Eminent Domain laws in Japan notoriously weak

TOKYO —

In an earlier article I mentioned how difficult it is to evict tenants in Japan. That specific tidbit created enough of a response to dedicate a separate article entirely for the topic of Eminent Domain laws in Japan. Why is this important? From an investment and development standpoint, sitting tenants and land owners unwilling to sell can be the largest stumbling block to building a smooth real estate investment portfolio.

From a tenant’s standpoint, once a tenant has signed a contract, then they are in the property. Even if the tenant, from the second they receive their keys, decides to stop paying rent, then by law, they have between 4-6 months before the landlord can legally change the locks. If the locks are changed before the landlord officially receives permission from the local jurisdiction to do so, the non-paying tenant has every right to sue. Granted the courts will take little sympathy on a tenant suing a landlord for locking the tenant out of the premises after not paying rent for three months, the tenant will still technically win the case as the laws are heavily one sided in the tenant’s favor.

From an investment standpoint, non-paying tenants provide the greatest threat to the profitability of a property next to negative market forces. If you purchase a property with a contracted tenant already in place, a large part of your real estate agent’s due diligence is to get as much information regarding the history of the rental contract, how much time is left on the contract and if there have been any troubles with the current tenant at all. One obvious point to make sure of is whether the tenant is consistently paying the rent on time but other points should also be investigated such as if the tenant is producing noise complaints from other people in the building.

From a development standpoint, Eminent Domain laws in Japan are notoriously weak. Eminent Domain (America), Expropriation (Canada), Compulsory Acquisition (Australia) or Compulsory Purchase (UK), is the state’s ability to relocate landowners with fair market compensation, though without the necessity of consent. In the above countries, Eminent Domain laws are fairly straightforward. They outline clearly what the state has to do if your land is necessary for state infrastructure purposes (highway expansion, bridges, etc). However here in Japan, Eminent Domain laws are extremely weak when compared to the above countries.

The development of Narita Airport is Japan’s most famous example of how an intricately thought out development plan can be run amok by land owners unwilling to sell.

Slated to open in 1971, protests by local landowners, student militants and left wing opposition successfully delayed the opening of the airport until May 28, 1978. Rather than a joyous opening day ceremony that would usually mark the end of a momentous project, the birth of Narita Airport was attended by almost 14,000 police officers and over 6,000 protesters. While taxis carrying passengers were being checked by police one by one, protesters were exploding firebombs and throwing rocks while police responded by firing water cannons to keep the protesters at bay.

The fun didn’t stop there, either. Narita Airport quickly grew to capacity in terms of how many flights and passengers it could handle and needed to expand. The process of expansion reignited the protests as more land was forcibly expropriated to increase flight capacity. In fact, the lengthy and violent disputes displayed at Narita Airport during initial construction and later in subsequent expansion efforts were the major factor in building Kansai International Airport in the open water of Osaka Bay rather than on established terra firma.

Weak Eminent Domain laws affect private projects just as much as public ones. Roppongi Hills is another example of how long it can take just to acquire the land necessary to break ground on a project. Opened April 23, 2003, Roppongi Hills sits on 27 acres of land amalgamated from over 400 smaller plots of land that took 14 years to acquire. During the land acquisition, Mori Building (Roppongi Hills developer) had to offer unusually high inducements to existing land owners and in some cases offered replacement dwellings in the Roppongi Hills Residences, sacrificing the ability of the donated dwelling to generate any rental income at all.

This is not to say that investing in Japan is all doom and gloom, in fact quite the opposite, at least in Tokyo anyway. Net yields of between 6-7% are not unheard of and real estate investments are often very fruitful ventures. Just make sure you don’t let the upsides blind you to the downsides.

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  • 0

    SiouxChef

    From a development standpoint, Eminent Domain laws in Japan are notoriously weak

    As it should be.

  • 0

    gaijintraveller

    During the bubble many developers bypassed the law and used the yakuza to move people out. This was common enough for the word jiage to come into common usage to describe such people. Was it somewhere in the Roppongi are that one such person "accidentally" reversed a truck into an old persons house? Admittedly, that was a rare cases, but threatening visits to old people by burly people wearing sunglasses were not so uncommon.

    Regarding Narita Airport, I think there still is one farm inside the airport, which can be seen when some flights taxi to the runway.

  • 0

    vulcan

    In Japan eminent domain laws are for civilian purposes. When the Okinawans pointed this out, the Japanese, under Hashimoto, passed a special measures law stating that in Okinawa prefecture only, will eminent domain be allowed for military baseing purposes.

  • 0

    goddog

    So if I do not pay my mortgage, in 4-6 months the bank can change the locks? And I can change them too. Interesting.

  • 0

    senseiman

    OK, so if I understand the implication of the last paragraph correctly, this article is directed towards members of the reading audience with so much money to invest in Japanese development projects that eminent domain issues would be a serious consideration? I mean, I'm sure there are some relatively affluent readers out there but come on. Or is this all just meant to be a sort of ad for real estate investment in general (which I assume is the writer's trade) and the last paragraph was just clipped on to end the article on a "buy what I'm selling" note? I digress.

    I find the use of the word "notorious" to be somewhat obnoxious in this context. It implies that poor innocent developers and governments are hamstrung in their efforts to build lovely mega-projects by greedy homeowners who abuse the law for their own advantage. Give me a break. Whatever the laws on the books might be it is ludicrous to assert that mega development projects are languishing in this country - anybody who has been in this country more than a week knows the opposite is true. Just look around, the country is covered in them. Obviously the people who plan and build such projects have more than enough ways of getting around weak eminent domain laws regardless of what happened at Narita - more than 30 years ago.

    Also, the implication the author makes with regards to the Roppongi Hills complex is frankly outrageous. If Mori building had to pay more than what it expected for the property then that is too bad for Mori. Its something called "market economics" which the author should be familiar with. The fact that the owners wanted the true value of the property for their homes - said value being the amount which Mori was ultimately willing to pay for it - then that is a fair deal. To imply that the government should have stepped in and basically forced those homeowners to give their land to Mori for less than they could have gotten in a even transaction with Mori on their own is just, frankly, ridiculous.

    Eminent domain should be used for "public purposes" such as basic infrastructure that benefits the public. Using it to basically help a condo developer make a profit at the expense of individual homeowners whose rights to their homes would be trampled underfoot would represent a gross abuse of that power IMHO. You could argue that real estate development serves a public purpose (economic development), but I find that type of argument somewhat specious as it could apply to just about any private project that employed someone. The dangers of corruption and abuse are too readily apparent to merit much further discussion.

    All in all, I give this article a thumbs down.

  • 0

    Frungy

    I agree with the other posters so far. Eminent domain is too often abused, particularly in countries that call themselves capitalist, but then pass laws that create a legal system where owners of capital can have it forcibly taken away. What is ironic is that it is almost never applied to corporations, even though it could technically be, but rather only ever against private individuals.

    If anything Japan's eminent domain laws are even-handed, with equal protection for both corporations and individuals. This is, in my opinion, what a legal system is supposed to be, a set of rules that apply to everyone equally.

  • 0

    american_bengoshi

    I agree with "senseiman", eminent domain should only be used for public purposes such as basic infrastructure that benefits the general public, not for private projects by greedy developers.

  • 0

    taj

    Agreeing whole-heartedly with sensei-man.

    "... threatening visits to old people by burly people wearing sunglasses were not so uncommon"

    I was recently warned by a neighbor / slashed asked to help watch out for this very thing. An old building with just one little old lady tenant has been getting visits. The owner died and the offspring want to sell or redevelop. The neighborhood folk are rallying to protect the slightly batty old lady and keep the shady from harassing her. (I love my neighborhood!)

  • 0

    Nessie

    I agree with your analysis, Sensei. Even so, I would say that from a factual standpoint the article is useful, even if the editorial slant is far from the direction you or I would have taken.

    The process of expansion reignited the protests as more land was forcibly expropriated to increase flight capacity.

    How was this possible, if the eminent domain laws are so weak--unless if was expriopriated illegally? I'd like hear a bit more about this.

  • 0

    Nessie

    Compulsory Acquisition (Australia) or Compulsory Purchase (UK)

    These terms seem wrong. The aquisition or purchase is not what is being made compulsory; the sale is compulsory.

  • 0

    senseiman

    I see your point, Nessie, and while I agree that an article about eminent domain would be useful from a factual standpoint (in terms of providing information), I think this article fails on that point too.

    One problem is that all the facts in the article seem to have been gleaned from Wikipedia (at least they are easily available there). It purports to be about eminent domain law in Japan, yet at no point does it actually cite any actual Japanese laws, or provide any analysis of said laws.

    For example, he says that eminent domain laws are all "fairly straightforward" in other countries, but not in Japan. Ignoring for the moment the fact that the extent of eminent domain law in some of those countries (including the US) are highly contentious and not at all "straightforward", you'll note that he doesn't at any point indicate why Japanese eminent domain laws are not "fairly straightforward". In fact, the only evidence he musters is two incidents in which contentious development projects led to delays and higher than expected costs. These incidents may have had nothing to do with eminent domain: we the readers simply don't know because the author hasn't at all explained what role the law as it exists played in those cases. My suspicion is that this omission is explained by the fact that the author himself doesn't know and just hastily cobbled together this article based on some anecdotes he gleaned from Wikipedia. It really doesn't tell us anything useful.

    Also there is an extreme element of confusion in the presentation of the facts. For the first 3 paragraphs he discusses landlord-tenant law and then, in the 4th paragraph, he suddenly starts discussing eminent domain as though it was in some way related to landlord-tenant law. It isn't, they are completely different things, dealing with different areas of the law (contract in one, real property in the other)and different actors.

    Its just a mess of an article.

  • 0

    gogogo

    boo hoo to big business, for once something in Japan is sided to the consumer and not the company, I had no sympathy for companies feeling the pinch over the little guy even if he is late on rent payments.

  • 0

    Potsu

    6-7 % return isn't that great unless there's going to be a big rise in the value of the property,which doesn't happen here very often.You can get over 7 % in a simple term deposit these days....no agent fees,land taxes,maintainence costs etc.Real Estate in Japan is a bad,bad investment if you are just interested in capital return.

  • 0

    SCAP65

    I could not agree more with all the commenters. The writer must think that the whole world should be populated by disempowered untermensch waiting to be kicked out of their homes to make way for people more worthy of occupying them.

  • 0

    Pestronika

    Good. Add this to the list of the many things I like about Japan.

    Oh, it's difficult for the government to take away people's property? Waaaaah big developers! It SHOULD be virtually impossible to do.

  • 0

    sidjtd

    For all the naysayers about Japanese landscape being sucked away by gigantic projects... you are missing the point. A whole country that prefers to build its future airports on top of the water or carved mountains just goes to show how fighting for land that is owned by civilians is incredibly difficult and painstaking.

  • 0

    senseiman

    Reasonable point, sidtjd, though of course the fact that they are building such projects on reclaimed land or carved mountains could just as easily be explained by the fact that there is so little open, flat land to begin with in this country rather than weak eminent domain powers.

    At any rate, the fact that it is difficult and painstaking to expropriate land from private owners is one thing. "Notoriously weak eminent domain laws" are another. The author hasn't shown how the two are connected, and I'm pretty much 100% convinced this is because he does not know. The laws on the books could actually be quite strong yet the politics, competing economic interests or bureaucratic infighting involved may explain the difficulties encountered.

    Actually, if you examine his own evidence it completely contradicts his assertion. He says that the Narita project was delayed by "protests" and not by landowners being able to effectively resist the exercise of eminent domain laws in the courts or anything. My understanding is that the terminal was severely damaged during a lengthy occupation by protesters which led to a lot of delay.

    In other words, the delay had nothing to do with weak eminent domain, quite the opposite is true - it was the state's ability to exercise eminent domain that led to the protests which, in turn, led to the delay in the terminal's opening.

    I'm not an expert on Narita's history, but just based on what the author has told us it seems Japan's "notoriously weak" eminent domain law had nothing (or at least very little) to do with the problems there. And that is his "exhibit A".

    This article is just.....I mean I can only say it so many times: a mess.

  • 0

    yokkaichi1

    Thank you senseiman. Well said.

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