Run property due diligence in Japan without surprises after closing in 2026

Japan commercial property due diligence has no foreign ownership restrictions - any buyer from anywhere can own land and buildings outright. The actual risks are structural: pre-1981 seismic compliance, missing building completion certificates (kensa saisho), shakuchiken leasehold complexities, and consumption tax on buildings. Miss one of these and you're re-pricing post-close.

Japan transfer tax structure: Real Property Acquisition Tax (不動産取得税, fudosan shutoku zei) at 4% of the assessed value (固定資産税評価額, kotei shisan zei hyoka gaku) for commercial land and buildings - calculated on the officially assessed value, not the transaction price; Registration and License Tax (登録免許税, toroku menkyo zei) at 2% of assessed value for land transfers and building transfers; Stamp Duty (印紙税, inshi zei) on the purchase agreement, typically 30,000-480,000 yen depending on transaction value. Total buyer-side acquisition taxes typically 3-6% of transaction value (assessed values are generally 60-80% of market values in major markets, so effective rate on market price is lower).

Consumption Tax (消費税, shohizei) at 10% applies to the building portion of commercial real estate transactions where the seller is a taxable business operator (事業者); this does NOT apply to the land portion; in commercial transactions, the split between land and building value in the contract determines the consumption tax base; consumption tax is a major cost item for commercial deals in Japan and must be factored into the price model before any offer.

Japan's land and building registration is maintained by the Legal Affairs Bureau (法務局, Homu-kyoku) of the Ministry of Justice. Land and building are registered separately (like Taiwan); both must be checked independently. The Toki Jiko Shomeisho (登記事項証明書, registry record certified copy) for land shows the registered owner, area, and all encumbrances; the building version shows the building owner, construction date, floor area, and encumbrances. Request certified copies of both from the Legal Affairs Bureau on day one.

Set up a data room before advisors engage. Load land and building Toki Jiko Shomeisho, building permit, kensa saisho (completion certificate), seismic assessment (for pre-1981 buildings), Important Matters Explanation (juyo jiko setsumei sho), soil contamination records, and lease files before advisors request them.

Where Japan property deals go wrong

Not every check carries the same weight. The table below sorts risks by deal impact - dealbreakers first, then what moves the price, then basic hygiene - so your Japanese attorney and advisor know what to clear first.

Japan commercial property due diligence checklist

The table ranked risks by severity. This is the full checklist to work through, grouped by area.

Registry search - land and building

• Day one: request Toki Jiko Shomeisho (登記事項証明書, registry record certified copy) for the land lot from the Legal Affairs Bureau; and separately request Toki Jiko Shomeisho for the building; both are available in person or via Japan's Online Registry System (登記ねっと, Toki-netto) for a fee per document
• Land registry review: confirm the registered owner (所有権, shoyuken) section matches the seller; review the Rights Section (権利部, kenribu) for all registered encumbrances including mortgages (抵当権, teitoken), maximum-amount mortgages (根抵当権, neteitoken which are revolving mortgages), superficies rights (地上権, chijoken - leasehold rights over land), easements (地役権, chiekiken), and provisional registrations (仮登記, karitoki)
• Building registry review: confirm the building registered owner matches the seller; note the construction year (for pre-1981 seismic assessment purposes); confirm the registered floor area; identify any building-level encumbrances
• Cadastral map (公図, kozu): request from the Legal Affairs Bureau to confirm the land lot shape, boundaries, and relationship to adjacent lots and public roads; confirm the land fronts a public road with adequate width for the intended commercial use

Give each advisor a scoped link in Ellty. Japan attorney sees land and building registry records, kozu, and shakuchiken documents. Building inspector sees building permit and kensa saisho. Structural engineer sees building registry, building permit, and seismic assessment. Environmental consultant sees SCCA investigation records and soil reports. Lender sees land and building registry, kensa saisho, Fixed Asset Tax certificate, and valuation.

Pre-1981 seismic check and kensa saisho

• Confirm the building's construction permit date (建築確認申請日) from the building permit (建築確認通知書) document; the date on the building registry's construction year field is the registered construction year, not necessarily the permit date; if the permit was issued before June 1, 1981: the building is pre-1981 and requires seismic assessment
• Commission a seismic assessment (耐震診断, taishin shindan) from a licensed structural engineer; there are two common assessment methods: Hoshinokai method (used for RC buildings) and the Simplified Method; the assessment produces a seismic performance index (Is value); Is value of 0.6 or higher generally indicates compliance with current seismic standards; Is value below 0.6 is a flag for most Japanese institutional lenders
• If the pre-1981 building has already been seismically retrofitted (耐震補強, taishin hokyo): request the seismic retrofit completion certificate; post-retrofit buildings may qualify for lender financing even without a new kensa saisho
• Kensa saisho: request from the seller; if unavailable, the seller may be able to request a building records search at the city/ward/town office that issued the original building permit; absence of kensa saisho for a pre-1990 building is common but still requires disclosure in the Important Matters Explanation and affects lender eligibility

Shakuchiken and land rights

• Check the Rights Section of the land Toki Jiko Shomeisho for any 地上権 (chijoken, superficies) or 賃借権 (chinshakkuken, leasehold) registrations; either indicates a shakuchiken structure where a party other than the land owner holds the right to use the land for a building
• If the commercial building sits on shakuchiken land: you are buying the building and the leasehold right, not the freehold land; request the shakuchiken contract to confirm: (1) the type of shakuchiken (old law 旧法借地権 vs. new law ordinary 新法普通借地権 vs. new law fixed-term 新法定期借地権); (2) the remaining term (for fixed-term); (3) the ground rent amount and escalation provisions; (4) any renewal history
• Land owner's consent: transfer of a shakuchiken building to a new owner requires the land owner's consent (under old law and ordinary new law) or notice (for fixed-term); confirm whether consent has been obtained or is included in the transaction structure
• Ground rent (地代, chidai): this is an ongoing operating cost of owning the building; confirm the current ground rent amount, the escalation mechanism (CPI-linked, periodic agreement, or periodic review), and the history of rent disputes with the land owner

Consumption tax and deal structure

• Confirm the seller's consumption tax status: is the seller a taxable business operator (課税事業者) registered with the National Tax Agency for consumption tax purposes; for corporate sellers this is almost always yes; for some individual property owners it may not apply
• Review the purchase agreement's land/building price allocation: consumption tax applies only to the building portion at 10%; the allocation between land and building in the contract directly determines the consumption tax amount; the allocation should reflect reasonable fair market values for each component; Japanese counsel should review to confirm the allocation is defensible for tax purposes
• Input tax credit: if the buyer is also a taxable business operator using the property for a taxable business, the consumption tax paid on purchase may be recoverable as an input tax credit; confirm with Japanese tax counsel before closing as the eligibility depends on the buyer's tax status and intended use

Load all files into Ellty. Japan attorney sees registry records, shakuchiken agreement, and Important Matters Explanation. Seismic engineer sees building permit and pre-1981 assessment files. Environmental consultant sees SCCA records. Track who reviews the kensa saisho and pre-1981 seismic files most closely - that's where lender qualification decisions get made.

Important Matters Explanation (juyo jiko setsumei sho)

• Under Japan's Building Lots and Buildings Transaction Business Act (宅地建物取引業法, Takuchi tatemono torihikigyo ho), the licensed real estate transaction agent (宅地建物取引士, Takuchi tatemono torihikishi) must deliver the Important Matters Explanation (重要事項説明書, juyo jiko setsumei sho) and explain it orally before the purchase contract is signed
• The juyo jiko setsumei sho covers: title status and registered encumbrances; zoning and urban planning restrictions; building use district; access road conditions; utilities (water, sewer, gas); environmental restrictions; building code compliance status; lease status for tenanted properties; flood/disaster risk under the Natural Disaster Risk Map
• Review the juyo jiko setsumei sho carefully with your Japanese attorney: it is the most comprehensive single document in a Japan commercial transaction; any disclosure of kison futekikaku status, absence of kensa saisho, shakuchiken structure, or SCCA designated area status is legally required to be in this document; failure to disclose required information creates seller liability

Compare Australia's commercial property due diligence process for Asia-Pacific portfolio strategy. Japan and Australia are both top-tier Asia-Pacific commercial markets with open foreign ownership policies and English-friendly transaction processes - but differ on transfer taxes (Japan 4% RPAT + 2% registration tax vs. Australia's state-level stamp duty at 5-7%), seismic risk (Japan very high especially for pre-1981 buildings vs. Australia generally low except specific zones), and consumption tax (Japan 10% on building value has no Australian equivalent as a transaction tax).

How due diligence works in Japan

Step 1 - Registry search and pre-1981 seismic check

Day one: request Toki Jiko Shomeisho for land and building from Legal Affairs Bureau. Confirm building construction year and permit date. If pre-1981: commission seismic assessment immediately. Confirm kensa saisho status.

The pre-1981/kensa saisho check gates lender eligibility and should be confirmed before any deposit is paid.

Step 2 - Shakuchiken, zoning, and environmental

Check land registry for shakuchiken annotations. Request Important Matters Explanation from the real estate agent. For former industrial or Tokyo commercial: commission SCCA soil investigation or Phase I ESA.

Confirm use district and FAR/BCR from the juyo jiko setsumei sho. Identify any kison futekikaku status.

Step 3 - Leases, consumption tax, and AML

Classify all leases as fixed-term or ordinary. Review key money and security deposit records. Compute consumption tax exposure with Japanese tax counsel. Confirm land/building price allocation in the draft purchase agreement.

Run OFAC and sanctions screens. Confirm FEFTA notification requirements with Japanese counsel for foreign buyers.

Step 4 - Transfer taxes, registration, and closing

Calculate Real Property Acquisition Tax (4% of assessed value), Registration and License Tax (2% of assessed value for land and buildings), and Stamp Duty on the purchase agreement. Registration of the title transfer at the Legal Affairs Bureau by a licensed judicial scrivener (司法書士, shihoshoshi).

Load all files into Ellty before closing. Japan attorney sees registry records and disclosure documents. Seismic engineer sees building permit and assessment files. Lender sees kensa saisho, seismic report, and Fixed Asset Tax certificate.

What makes Japan different

The kensa saisho (検査済証) issue is one of Japan's most persistent commercial real estate complications. Japan's Building Standards Act has required a completion inspection (完了検査, kanryo kensa) since 1950 - a building inspector visits the completed building to confirm it was built as designed per the approved building permit. The inspection was legally required but enforcement was inconsistent, particularly in the high-growth decades of the 1960s-1980s when Japan was building at speed. The result is that a significant proportion of commercial buildings constructed before 1990 lack a kensa saisho, either because the owner never requested the inspection or because the building was modified after permit approval. A 2013 Ministry of Land, Infrastructure, Transport and Tourism survey found that approximately 38% of existing buildings in Japan lacked kensa saisho. Japanese institutional lenders have tightened their stance on kensa saisho significantly since the 2000s - most megabanks and life insurance company real estate lenders now treat absence of kensa saisho as a disqualifying factor for standard commercial mortgage financing. This means a building without kensa saisho may need to be acquired without bank financing or using alternative lenders with different underwriting requirements. For a commercial transaction with standard institutional financing, absence of kensa saisho effectively caps your lender universe and should be treated as a dealbreaker-tier issue at the due diligence stage.

Japan's consumption tax (消費税) on the building portion of commercial transactions deserves more attention than most foreign buyers give it before their first Japan deal. At 10% of the building value, it is a large transaction cost that has no direct equivalent in most of the markets foreign investors compare Japan against. For a JPY 10 billion commercial acquisition where 60% of the value is allocated to the building (a reasonable allocation for an older Tokyo office building), the consumption tax on the building alone is JPY 600 million (approximately USD 4 million at current exchange rates). This amount is due at closing and must be paid upfront, even if the buyer expects to recover it later as an input tax credit. Not every buyer qualifies for the input tax credit recovery - eligibility depends on the buyer's own consumption tax registration status and the nature of the business being conducted in the property. Japanese tax counsel review of the buyer's consumption tax position should be one of the first steps in any Japan commercial acquisition, not an afterthought addressed in the final weeks before closing.

The shakuchiken (借地権) system is a legacy of Japan's land policy history that creates a category of commercial property transactions that look like standard building acquisitions but are legally quite different. In a shakuchiken structure, the building owner holds the buildings on land leased from a separate land owner; the building owner has a registered right to use the land (either chijoken or chinshakkuken) but does not own the land. Old law shakuchiken (旧法借地権), governed by the pre-1992 Building Protection Law and Land Lease Law, were essentially perpetual - a land owner had almost no legal mechanism to refuse renewal and could only reclaim the land by paying substantial compensation. New law fixed-term shakuchiken (定期借地権, teiki shakuchiken) under the 1992 Act have defined terms (typically 50 years) and no renewal right; the land reverts to the owner at term end. For commercial due diligence purposes, the key questions for any shakuchiken building are: what type of shakuchiken is it, how much ground rent is payable and on what escalation basis, how much of the remaining term is left (for fixed-term), and does the land owner need to consent to the transfer of the building and shakuchiken right to the buyer. Tokyo commercial in certain older districts (Shibuya, Minato, Shinjuku in established retail corridors) frequently involves shakuchiken structures and the market is sophisticated enough to price them - but the diligence process is more complex than a standard freehold acquisition.

Timeline and cost in Japan

Weeks 1-2 cover kickoff: Toki Jiko Shomeisho request for land and building from Legal Affairs Bureau, kozu cadastral map, building permit and kensa saisho request from seller, pre-1981 seismic assessment commission (if applicable), juyo jiko setsumei sho request from real estate agent, Fixed Asset Tax assessed value certificate, SCCA soil contamination status, shakuchiken agreement review (if applicable), use district confirmation, lease abstraction, FEFTA notification assessment for foreign buyers, and AML/KYC. Legal and advisory fees in this phase: JPY 3,000,000-10,000,000 (approx. USD 20,000-65,000).

Load all files into Ellty before advisors engage. Standard Japan commercial: 45-90 days. Pre-1981 seismic assessment: 3-6 weeks. SCCA soil investigation: 4-8 weeks. Legal Affairs Bureau registration: 2-4 weeks after closing.

Weeks 2-6 cover deep review: land and building registry analysis, encumbrance clearance plan, kensa saisho status, pre-1981 seismic assessment delivery, shakuchiken contract analysis, juyo jiko setsumei sho review, kison futekikaku analysis, soil contamination assessment, lease classification review, consumption tax position analysis, Fixed Asset Tax and City Planning Tax proration, and lender pre-approval. Costs in this phase: JPY 5,000,000-20,000,000 (approx. USD 33,000-130,000).

Weeks 6-12 handle resolution: mortgage releases, Land registry encumbrance cancellations, seismic retrofit assessment (if pre-1981 building), consumption tax position confirmation, purchase agreement negotiation (land/building price allocation, representations on kensa saisho and seismic status), closing at Real Property Registration at Legal Affairs Bureau via judicial scrivener.

Japan total buyer acquisition costs: 4% Real Property Acquisition Tax (on assessed value, typically 60-80% of market price) + 2% Registration and License Tax (on assessed value) + Stamp Duty on purchase agreement + 10% Consumption Tax on building value + legal, scrivener, and advisory fees. For a mid-market Tokyo commercial at JPY 3 billion with 55% building allocation: RPAT approx. JPY 70 million, registration tax approx. JPY 35 million, consumption tax approx. JPY 165 million. Total acquisition overhead excluding advisory fees: approximately 10-15% of assessed value or 7-10% of market price.