Property Management Agreement
Responsibilities of Manager
The Owner appoints the Manager as his lawful agent and attorney-in-fact with full authority to do any and all lawful things necessary for the fulfillment of this Agreement, including the following:
The Manager collects the rent on behalf of the Owner. If the renter does not pay the rent the Manager will use all legal means to pursue the renter. The Manager will report a delinquent renter quickly to the guarantor or guarantor company. The Manager will contact the renter and any contact person related to the renter to make clear the rent must be paid. If that does not resolve the issue the Manager will visit the renter personally. In Japan it is not allowed to threaten the renter, change the locks or in other ways intimidate a delinquent renter. Doing so could result in legal complications so the Manager will avoid any such action if possible. Instead in the extreme situation that a renter has a delay of over 3 months the Manager will negotiate with the renter about him leaving voluntary to avoid costly litigation. If such negotiations fail the Manager will sue the renter on behalf of the Owner. The costs of this would be for the Owner. In Japan this can take an extra 6 months and about 1 million yen in legal fees.
Repairs and Maintenance
The Manager will handle all repairs and maintenance issues related to the property. The Manager will always strive to keep such costs to a minimum. For this the Manager will either hire outside contractors or have their own staff fix any issues at cost. Also the manager will assess if the repair is truly needed and if the renter is liable. Under normal circumstances an estimate of the costs will be presented to the Owner for approval. However for small issues (for example fixing a doorbell) and in emergency situations (for example a water leak) the Manager may need to go ahead with the repairs without the Owner's approval. However in such cases the Owner will be notified at the soonest possible opportunity.
To keep costs low some work can be done in-house. When outside contractors are used the Manager will always try to get the best price. No gifts will be accepted from contractors if that could lead in any way to a conflict of interest.
When managing buildings the owner will not be charged for inspections of the common spaces. However for any cleaning of common spaces the owner will be charged the actual cleaning fees. The manager will use part-time cleaners instead of cleaning companies to reduce the cost of this when possible.
In case of vacancy the Manager will advertise the property widely and make sure any prospective renters get quick and easy access to view the property. The Manager will advise the Owner about the appropriate market rent and deposit. However the Owner has final say in this.
Rental Contract Cancellations
After a renter cancels the lease the Manager will inspect the property and refund the renter the deposit minus any damages and cleaning fees that can legally be claimed. As the deposit is held by the Owner, if the balance is low it might be necessary that the Owner makes a money transfer to the Manager to be able to make the refund. The Manager will get the apartment advertised, cleaned up and ready for the next tenant. The manager will strive to get this done within 3 weeks. However as with so many things in Japan things can take more time so it is not guaranteed that it will be done so quickly.
Rental Contract Renewals
In Japan most rental contracts are for 2 years with an option for renewal. It is very hard legally to force a renter to leave, especially if the rent is being paid on time. As a result the Manager will always offer a renter a renewal. At that time the rent can be negotiated. If the market rent is above the actual rent the Manager will try to negotiate a rent increase.
If the Owner is planning to use the apartment as a primary residence and if the renter cooperates it might be possible to ask the renter to leave. This needs to be done at least 6 months before the rental contract expires. If the renter does not cooperate and pays the rent timely the Manager will not pursue any means of forcefully removing such a renter.
The Manager will pay all bills related to the property using the rental income. This included building and association fees, utilities (when payable by the Owner), insurances fees, acquisition and annual possession tax, utilities, etc..
For some buildings, it is not possible to set up automatic payments of the monthly building fees. To avoid excessive transfer fees and to save the amount of time the Manager spends at the bank in such cases payments are made once a year, usually at the beginning.
The Manager will transfer all profits to the Owner. This can be done by bank transfer, in cash or using Bitcoin. The transfers will be made anytime the Owner makes a request. The costs of such transfers will be charged to the Owner.
Japan domestic bank transfers are 270 yen per transfer. International transfers however cost 3,500 yen (see Remittance Fees) on the Japanese side and possible another 2,500 fee on the overseas side. Also in Japan such transfers get the attention from the authorities. We regularly get requests to provide documentation for compliance with the anti-money-laundering (AML) law. This can be over a 100 pages for a single transfer and sometimes must include copies of the property titles, sales contracts, rental contracts and full transaction records for all properties managed.
To minimize the bureaucratic burden the Manager keeps the right to charge the Owner for the time it takes to make the transfer in case the Owner requests more than two international transfers a year, for more than 4 domestic transfers per year or for international transfers below 1 million yen. However the Manager will never charge the Owner for transfers over 2 million yen.
The reporting will be done through the website of the Manager. At any time a recent transaction report, profit and loss statement, balance sheet and rent roll will be available online. If the Owner chooses so he can receive automatic email alerts notifying him of new transactions like incoming rent, missed rent payments and rental contract renewals/cancellations.
The Manager will keep all the records at his office. The Owner or his representative can inspect these records anytime by making an appointment and coming over to the office of the Manager. After purchase the original property title will be sent to the Owner by the judicial scrivener handling the transaction unless the Owner specifies otherwise. The Owner can also at any time request copies of important documents such as sales and rental contracts.
Income Tax Filing
At the latest by the end of February of each year the Manager will prepare the tax forms related to the property income required for filing personal income taxes. These forms will include a calculation for the taxable depreciation of the property. At that time the Owner or his accountant can then use these forms for the income tax filing. This is easy, even for someone who doesn't speak Japanese as it will require only one number to be copied onto the main income tax form. On top of that there is also a profit and loss statement available online. If the Owner is a non-resident the Manager will also file the non-resident income tax on behalf of the Owner as long as the rental income from properties managed by the Manager is the only income. The Manager will also apply for any tax refunds if the owner is eligible and handle any audits of the real estate income by the tax office.
Liability of Manager
Owner hereby agrees to hold Manager harmless from any and all claims, charges, debts, demands and lawsuits, including attorney's fees related to his management of the herein-described property, and from any liability for injury on or about the property which may be suffered by any employee, tenant or guest upon the property.
Compensation of Manager
The Manager will charge the Owner 5.50% (5% plus sales tax) of the collected rent.
For finding a new renter the Manager will receive one month rent from the Owner. However often this is paid for by the renter in the form of one month key money. In case it takes a long time to find the renter the Manager will offer a part or all of this finder's fee to local agents as extra incentive to find renter and reduce the length of the vacancy. If the Manager finds a renter himself he can charge one month commission to the renter as well. However the Manager will always allow other real estate agents to find renters and will not discriminate against such agents.
If the Manager can collect a renewal fee from the renter he will keep this fee. However if an existing rental contract does not specify a renewal fee the Manager will not change the contract offered to the renter and the Manager will provide the rental renewal contract free of charge. The renewal fee will never exceed more than one month per two year renewal period.
In case of a new rental application occasionally a renter will require a guarantor company. The guarantor company offers a discount to real estate agents paying the guarantor fees. These discounts are not offered to individual renters. The Manager can keep this difference.
The Manager will charge 16,500 yen (15,000 + 10% sales tax) for preparing the documentation for a non-resident income tax filing. If the tax filing is done by the Owner himself the document preparation is free of charge.
The Manager will not pay out any interest over the balance the Owner holds with the Manager. Any interest received from the bank therefore is income for the Manager. However currently the interest rates are so low that the 2012 interest income was just 1,039 yen.
Besides the compensation mentioned above the manager will not accept any gifts in any form from contractors, renters or anyone else if it could lead to a potential conflict of interest with the Owner.
If the Manager changes the fee structure he will give the Owner at least 3 months notice of this.
The agreement can be terminated in writing by either party by providing written notice which will take effect within 1 month upon receipt of the termination notice. This Agreement may also be terminated by mutual agreement of the parties at any time. There is no notice period and no penalty will be charged. The Owner will notify the renters, the building association and the tax office of the change in management. The Manager will hand over the property documentation immediately. Upon termination the Owner and Manager will settle accounts at the soonest opportunity.
In case the Manager is not capable of executing his duties (for example due to accident or bankruptcy) the Manager will bring all Owners into contact with each other so that they can look for another property manager collectively. The Owner gives permission to provide his email address to other Owners for this case only.