A fixed-term lease (teiki shakuya keiyaku), which as a rule does not renew once the contract period ends, is a form of lease with different characteristics from a standard lease (futsū shakuya keiyaku). This article looks at where it can be useful, along with the basic differences between the two.
- Under a standard lease, the landlord cannot refuse a tenant's renewal request without a legitimate reason (seitō jiyū).
- A fixed-term lease ends when its period expires and, as a rule, is not renewed.
- To set up a fixed-term lease, the landlord must, separately from the lease contract itself, hand over and explain a document stating in advance that the lease will not be renewed.
- It suits situations where you want to lease for a defined period only — a home left temporarily vacant during a relocation, or a property scheduled for rebuilding, for example.
- Because tenants find it harder to predict whether they can keep living there, demand depends heavily on the property and the terms offered.
The Basic Difference Between a Standard Lease and a Fixed-Term Lease
Under a standard lease, the landlord cannot, as a rule, refuse a tenant's wish to renew unless there is a legitimate reason (seitō jiyū) to do so. A fixed-term lease is different in a fundamental way: it ends when the predetermined period expires and, as a rule, is not renewed. Even under a standard lease, termination is possible where there are circumstances that destroy the relationship of trust — unpaid rent, for example — but refusing renewal simply because it suits the landlord is generally considered difficult.
Situations a Fixed-Term Lease Suits
Situations that suit a fixed-term lease include wanting to lease out your home for a set period during a relocation or an overseas posting, or leasing a property for a limited time when you're planning to rebuild it or use it yourself in the future. Being able to know the end date in advance is what makes this a different way of using a property compared with an ordinary lease. It's also an option for a property acquired through inheritance that you want to rent out while keeping open the possibility of selling it or using it yourself later on.
The Procedure Required When Signing
Setting up a fixed-term lease requires more than the standard contract: before signing, the landlord must hand the tenant a separate document stating that the lease will not be renewed and will end when its period expires, and must explain this to the tenant. If this advance explanation is skipped, the contract may not be recognized as a valid fixed-term lease, so the order of the procedure matters. It's also an easy point to overlook that handing over and explaining this document must always be completed before the contract is signed — not afterward.
Re-Contracting as an Option
If both landlord and tenant want to keep the lease going after the period expires, they can agree to sign a new contract. Legally, though, this "re-contract" is a brand-new agreement rather than a renewal, so rent and other terms are negotiated afresh. Even when you plan to operate this way as a matter of routine, keep in mind that the same procedure as an ordinary fixed-term lease applies each time — including handing over the advance explanation document again.
Advantages and Disadvantages of a Fixed-Term Lease
The advantage of a fixed-term lease is that it's easier to end the contract when the period expires, which makes it easier to plan around your own future use of the property. On the other hand, because tenants find it harder to know whether they'll be able to keep living there long-term, you may need to adjust the listing terms — the rent, for instance — more carefully than with an ordinary lease to attract applicants. It's advisable to work with your management company to adjust the lease term and rent to match the property's location and demand.
Frequently Asked Questions
Can a fixed-term lease be cancelled partway through?
This depends on what the contract specifies and on requirements such as floor area, but early termination may be allowed if certain conditions are met. Since treatment varies by contract, you need to check the specific clauses in the agreement.
What happens if the advance explanation document is missing?
If the written advance explanation stating that the lease will not be renewed is missing, the contract may not be recognized as valid fixed-term lease and could instead be treated as a standard lease. Following the required procedure matters.
Can rent be set higher for a fixed-term lease than a standard lease?
It's hard to generalize. In some cases rent is set below market rate because tenants find continuity harder to predict, while in areas where there's demand for short-term use, the terms can work out differently.
Summary
A fixed-term lease differs significantly from a standard lease in that it ends once its period expires. It's easy to make use of when you have a reason to lease for a defined period only — a relocation or a planned rebuild, for example — but there are procedural points to watch, such as handing over the advance explanation document. If you're unsure which type of lease fits your situation, we recommend discussing it with your management company or a professional.