Guide
to Leasing
an Office Space
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| Different
Lessors, Different Definitions |
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 Local
office lease practice which is often incomprehensible to non-Japanese
is that the definition of lease conditions differ from Lessor to
Lessor, even if under the same nominal expression. Lack of the knowledge
frequently causes a difficult lease negotiation. For example, the
definition of 'Rent Free Period' can be varied as:
- management fee is separately charged
- although the lease excludes the management fee, an amount equivalent
to the management fee value is charged throughout the rent free
period
- although completely free for a rent free period, a binding
compensation of the exempted rents will be demanded in the event
of any termination within the first lease term, or
- completely free even in the later event of any termination
within the first lease term
Despite such diversity in definition, such substantial differences
are usually not clarified unless carefully questioned in advance.
 Ordinary
Lease Contract (Renewable Lease Contract)
A type of lease contract in which a lease term is renewable and will
be automatically renewed unless insistence to terminate is indicated
by either party.
Fixed
Lease Term Contract
A type of lease contract in which a lease term is fixed and will
expire upon the completion of the lease period.
In a case that Lessee wishes to continue the use of the space, a
new lease contract needs to be agreed.
 IMPORTANT: This
type of lease for office space is usually considered as an irrevocable
agreement unless otherwise specified in contract. In a case Lessee
insists, despite no cancellation indemnity, to terminate a lease
before expiry of lease term, it will be demanded of the Lessee to
pay the unpaid balance up until the maturity of the fixed term. Please
note that considerable concession by Lessor in rent discount or longer
rent-free term might also be traded to delete an early termination
possibility. Some leading Lessors prefer to adopt this type of lease
to minimize their leasing risks.
| Language
in Local Practices |
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TSUBO
(Unique unit basis for area measurement)
1 tsubo equals to about 3.3 square meters, and the rental rate for
office space is usually expressed in a per tsubo basis in Japan.
Adapting to the tsubo measure may enable you to understand the Lessors'
leasing logic better, since profitability is usually calculated on
tsubo measure. 1 tsubo equals twice the size of 1 traditional tatami
mat.
REIKIN
(Key Money)
Non-refundable payment to lessor when concluding a lease contract.
Reikin, usually expressed as 'key money' in the local practice, is
a condition frequently questioned as most incomprehensible by non-Japanese,
new to Japan. It is said to have begun around post World War II period
when the society had serious lack of leasing space in cities, and
thus people became paying lessors an extra fee to express gratitude
for accepting the lease. Reflecting recent economic depression, the
key money is being excluded from lease conditions for expensive properties.
On the other hand, the condition for properties expecting Japanese
tenants is deep-seated and hardly negotiable in most cases. In a
case to negotiate the waiving the key money of an individually owned
property, please assume in advance that the condition can be uncompromisingly
insisted. Due to lack of the recognition, many non-Japanese experienced
difficult negotiations or denials by individual owners. If there
has been no sign of concession after negotiating with lessors twice,
please consider it unlikely deletable.
Recent Market Rate:
- twice the monthly rental amount (for small-sized office space)
- 1 times the monthly rental amount (for mid-sized office space
or larger)
In a case inevitably concluding on lease with binding key money,
please note the key money calculation does not include the value
of a management fee. Following are useful knowledge about key money
customs:
- Home-office & small-sized office: Hardly negotiable in
general.
- Mid-sized office space or larger: Usually excluded from initial
conditions. Even if included, deletion or reduction possibility
through negotiation is likely, according to the recent trend.
- It is said to have begun around post World War II period when
the society had serious lack of leasing space in cities, and
thus people became paying lessors an extra fee to express gratitude
for accepting the lease.
Fixed
Amortization Fee
Non-refundable payment to lessor, usually deducted from security
deposit when vacating an office. Recent economic depression and law
revision affect Lessors to consider adopting actual cost basis rather
than fixed. It should also be noted that most leases with a binding
amortization payment still seek lessees a restoration liability.Market
Rate: 1-2 times of a rent.
Market Rate: 1-2 times of a rent.
- Small- and mid-sized office spaces & individually owned properties:
Likely included in initial conditions. Deletion or reduction
possibility through negotiation is more difficult than those
for larger office spaces.
Security
Deposit (Shikikin)
Refundable payment to Lessor to conclude a lease contract. Remains
after the deduction of 'Restoration Fee', 'Fixed Amortization Fee'
(if applicable) and a general cleaning fee, will be repaid to Lessee,
usually within 3 weeks to 1 month after vacation. Market Average:
6-8 times monthly rent (for small-to- mid-size office)/ 10-15 times
monthly rent (mid-size office or larger). Lessor can legally affix
the amount of the security deposit to any amount deemed appropriate;
so you may be offered a fixed amount rather than 'multiples of a
rent'. In most cases, usually required as multiples the rent. If
your lease condition includes the management fee, it is recommendable
to ensure whether the management fee value is calculated in a deposit
sum. The inclusion of the management fee usually causes 30 percent
higher sum than nominal rent basis only.
Renewal
Fee
Non-refundable payment to Lessor as to renew the lease term.
Recent Market Rate: 1 times monthly rent.
- Small-sized & individually owned mid-sized office spaces: Usually
included in initial conditions. Despite the nominal expression,
the fee is usually handled as key-money -equivalent as of vacating.
In fact some individual lessors insist the amortization condition
in return to delete the key money payment as of concluding a
lease contract. Contrary to general assumption, the higher amortization
fee is usually more difficult to delete or reduce.
- Mid-sized office space or larger: Larger office spaces are
usually owned and managed by professional leasing companies.
Even if included in initial conditions, deletion or reduction
possibility through negotiation is likely in general.
Rent
Free Term
A period that Lessor agrees to lease Lessee an office space free
of rent. In a case that a rent consists of a combination of nominal
rent and management fee, a standard definition of 'rent free term'
excludes the nominal rent part only, and the Lessee is still liable
for the management fee throughout the term. Since many non-Japanese
confuse the various definitions, please consider 'discounted rent
term' for actual implication.
No management fee and the inclusion of management fee within nominal
rent are two different definitions.
In most cases of the inclusion, payment of amount equivalent to management
fee value throughout the rent-free term will be insisted. Since not
included in most initial offers, you might need to negotiate whether
such condition is acceptable. Most Lessors agree to accept the free
term by trading to retain a certain level of rent.
For mid-sized or larger office buildings, successful negotiation
can result in a 2-6 month free rent term.
Rent
Usually expressed in both tsubo (3.3 sq.m.) and sq.m. bases. Please
ensure whether the nominal rent includes the management fee within.
Management
Fee
Usually insisted for covering monthly expenses of utility and cleaning
charges for public spaces and elevators.
Unlike the nominal rent, most management fees are hardly negotiable
to decrease or delete.
Air-conditioning
Fee
Most management fees cover the air-con. charges during 8:00-18:00
as standard. Some lessors however insist charging on full consumption,
and almost all Lessors charge for the operation after 18:00.
Sales
Tax
Excepting organization such as embassies, consulate offices or other
public or military service offices of foreign countries, other general
office lessees need to pay sales tax on rent, management fee, fixed
amortization fee, key money and renewal fee. The current tax rate
is 5%.
Other
Fees
Even if not detailed in most initial conditions, other fees such
as parking and cleaning are usually charged.
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For
most non-Japanese people, especially those new to Japan, who are
seeking office space in Tokyo are very likely to experience uncomfortable
and time-consuming lease negotiations due merely to the lack of a
basic understanding of local office leasing practices. "I did
not expect searching office space in Japan could be such exhausting
experience" "I do not want to do it ever again"...as
seen in those comments; local rental practices here in Tokyo can
be said to be more complicated and varied, than you have known in
rental markets of other countries. This page explains local rental
practices and language most frequently questioned by our non-Japanese
clients:
