Osaka commercial security deposits | Legal Guide

The framework governing deposits in Japan's commercial real estate market operates under the Civil Code (Act No. 89 of 1896), with specific security deposit regulations (Article 622-2) formalized in the amendment effective April 1, 2020. These provisions apply to leases generally, including commercial leases, but the Act on Land and Building Leases (Act No. 90 of 1991) also contains specific regulations for building leases (Chapter III) and land leases for building ownership (Chapter II).

While the Civil Code (Article 621) generally places the obligation for restoration of damage (excluding wear and tear from ordinary use and aging degradation) on the lessee, the principle of "Freedom of Contract" (Civil Code Article 521) allows parties to freely decide the terms of a contract within the limits of laws and regulations. However, the legality of lease terms is subject to general principles of contract law, public policy (Civil Code Article 90), and Article 622-2, which mandates the return of the remaining amount after deducting obligations.

The Reality of Massive "Deposits" (Hoshokin / Shikikin)

In commercial real estate, particularly in Osaka's Grade-A office towers or large retail facilities, the upfront money paid by a tenant is often called a "Guarantee Deposit" (Hoshokin) or a "Security Deposit" (Shikikin).

Article 622-2 of the Civil Code defines a "security deposit" (敷金 - shikikin) as money delivered by the lessee to the lessor, regardless of the name, for the purpose of securing an obligation to pay money that is owed by the lessee to the lessor based on a lease, such as an obligation to pay rent. Upon termination of the lease and return of the leased thing, the lessor must return to the lessee the amount that remains after deducting the amount of the obligation to pay money that is owed by the lessee to the lessor based on the lease.

Standard Deposit Limits in the Osaka Market:

• Small to Mid-Sized Offices / Street-Level Retail: 3 to 6 months' rent.
• Grade S/A Mega-Offices / Large Retail Facilities: 6 to 12 months' rent (or even higher depending on the corporate tenant's credit rating/financial health).

Why Are They So Astronomically High?

1. Total Defense Against Bankruptcy: If a tenant fails to perform an obligation to pay money based on the lease, the lessor may appropriate the security deposit to the payment of the obligation. Landlords demand a significant cash pool to guarantee rental income during potential legal proceedings.
2. Collateral for Demolition: Commercial interior build-outs are expensive to restore. The Civil Code (Article 621) requires the lessee to restore the property to its original state (excluding ordinary wear and tear), and the deposit acts as security for this obligation.

The Legality of the "Amortization" Clause (Shikibiki / Shokyaku)

While "Amortization" (Shikyaku or Shikibiki) clauses are frequently included in B2B contracts in Osaka, their application is governed by the Civil Code.

Article 622-2 mandates the return of the security deposit amount that remains after deducting the lessee's monetary obligations based on the lease. Under the principle of Freedom of Contract (Article 521), parties may decide terms within the limits of laws, but clauses allowing for unconditional confiscation of a set percentage or amount are subject to the interpretation of Article 622-2 and general contract principles, including public policy (Article 90). If the lessee fails to perform an obligation, the lessor may appropriate the deposit, but the lessee may not demand such appropriation.

The Burden of the "Restoration to Original Condition"

The Civil Code (Article 621) states that a lessee has an obligation to restore the leased thing to its original state upon termination of the lease, excluding wear and tear from ordinary use and aging degradation.

In commercial spaces, this often involves extensive work. While many commercial contracts in Osaka include clauses for a "Skeleton Return" (Sukeruton Modoshi)—requiring the removal of all interior fixtures, partitions, and equipment down to the raw concrete—this specific term and the requirement for complete destruction are not explicitly codified in the provided legal texts. The extent of the restoration is primarily defined by the specific terms of the lease agreement within the bounds of Article 621.

The Use of the "Landlord-Designated Contractor" (B-Kouji)

Lease agreements for Osaka's high-rise offices and malls often include clauses requiring the tenant to use the "Landlord's Designated Contractor" (the B-Kouji system) to perform restoration or demolition work.

The provided Civil Code and Act on Land and Building Leases do not contain provisions that legally mandate the use of a specific contractor. While such clauses are common in commercial contracts to protect building systems and structural integrity, their enforceability and the fairness of the resulting costs are subject to general contract law principles, including the principle of good faith and public policy (Article 90). The lessor's ability to deduct these costs from the security deposit is governed by Article 622-2, which allows deductions for monetary obligations arising from the lease.

The "Inuki" Exception (Fixture Transfer)

Article 33, paragraph (1) of the Act on Land and Building Leases grants the building lessee the "Right to Request Purchase of Interior Decorations and Fixtures" (造作買取請求権 - zōsaku kaitori seikyūken) if they were added with the consent of the building lessor, when the lease is terminated due to expiration or notice. Paragraph (2) extends this right to sublessees.

While some commercial leases may include clauses attempting to waive this right to facilitate a specific return condition, Article 30 of the Act states that any special provisions that run counter to the protections for building lessees (including renewal and related rights) and are disadvantageous to the lessee are invalid. Therefore, the feasibility of an "Inuki" (turnkey) transfer depends on the specific lease terms and the application of these statutory rights.

Landager's B2B Commercial Engine automatically tracks gigantic corporate security deposit ledger balances over decades. Upon termination, it programmatically calculates the precise "Shikyaku/Shikibiki" deduction percentages, seamlessly integrates B-Kouji demolition invoices, and algorithmically generates the final, highly complex B2B liquidation statement for corporate accounting departments.

Return to Osaka Commercial OverviewPreview unavailable.

How Landager Helps

Landager tracks lease terms, security deposits, and renewal deadlines - making it easy for both landlords and tenants to stay compliant with Osaka regulations.

Back to Osaka Landlord-Tenant Laws OverviewPreview unavailable.