Japan Commercial Security Deposits and Amortization (Shikibiki)

Japanese commercial security deposits operate in a vastly different reality from residential leases. The consumer protection guidelines issued by the MLIT—which govern how normal wear and tear should be treated—are effectively disregarded in Business-to-Business (B2B) transactions. High-stakes "Freedom of Contract" rules the commercial space, allowing landlords to levy massive deposits and legally siphon off portions via non-refundable clauses.

Disclaimer: This guide provides general legal information for educational purposes only and does not constitute legal advice. High-value commercial leases require specialized legal and tax review. Always consult a licensed attorney in Japan. Information last verified: March 2026.

Massive Guarantee Deposits (Hoshokin / Shikikin)

In commercial real estate (office buildings, retail stores, warehouses), the funds provided by the tenant are commonly referred to as a Guarantee Deposit (Hoshokin), though legally it carries the exact same function as a standard Security Deposit (Shikikin) under the Civil Code (Article 622-2).

Market Standard Deposit Limits:

• Small to Mid-Sized Offices: 3 to 6 months of rent
• Large Prime Office Towers & High-End Retail: 6 to 12 months of rent (or higher depending on corporate credit)

Why Are They So Exorbitant?

1. Bankruptcy Protection: To mitigate the massive hit an institutional landlord takes if a large corporation suddenly goes bankrupt and defaults on several months' rent before they can be legally evicted.
2. Construction Collateral: The interior buildout of a Japanese office is expansive. If a tenant abandons the property mid-lease without dismantling their custom-built partitions and server rooms, the landlord will be stuck with a demolition bill reaching tens of millions of yen. The massive deposit ensures these demolition costs are entirely covered.

Amortization / Shikibiki Clauses

Unique to Japanese leasing is the concept of Amortization (Shikibiki or Shokyaku).

An amortization clause explicitly states that when the tenant vacates the property, a set percentage of the guarantee deposit (e.g., 10% to 20%) or a fixed number of months' rent will NOT be returned to the tenant, completely independent of any physical damage or unpaid rent.

Example: A corporate tenant pays a 10,000,000 JPY deposit with a 20% amortization clause. When they move out, the landlord automatically keeps 2,000,000 JPY as non-refundable income. The remaining 8M JPY is then used to deduct any actual damages before the rest is returned.

If a landlord attempted this in a residential lease, the Consumer Contract Act would strike it down as an unfair, exploitative clause. However, in B2B commercial leases, the Japanese Supreme Court has repeatedly upheld Shikibiki as a valid and enforceable contract term. It functions essentially as deferred "Key Money" (a gratitude payment) or as an upfront premium for the severe natural depreciation commercial use puts on a building's core infrastructure.

Skeleton Return (Gutting the Property)

In residential law, the landlord pays for "ordinary wear and tear." In commercial law, the tenant pays for everything.

Almost every commercial lease contains a binding "Skeleton Return" (Sukeruton Modoshi) agreement. When moving out, the business tenant must, entirely at their own vast expense:

1. Rip out all custom lighting, heavy A/C units, carpets, raised floors, and partition walls.
2. Tear the space down to bare concrete floors, exposed ceiling pipes, and bare walls.

Because restoring the property requires interacting with the high-rise tower's core electrical and fire safety systems, the lease almost always contains a heavily enforced Landlord Designated Contractor clause. The tenant is not allowed to hire a cheap demolition crew; they must pay the specific (and often highly expensive) contractor chosen by the landlord.

Foregoing the Skeleton Return (Inuki)

Sometimes a departing restaurant wants to sell their interior layout intact to the next incoming tenant (called an "Inuki" transfer) to avoid the massive demolition costs. However, Japanese commercial leases universally contain a clause wherein the tenant waives their statutory "Right to Demand Purchase of Fixtures" (Article 33 of the Act on Land and Building Leases). Therefore, an Inuki transfer is never a tenant's right; it occurs solely at the generous discretion and written permission of the landlord.

Best Practices for Landlords

• Rigid Deposit Accounting: Because commercial deposits are massive, treating them as instantly liquid cash can be disastrous when a multi-floor tenant abruptly ends their lease. The landlord must maintain strict ledge accounting to ensure return funds are liquid.
• Strict Designated Contractor Enforcement: Never let a tenant use unverified third parties for demolition inside a skyscraper; the risk of severing a main fiber optic or sprinkler line is catastrophic.

Landager’s commercial engine automatically tracks massive Shikikin ledger balances, calculates non-refundable Shikibiki amortization percentages at move-out, and auto-generates final offset invoices detailing the enormous B2B demolition deductions.

Back to Japan Commercial Real Estate Laws Overview.