Vital sections of the Explanation of Important Matters

Required before signing the sales contract, the Explanation of Important Matters is one of the largest hurdles in purchasing residential property in Japan.

Buyers make their final decision on whether or not to buy based on the information received during this explanation.
The Explanation of Important matters is part of the Real Estate Trader Law and covers issues such as the right to register the property, whether or not the building can be rebuilt in the future, legal restrictions on the use of the property, payment methods, as well as detailed descriptions of what happens if the contract is canceled in advance.

A paper disclosure certificate and all supplementary files are handed over to the owner as proof of having received the explanation after purchase. However, the discussion itself is primarily focused around the financial aspects.

Look HERE to make sure there are no penalties! - About contract breaches

Let's take a look at what happens if the contract is broken. The most important point to understand here is what kinds of penalties are applicable (or not applicable) in different situations. Apart from the loss of the deposit mentioned before, other penalties can also be applied for "breach of contract." On the other hand, there are no penalties for breaking the contract with a loan clause or due to bearing risks. Be sure to check each item individually.

■Breach of Contract
Cancellation under breach of contract occurs when either the seller or buyer does not fulfill their duties according to the sales contract.
Examples when the responsibilities are not fulfilled include cases when a seller does not hand over a property by the agreed deadline, or the buyer does not complete payment by the designated date. When one party does not fulfill their responsibilities, the other party can move to dissolve the contract and request penalty fees. The exact amount of the penalty fees is usually decided in advance. If the amount is agreed upon beforehand, it is not possible to demand the difference between this amount the actual total damages even if the damages exceed the original agreed amount.

■Loan Clauses
When it is not possible to take out a loan as planned and within the time limitations set forth in advance in the "Financing Clause," it is possible to make provisions for dissolving the contract without penalties and a full refund of the deposit. However, be careful, because this is not applicable if the clause is not included in the document. It is absolutely necessary to check whether or not this clause is included on the Disclosure Statement as well as the sales contract.

■Bearing Risks
If the property purchased is damaged or destroyed before the handover or before approval was received from the owner in cases of lot rental, a new contract can be drawn up without penalties. However, this must also be written in the Disclosure Statement as well as the sales contract in order to be applicable.

Look HERE for the penalty amounts - Schedule of damages or penalties

This portion explains the allotted monetary amounts that can be charged in cases of contract breach. Even if the possibility of allotted amounts of the penalties are not reported in the Disclosure Statement, concrete amounts may still be recorded in the sales contract. Furthermore, according to the Real Estate Trader Law, if the seller is a real estate agency, the total of the damage compensation and penalties may not exceed 20% of the sale price.

Look HERE if you are taking out a loan - Contents of loan services and measures for unsuccessful loan applications

We talked about special loan clauses above, but here is where which loans are applicable for the loan clause are explained. Be especially wary of unclear expressions such as "financial institutions determined by the seller" or "transfer to other properties" - they can be particularly dangerous. Make sure that the following are clearly listed in the document:

  • Name of the financial institution of the borrower
  • Loan amount
  • Loan term
  • APR
  • Repayment method, etc.

Before signing the contract:
■ Be sure to get a copy of all related documents in advance.
After you are finally satisfied with all of the details, you can proceed to sign the contract. Since contracts are generally created from templates, several areas are just repeats of the Disclosure Statement, but make sure to read the contract carefully just in case.
Furthermore, the Real Estate Transaction Promotion Center can provide assistance in to those with ample time between the Explanation of Important Matters and signing the contract.

Conclusion

After receiving the Explanation of Important Matters and clearing up any final questions you may have, you will be just a few steps away from owning your own property in Japan.

At LIFULL, we are here to assist you with any questions you may have about the property and sales contract in advance, so please feel free to contact us if you require any assistance.

--

Do you still have questions about purchasing property in Japan? Send us an e-mail. We would love to hear from you.

Are you ready to start looking at a premium selection of properties around Japan? Take a look at our property list.