A fixed-term land lease is a rather new form of lease under Japanese law. This is a lease agreement which is NOT renewable under the Land Lease and Building Lease Law. However, the parties involved in a fixed-term land lease can enter into a new lease agreement when the old lease’s term has expired.

The fixed-term land lease was created to make it easy for a land owner to rent out land, and so that Japanese land as a whole can be utilized in more efficient ways.

In the past, laws applying to the lease of land have typically protected the interests of the lessor. Because the provisions under the Land Lease and Building Lease Law of Japan are normally compulsory, business stakeholders wanted a more flexible legal system that allowed business entities to utilize land as lessees, in a way that made it easy for landlords to agree to leases. This is why landlords prefer the fixed term land lease, which is widely used for lessees who run restaurants, warehouses, and factories. However, it should be kept in mind that it is important to draft a relevant agreement that protects the rights of the lessee, since renewal is not expected under this type of lease.

More and more disputes are occurring in big cities in Japan, involving cases in which the terms of a fixed term lease expire without the parties coming to any new agreement, and in which the lessee somehow expects, without legal foundations, to be able to enter into a new lease. This is typical for lessees that are small companies and that have not sought out the appropriate legal advice before entering into a fixed term lease as a new form of lease.