New Law on Real Estate Investment in Japan
1. Overview of the new law
In June 2021, the Act on the Review and Regulation of the Use of Real Estate Surrounding Important Facilities and on Remote Territorial Islands (the “Act”) was promulgated. The Act regulates transfers and uses of land and buildings (Real Estate) surrounding important facilities and on remote territorial islands in Japan.
Any person or entity who acquires or uses Real Estate in any designated area is subject to the Act. Such designated areas include “Monitored Areas” (chushi-kuiki) and “Special Monitored Areas” (tokubetsu-chushi-kuiki).
2. Background and purpose of the “Act”
Prior to the Act, acquisitions of Real Estate by foreign persons and entities were regulated ex-post facto by requiring reports from the acquirers under the Foreign Exchange and Foreign Trade Act.
However, as geopolitical and/or national security concerns increase, several countries moved to strengthen the management of investment from foreign investors. In Japan, the government started to study the ideal state of use and management of Real Estate in Japan, in addition to regulations on foreign investors’ investment in Japanese companies.
3. Monitored Areas and Special Monitored Areas
The Japanese government may designate Monitored Areas and Special Monitored Areas by consulting with relevant administrative organisations and the Council on the Use of Real Estate (the “Council”) established under the Act.
The Monitored Areas are designated from among areas (i) within a range of approximately 1,000 meters from an important facility (e.g., defense facilities including facilities of the Japan Self Defense Forces or the US Forces in Japan, facilities of the Japan Coast Guard, and facilities supporting the public1 designated by subordinate regulations), and (ii) on remote territorial islands.
The Special Monitored Areas are designated from among the Monitored Areas as being areas of particular importance from the standpoint of defense.
The Monitored Areas and the Special Monitored Areas are individually designated in public notices (kokuji).
4. Regulations on Monitored Areas
The Japanese government may conduct reviews of the use of Real Estate in the Monitored Areas by asking relevant administrative organisations and local governments to provide information (i.e., names, addresses and other matters to be determined by the subordinate regulations) of the owners, tenants and other related parties of the Real Estate (the "Owners, etc.”). If further information is deemed necessary, the Japanese government may require the Owners, etc. (including those who used the Real Estate prior to the Act coming into effect) to submit reports or materials on their use of the Real Estate.
If the Owner, etc. fails to provide reports or materials, he/she may be subject to a fine of up to JPY300,000 (and in the case where he/she acts for an entity, the entity may also be subject to a fine of up to JPY300,000).
The Japanese government may make a recommendation. If the recommendation is not followed by the Owner, etc. without justifiable grounds, the government may order the Owners, etc. whose use of the Real Estate interferes, or is likely to interfere with the function of important facilities or territorial islands, to stop their use of the Real Estate in that way.
If the Owner, etc. who receives the order does not comply with it, he/she may be subject to imprisonment for up to two years and/or receive a fine of up to JPY2,000,000 (and in the case where he/she acts for an entity, the entity may also be subject to a fine of up to JPY2,000,000).
If the Owner etc. who receives a recommendation from the Japanese government finds that the recommendation causes a significant hindrance to the use of the Real Estate, he/she/it may require the Japanese government to purchase the Real Estate.
5. Regulations on Special Monitored Areas
With regards to the transfer of Real Estate within a certain area (which is to be determined by the subordinate regulations) in any Special Monitored Area, in addition to the regulations applicable to the Monitored Areas, a notification prior to the execution of a contract is required of the transferor and the transferee. Any person who fails to notify the relevant authorities about the transfer may be subject to imprisonment for up to six months or receive a fine of up to JPY1,000,000 (and in the case where he/she acts for an entity, the entity may be subject to a fine of up to JPY1,000,000).
No approval of the transfer is required by the Japanese government. However, since the Special Monitored Areas are part of the Monitored Areas, transfers and uses of Real Estate in the Special Monitored Areas are subject to reviews, recommendations and orders by the Japanese government.
The part of the Act with respect to the formulation of the basic policies and the establishment of the Council came into force on 1 June 2022. The remaining part of the Act will come into force on 1 September 2022.DLA Piper’s Tokyo office has extensive experience and expertise in assisting international clients acquiring, leasing, using or otherwise investing in real estate properties in Japan, and we would be happy to assist your organisation.
1According to a proposal in relation to the establishment of the Act and its subordinate regulations, “facilities supporting the public” include nuclear power plants, landing stations for international submarine cables, and airports that could have both military and civilian functions.