowed when the nonconformity is minor.
Period during which the seller is liable for nonconformity with the contract
Under the Civil Code, the buyer must notify the seller of the nonconformity within one year of becoming aware of it, because it is considered unreasonable for the seller to be liable for the nonconformity for a long period of time, and because it is appropriate to settle such disputes arising from the sale as early as possible.
Special provisions in sales contracts
This provision of the Civil Code is an optional provision, meaning that it can be changed or modified at will, so another provision can be made by a special agreement between the parties. Especially in the case of an existing house (used house), it is difficult or impossible to determine whether a certain defect or other event constitutes a non-conformity to the contract due to age-related deterioration, natural wear and tear, etc. Therefore, in general transactions, the scope of the seller's liability is limited or the period of liability is shortened. In some cases, there is also a provision that the seller is not liable at all. Even in such cases, the seller is not exempt from liability if he/she knew of the nonconformity and failed to inform the buyer, but otherwise, the seller is exempt from liability as per the special provision.
When a real estate agent (real estate company) is the seller
With regard to liability for nonconformance with contract in cases where a real estate agency or a real estate company is the seller and the buyer is not, under the Real Estate Brokerage Act, a provision to the effect that the seller is liable for nonconformance with contract is valid only if the seller is notified within two years of the date of delivery. However, other than that notice period, provisions that are less favorable to the buyer than those of the Civil Code, such as "only repair claims" or "the contract can be terminated if the seller approves" other than during such notice period, is invalid.
When a business entity is the seller and a consumer is the buyer
All corporations are "business entities" under the Consumer Contract Act, including those that are not real estate companies. In a contract in which a business entity acts as the seller and sells to a consumer, a contract provision stating that the business entity is not liable for nonconformance is considered invalid under the same Act.
Special provisions for new housing under the Housing Quality Assurance Promotion Act
In the case of a newly built house, the real estate company that is the seller must assume liability for defects (*) for 10 years for the main structural parts, etc. (foundation, pillars, roof, exterior walls, etc.) of the house. In order to avoid a situation where the seller cannot fulfill its liability for defects due to bankruptcy, etc., the seller is obligated to sign an insurance policy or deposit a security deposit at the time of delivery to the buyer. The seller is required to explain to the buyer which measure, insurance or deposit, will be applied at the time of the important points explanation and the sales contract, so make sure to check the details carefully.
*The Housing Quality Promotion Act uses the term "liability for defects," but the revised Civil Code uses the term "liability for nonconformity of contract as to type and quality.
📖 The Deposits
There are three types of deposits: (1) earnest money deposit, (2) cancellation deposit, and (3) penalty deposit.
Differences in the Deposits
(1) Earnest money deposit
A deposit given and received for the purpose of evidencing the conclusion of a contract.
(2) Cancellation deposit
A cancellation deposit is a deposit that allows
A deposit that, in the event of a breach of contract by either party, will be forfeited or doubled as "punishment" for the breach of contract, in addition to compensation for damages.
Cancellation by Earnest Money Deposits
The termination of a contract by means of a cancellation deposit is generally referred to as "release of deposit." For example, if circumstances have changed significantly since the contract was concluded, it is possible to cancel the contract by waiving or doubling back the deposit. However, the contract can be canceled with release of deposit only until the other party begins to fulfill the contract. In other words, if the other party has already performed the promises stipulated in the contract, the deposit cannot be cancelled.
However, in releasing a deposit, there are often troubles over "whether the other party has started to fulfill the contract or not. In addition, since both the seller and the buyer have the right to terminate the contract during the period when release of deposit is possible, it remains uncertain whether the contract will be fulfilled or not.
Therefore, the period that allows cancellation by release of deposit may be limited to "within ● days from the date of the contract" or "until ●●● year".
Differences in the Deposits
(1) Earnest money deposit
A deposit given and received for the purpose of evidencing the conclusion of a contract.
(2) Cancellation deposit
A cancellation deposit is a deposit that allows
- the buyer to cancel the sales contract by waiving (not demanding the return of) the deposit he/she has paid, and
- the seller to cancel the sales contract by returning to the buyer twice the amount of the deposit that has been received.
A deposit that, in the event of a breach of contract by either party, will be forfeited or doubled as "punishment" for the breach of contract, in addition to compensation for damages.
Cancellation by Earnest Money Deposits
The termination of a contract by means of a cancellation deposit is generally referred to as "release of deposit." For example, if circumstances have changed significantly since the contract was concluded, it is possible to cancel the contract by waiving or doubling back the deposit. However, the contract can be canceled with release of deposit only until the other party begins to fulfill the contract. In other words, if the other party has already performed the promises stipulated in the contract, the deposit cannot be cancelled.
However, in releasing a deposit, there are often troubles over "whether the other party has started to fulfill the contract or not. In addition, since both the seller and the buyer have the right to terminate the contract during the period when release of deposit is possible, it remains uncertain whether the contract will be fulfilled or not.
Therefore, the period that allows cancellation by release of deposit may be limited to "within ● days from the date of the contract" or "until ●●● year".
An overview of the deposits
* A deposit is presumed to be a cancelation deposit if not otherwise specified.
9-2 Points to Check When Concluding a Sales Contract
Since a real estate sales contract is a major transaction involving high-value assets, a written contract is generally prepared and exchanged. The Real Estate Brokerage Act also obliges real estate companies (real estate agents) to deliver a document describing the contents of the contract without delay after the contract is concluded, with the real estate agent's name and seal affixed.
The revised part of the Real Estate Brokerage Act of the Digital Improvement Act took effect on May 18, 2022, making the seal of a real estate transaction agent unnecessary when a paper document is delivered upon conclusion of this contract, and also making it possible to provide the document digitally.
This section describes the main points that should be confirmed in a sales contract. There are, of course, other points that should be confirmed, so if you have any questions, be sure to check with your real estate agent until there is no uncertain points left.
The revised part of the Real Estate Brokerage Act of the Digital Improvement Act took effect on May 18, 2022, making the seal of a real estate transaction agent unnecessary when a paper document is delivered upon conclusion of this contract, and also making it possible to provide the document digitally.
This section describes the main points that should be confirmed in a sales contract. There are, of course, other points that should be confirmed, so if you have any questions, be sure to check with your real estate agent until there is no uncertain points left.
Point 1: What to check in a sales contract
The following is a list of common items in a sales contract and points to be checked. However, keep in mind that the details of the contract and the points to be checked will vary depending on the individual contract.
(1) Description of the property for sale
Check for any errors in the description of the property to be purchased. Generally, the property is indicated in the contract based on the registration record (registry). It is a prerequisite of the sales contract that the property to be sold or purchased is clearly defined.
(2) Sales price, amount of deposit, and payment date
Confirm the amount of the sales price, deposit, etc. and the date of payment. Note that failure to pay by the due date may constitute a breach of contract. Also, carefully check the handling of the deposit. Confirm what kind of deposit (cancellation deposit, deed of promise, or penalty deposit) it is and whether the amount is appropriate (approximately what percentage of the purchase price it is). If the deposit is a cancellation deposit, check how long it is possible to cancel the contract. If there are any concerns about the seller's credibility, the buyer should proceed with caution when paying a large deposit or other such payment.
(3) Actual measurement of land and settlement of land price
The area of land may differ from the area indicated in the registration record (registry) to the actual area. Therefore, the seller often measures the actual area of the land before delivery. If, as a result of the actual measurement, the area of the registration record (registry) differs from the area actually measured, the sales price may be settled according to the difference in area. (It is also possible to only take the actual measurement and not to settle the price.) Generally, the settlement of the sales price is made using the unit price per square meter based on the original sales price and the original sales area (the area on the registration record (registry)).
(4) Transfer of ownership and delivery
Confirm the timing of transfer of ownership and delivery. Check if there are any problems based on the schedule for moving, etc. While the transfer of ownership and delivery take place in exchange for payment of the price, in practice, real estate transactions are often completed when the documents necessary for the registration of transfer of ownership and the keys are handed over to the buyer at the place of payment.
(5) Transfer of auxiliary facilities, etc.
In the case of an existing house, it is necessary to clarify the transfer of facilities such as interior lighting and air conditioning, as well as garden trees and garden stones on the premises. Troubles surrounding the taking over of such auxiliary facilities and equipment are surprisingly common, so it is necessary to fully discuss with the seller what will be taken over and what will be removed prior to signing the contract.
It is also important to confirm in advance the condition of the equipment to be taken over, including whether it is in disrepair. When signing a contract, it is common to check each item of equipment one by one using a list of ancillary equipment, etc. (The list used confirm the conditions of the ancillary equipment is called a "notice" or "property condition report.)
(6) Discharge of Burdens
Confirm that the property to be purchased will be acquired with full title. For example, the property with any rights that would prevent the full exercise of ownership, such as mortgages or leasehold rights, will be delivered with the seller's responsibility to remove such rights. Note that if the property is delivered without such rights being removed, it may not be available for use as planned after purchase.
In the sale of investment properties, it is often the case that the property is occupied by tenants, in which case only the lease agreement with the tenants will be taken over by the buyer. In this case, it is necessary to clarify the rights to be taken over and the rights not to be taken over.
(7) Settlement of taxes and public dues, etc.
In a real estate sales contract, it is common for the seller and buyer to settle taxes and public dues such as fixed property tax and city planning tax. In addition, other expenses such as management fees may also be settled. Settlements are often made on a pro-rata basis based on the date of delivery. Settlement fees such as these are also required separately from the sales price, so it is important to confirm the details.
(8) Cancellation by forfeit
Since the contract may be cancelled due to some unforeseen circumstances, the parties concerned should confirm what kind of arrangements are in place for cancellation by forfeit. Of course, by agreement between the parties, it is possible to make a contract that does not allow for the release of a deposit, or to limit the period during which the deposit can be released.
The amount of the deposit is generally set within the range of up to 20% of the purchase price. If the deposit is small, the burden is small when you cancel the contract, but the risk of cancellation by the other party is high. On the other hand, if the deposit is large, the risk of cancellation by the other party is low, although the burden is greater when you terminate the contract. Be sure to check the amount of the cancellation deposit as well.
(9) Loss or damage to the property prior to delivery (burden of risk)
This is an arrangement in the event that the property to be purchased is lost or damaged after the conclusion of the sales contract for reasons for which neither the seller nor the buyer is responsible, such as the total destruction of the building due to a natural disaster.
In a real estate transaction, the seller generally restores the property before handing it over. However, if the restoration of the property will cost an excessive amount of money, or if the buyer cannot achieve the purpose of the contract because the property has been lost or damaged (for example, it cannot be restored to a livable condition), the contract can be terminated unconditionally. This is an arrangement in case of emergency, so be sure to check it carefully.
(10) Cancellation for breach of contract except for nonconformity
This is an arrangement for canceling a contract due to breach of contract (i.e., breach of promise, which is legally called "default"). If either the seller or the buyer is in default, the other party can cancel the contract. If the contract is cancelled due to a breach of contract, the party who breached the contract generally pays a penalty. In many cases, the penalty, etc. is generally set within the range of up to 20% of the sales price. Although a sales contract is not concluded on the assumption that the contract will be violated, there are contingencies, so be sure to check the contract carefully in advance.
(11) Exclusion of Anti-Social Forces
In order to "exclude antisocial forces" from real estate transactions, standard model clauses for exclusion of antisocial forces have been introduced. Confirm that the sales contract includes clauses assuring that "neither the seller nor the buyer is a crime syndicate or other anti-social force" and "the property will not be used as an office or other base of activities of anti-social forces. If any of these are violated, the contract can be terminated.
(12) Loan provisions
If the buyer is unable to obtain a mortgage loan despite the fact that he/she is not at fault, the buyer will not be able to pay the purchase price and will ultimately be in breach of the contract. Since the buyer should avoid such a situation, it is common for the buyer to attach a loan provision to the purchase agreement when purchasing a house with a mortgage loan. The buyer can unconditionally cancel the sales contract in the event that the mortgage loan review is unsuccessful.
However, this provision does not apply if the buyer is unable to obtain a loan due to the buyer's fault, for example, if the buyer fails to follow the necessary procedures for loan approval. Even if a loan provision is in place, it is important to fully consider the financial plan before signing the contract and to have a good prospect of obtaining a loan. Please note that in some cases, additional optional construction works or specification changes in newly built condominiums may not be covered by the loan provision.
(13) Liability for nonconformity to the contract
If there is a defect in the property sold or purchased, the buyer can make certain claims against the seller. The seller's liability in this case was previously referred to as "defect liability. However, due to an amendment to the Civil Code, the name has been changed to "liability for nonconformity to the contract" as of April 1, 2020, and its contents have also changed significantly.
The seller is obligated under the sales contract to deliver the property that conforms to the terms of the contract with respect to the type, quality, and quantity of the property. If the seller fails to fulfill this obligation and delivers the property, he or she is liable for nonconformity to the contract. In such a case, according to the provisions of the Civil Code, the buyer can demand repair of the property, reduction of the price, or compensation for damages, and can cancel the contract if the non-conformity is not minor. However, this provision of the Civil Code is a general rule when the parties have not made any agreement, and the parties may make other arrangements.
In actual contracts, special provisions are usually made regarding the extent to which the seller is liable for nonconformity and the period for which the seller is liable. Therefore, as a buyer, you should carefully check the contents of the contract regarding the extent to which the seller is liable and the period of time for which he/she can make a claim.
If a building condition survey has been conducted and a summary of the results is explained as an important matter before a contract is signed, the summary of the survey results will be included as "matters confirmed by both parties regarding the condition of the main structural members of the building, etc." (If a building condition survey has not been conducted, it will be indicated as "none.")
The following is a list of common items in a sales contract and points to be checked. However, keep in mind that the details of the contract and the points to be checked will vary depending on the individual contract.
(1) Description of the property for sale
Check for any errors in the description of the property to be purchased. Generally, the property is indicated in the contract based on the registration record (registry). It is a prerequisite of the sales contract that the property to be sold or purchased is clearly defined.
(2) Sales price, amount of deposit, and payment date
Confirm the amount of the sales price, deposit, etc. and the date of payment. Note that failure to pay by the due date may constitute a breach of contract. Also, carefully check the handling of the deposit. Confirm what kind of deposit (cancellation deposit, deed of promise, or penalty deposit) it is and whether the amount is appropriate (approximately what percentage of the purchase price it is). If the deposit is a cancellation deposit, check how long it is possible to cancel the contract. If there are any concerns about the seller's credibility, the buyer should proceed with caution when paying a large deposit or other such payment.
(3) Actual measurement of land and settlement of land price
The area of land may differ from the area indicated in the registration record (registry) to the actual area. Therefore, the seller often measures the actual area of the land before delivery. If, as a result of the actual measurement, the area of the registration record (registry) differs from the area actually measured, the sales price may be settled according to the difference in area. (It is also possible to only take the actual measurement and not to settle the price.) Generally, the settlement of the sales price is made using the unit price per square meter based on the original sales price and the original sales area (the area on the registration record (registry)).
(4) Transfer of ownership and delivery
Confirm the timing of transfer of ownership and delivery. Check if there are any problems based on the schedule for moving, etc. While the transfer of ownership and delivery take place in exchange for payment of the price, in practice, real estate transactions are often completed when the documents necessary for the registration of transfer of ownership and the keys are handed over to the buyer at the place of payment.
(5) Transfer of auxiliary facilities, etc.
In the case of an existing house, it is necessary to clarify the transfer of facilities such as interior lighting and air conditioning, as well as garden trees and garden stones on the premises. Troubles surrounding the taking over of such auxiliary facilities and equipment are surprisingly common, so it is necessary to fully discuss with the seller what will be taken over and what will be removed prior to signing the contract.
It is also important to confirm in advance the condition of the equipment to be taken over, including whether it is in disrepair. When signing a contract, it is common to check each item of equipment one by one using a list of ancillary equipment, etc. (The list used confirm the conditions of the ancillary equipment is called a "notice" or "property condition report.)
(6) Discharge of Burdens
Confirm that the property to be purchased will be acquired with full title. For example, the property with any rights that would prevent the full exercise of ownership, such as mortgages or leasehold rights, will be delivered with the seller's responsibility to remove such rights. Note that if the property is delivered without such rights being removed, it may not be available for use as planned after purchase.
In the sale of investment properties, it is often the case that the property is occupied by tenants, in which case only the lease agreement with the tenants will be taken over by the buyer. In this case, it is necessary to clarify the rights to be taken over and the rights not to be taken over.
(7) Settlement of taxes and public dues, etc.
In a real estate sales contract, it is common for the seller and buyer to settle taxes and public dues such as fixed property tax and city planning tax. In addition, other expenses such as management fees may also be settled. Settlements are often made on a pro-rata basis based on the date of delivery. Settlement fees such as these are also required separately from the sales price, so it is important to confirm the details.
(8) Cancellation by forfeit
Since the contract may be cancelled due to some unforeseen circumstances, the parties concerned should confirm what kind of arrangements are in place for cancellation by forfeit. Of course, by agreement between the parties, it is possible to make a contract that does not allow for the release of a deposit, or to limit the period during which the deposit can be released.
The amount of the deposit is generally set within the range of up to 20% of the purchase price. If the deposit is small, the burden is small when you cancel the contract, but the risk of cancellation by the other party is high. On the other hand, if the deposit is large, the risk of cancellation by the other party is low, although the burden is greater when you terminate the contract. Be sure to check the amount of the cancellation deposit as well.
(9) Loss or damage to the property prior to delivery (burden of risk)
This is an arrangement in the event that the property to be purchased is lost or damaged after the conclusion of the sales contract for reasons for which neither the seller nor the buyer is responsible, such as the total destruction of the building due to a natural disaster.
In a real estate transaction, the seller generally restores the property before handing it over. However, if the restoration of the property will cost an excessive amount of money, or if the buyer cannot achieve the purpose of the contract because the property has been lost or damaged (for example, it cannot be restored to a livable condition), the contract can be terminated unconditionally. This is an arrangement in case of emergency, so be sure to check it carefully.
(10) Cancellation for breach of contract except for nonconformity
This is an arrangement for canceling a contract due to breach of contract (i.e., breach of promise, which is legally called "default"). If either the seller or the buyer is in default, the other party can cancel the contract. If the contract is cancelled due to a breach of contract, the party who breached the contract generally pays a penalty. In many cases, the penalty, etc. is generally set within the range of up to 20% of the sales price. Although a sales contract is not concluded on the assumption that the contract will be violated, there are contingencies, so be sure to check the contract carefully in advance.
(11) Exclusion of Anti-Social Forces
In order to "exclude antisocial forces" from real estate transactions, standard model clauses for exclusion of antisocial forces have been introduced. Confirm that the sales contract includes clauses assuring that "neither the seller nor the buyer is a crime syndicate or other anti-social force" and "the property will not be used as an office or other base of activities of anti-social forces. If any of these are violated, the contract can be terminated.
(12) Loan provisions
If the buyer is unable to obtain a mortgage loan despite the fact that he/she is not at fault, the buyer will not be able to pay the purchase price and will ultimately be in breach of the contract. Since the buyer should avoid such a situation, it is common for the buyer to attach a loan provision to the purchase agreement when purchasing a house with a mortgage loan. The buyer can unconditionally cancel the sales contract in the event that the mortgage loan review is unsuccessful.
However, this provision does not apply if the buyer is unable to obtain a loan due to the buyer's fault, for example, if the buyer fails to follow the necessary procedures for loan approval. Even if a loan provision is in place, it is important to fully consider the financial plan before signing the contract and to have a good prospect of obtaining a loan. Please note that in some cases, additional optional construction works or specification changes in newly built condominiums may not be covered by the loan provision.
(13) Liability for nonconformity to the contract
If there is a defect in the property sold or purchased, the buyer can make certain claims against the seller. The seller's liability in this case was previously referred to as "defect liability. However, due to an amendment to the Civil Code, the name has been changed to "liability for nonconformity to the contract" as of April 1, 2020, and its contents have also changed significantly.
The seller is obligated under the sales contract to deliver the property that conforms to the terms of the contract with respect to the type, quality, and quantity of the property. If the seller fails to fulfill this obligation and delivers the property, he or she is liable for nonconformity to the contract. In such a case, according to the provisions of the Civil Code, the buyer can demand repair of the property, reduction of the price, or compensation for damages, and can cancel the contract if the non-conformity is not minor. However, this provision of the Civil Code is a general rule when the parties have not made any agreement, and the parties may make other arrangements.
In actual contracts, special provisions are usually made regarding the extent to which the seller is liable for nonconformity and the period for which the seller is liable. Therefore, as a buyer, you should carefully check the contents of the contract regarding the extent to which the seller is liable and the period of time for which he/she can make a claim.
If a building condition survey has been conducted and a summary of the results is explained as an important matter before a contract is signed, the summary of the survey results will be included as "matters confirmed by both parties regarding the condition of the main structural members of the building, etc." (If a building condition survey has not been conducted, it will be indicated as "none.")
Point 2: Regulations when the seller is a real estate company (real estate agent)
When a real estate company is the seller, the Real Estate Brokerage Act sets restrictions on sales contracts. If applicable, please check the contents of the contract and make sure in advance that the contract does not violate any restrictions before signing the sales contract.
When a real estate company is the seller, the Real Estate Brokerage Act sets restrictions on sales contracts. If applicable, please check the contents of the contract and make sure in advance that the contract does not violate any restrictions before signing the sales contract.
Point 3: Learn about the sales contract process
After receiving an explanation of important matters and being satisfied with the contents of the contract and the property, it is time to conclude the sales contract.
In principle, the buyer and seller will meet to read out the sales contract and make a final confirmation of the contents of the contract. The contract is then signed and sealed, and the deposit, etc. is paid. The deposit, etc. may be prepared in cash, by wire transfer to a designated account, or by deposit check.
If a real estate company acts as an intermediary, a brokerage fee is often paid at the time of contracting. If there is oversight in the contract procedures, a sales contract cannot be concluded, which will cause inconvenience to the seller and other parties involved, so be sure to be well prepared before signing the contract.
In real estate transactions, the Law for Prevention of Transfer of Criminal Proceeds requires the seller or the real estate company acting as an intermediary to present identification documents and to declare the seller's occupation and the purpose of the transaction.
After receiving an explanation of important matters and being satisfied with the contents of the contract and the property, it is time to conclude the sales contract.
In principle, the buyer and seller will meet to read out the sales contract and make a final confirmation of the contents of the contract. The contract is then signed and sealed, and the deposit, etc. is paid. The deposit, etc. may be prepared in cash, by wire transfer to a designated account, or by deposit check.
If a real estate company acts as an intermediary, a brokerage fee is often paid at the time of contracting. If there is oversight in the contract procedures, a sales contract cannot be concluded, which will cause inconvenience to the seller and other parties involved, so be sure to be well prepared before signing the contract.
In real estate transactions, the Law for Prevention of Transfer of Criminal Proceeds requires the seller or the real estate company acting as an intermediary to present identification documents and to declare the seller's occupation and the purpose of the transaction.
Main items required at the time of signing
📖Regulations When the Seller Is a Real Estate Agent
When a real estate company (real estate agent) is the seller, the following restrictions are set in the sales contract.
(1) Restrictions on contracts for properties that have not yet been complete
Permission or confirmation, etc. (hereinafter referred to as "permits, etc.") from an administrative agency is required for the creation of land or construction of buildings above a certain size. Without these permits, land cannot be developed or buildings cannot be constructed. Therefore, a real estate company (real estate agent) cannot conclude a sales contract for an uncompleted property for which land development or building construction has not yet taken place prior to obtaining the permits, etc. from the administrative agency. When conducting sales and purchases of uncompleted newly built properties for sale, confirm that permits, etc. are in place.
(2) Cooling-off
When a real estate company (real estate agent) is the seller, cooling-off (unconditional cancellation of contract, etc.) is applicable to the buyer if certain conditions are met. The requirements are as follows. Check whether the cooling-off is applicable to your contract.
(3) Restrictions on deposits
When a real estate company (real estate agent) receives a deposit, the following restrictions apply, so please make sure to check them carefully.
(4) Protection of deposits, etc.
When a real estate company (real estate agent) receives a deposit or a portion of the sales price (hereinafter referred to as "deposit, etc.") exceeding a certain amount at the time of concluding a sales contract, the company must take measures to protect the deposit, etc. The security measures are a guarantee by a bank or a guarantee company, etc., or insurance by an insurance company. This means that even in the unlikely event that the real estate company (real estate agent) goes bankrupt, the deposit, etc. paid at the time of signing the contract will be returned. Check to see if the amount of the deposit, etc. to be paid is covered by the protection measures.
Permission or confirmation, etc. (hereinafter referred to as "permits, etc.") from an administrative agency is required for the creation of land or construction of buildings above a certain size. Without these permits, land cannot be developed or buildings cannot be constructed. Therefore, a real estate company (real estate agent) cannot conclude a sales contract for an uncompleted property for which land development or building construction has not yet taken place prior to obtaining the permits, etc. from the administrative agency. When conducting sales and purchases of uncompleted newly built properties for sale, confirm that permits, etc. are in place.
(2) Cooling-off
When a real estate company (real estate agent) is the seller, cooling-off (unconditional cancellation of contract, etc.) is applicable to the buyer if certain conditions are met. The requirements are as follows. Check whether the cooling-off is applicable to your contract.
- The buyer is making an application for purchase or concluding a contract at a place other than the office, etc. (*) of the real estate company (real estate agent). *The real estate company's head office or branch office, model room, home or workplace (only when the buyer wishes to use the place of application for purchase or conclusion of contract as the place of application or conclusion of contract), etc.
- The real estate company (real estate agent) have informed the buyer in writing that the cooling-off provision applies and the method for conducting the cooling-off.
- Within 8 days from the date of being informed of the contents of 2.
- Before the delivery of the property.
(3) Restrictions on deposits
When a real estate company (real estate agent) receives a deposit, the following restrictions apply, so please make sure to check them carefully.
- No deposit in excess of 20% of the purchase price shall be accepted.
- A deposit is considered a cancellation deposit. The right of the buyer to cancel the contract by the deposit must not be restricted, such as by setting a time limit within which the contract can be cancelled. These restriction prevents the buyer from paying an unreasonably high deposit or restricting the right of cancellation. With respect to the amount of the deposit, any portion exceeding 20% shall not be treated as a deposit. In addition, provisions restricting the right of cancellation are invalid.
(4) Protection of deposits, etc.
When a real estate company (real estate agent) receives a deposit or a portion of the sales price (hereinafter referred to as "deposit, etc.") exceeding a certain amount at the time of concluding a sales contract, the company must take measures to protect the deposit, etc. The security measures are a guarantee by a bank or a guarantee company, etc., or insurance by an insurance company. This means that even in the unlikely event that the real estate company (real estate agent) goes bankrupt, the deposit, etc. paid at the time of signing the contract will be returned. Check to see if the amount of the deposit, etc. to be paid is covered by the protection measures.
The amount of deposit, etc. subject to protection
*For an amount that is not listed above, the protective measures are optional.
(5) Restrictions on the amount of scheduled compensation for damages
A real estate company (real estate transaction agent) may not conclude a contract in which the total amount of the penalty or scheduled amount of compensation for damages in the event of a breach of contract exceeds 20% of the sales price. If this is violated, the portion exceeding 20% will become invalid, and the total amount of the penalty and scheduled amount of compensation for damages will be 20% of the sales price.
(6) Limitations on provisions regarding liability for non-conformity to the contract
Even if a real estate company (real estate agent) makes a provision less favorable to the buyer than the provisions of the Civil Code regarding liability for non-conformity to contract, the provision will be invalid. However, a provision stating, "We will assume responsibility only if we are notified within two years from the date of delivery. is valid, although it is less favorable to the buyer than the provisions of the Civil Code. In case the provision is invalid, the principle provisions of the Civil Code will be applied.
A real estate company (real estate transaction agent) may not conclude a contract in which the total amount of the penalty or scheduled amount of compensation for damages in the event of a breach of contract exceeds 20% of the sales price. If this is violated, the portion exceeding 20% will become invalid, and the total amount of the penalty and scheduled amount of compensation for damages will be 20% of the sales price.
(6) Limitations on provisions regarding liability for non-conformity to the contract
Even if a real estate company (real estate agent) makes a provision less favorable to the buyer than the provisions of the Civil Code regarding liability for non-conformity to contract, the provision will be invalid. However, a provision stating, "We will assume responsibility only if we are notified within two years from the date of delivery. is valid, although it is less favorable to the buyer than the provisions of the Civil Code. In case the provision is invalid, the principle provisions of the Civil Code will be applied.
Regulations when the seller is a real estate agent
In case the property is a newly built house
The seller of a newly built house must assume liability for defects (liability for nonconformity to the contract) of the main structural parts (foundation, pillars, roof, exterior walls, etc.) for at least 10 years from the date of delivery. If the property to be purchased is a newly-built house, please confirm the period and details of the liability for defects carefully. In order to ensure the fulfillment of liability for defects, the seller is obliged to subscribe to insurance or deposit a security deposit. It is important to confirm what measures will be taken for the new house you are planning to purchase.
The seller of a newly built house must assume liability for defects (liability for nonconformity to the contract) of the main structural parts (foundation, pillars, roof, exterior walls, etc.) for at least 10 years from the date of delivery. If the property to be purchased is a newly-built house, please confirm the period and details of the liability for defects carefully. In order to ensure the fulfillment of liability for defects, the seller is obliged to subscribe to insurance or deposit a security deposit. It is important to confirm what measures will be taken for the new house you are planning to purchase.