When I bought my fourth rental unit back in 2013, my agent asked whether I wanted a teishaku ken (fixed-term lease) or a standard futsu shakuya contract, and honestly I had no clue what the difference meant for my bottom line. Nine properties and more than 15 years later, I run a mix of both structures across my portfolio, and picking the right one has saved me somewhere around 340,000 yen in legal costs and lost rent on at least two occasions when I needed a tenant to actually move out.
If you are new to owning rental property in Japan, understanding teishaku ken versus a standard lease is one of the most important paperwork decisions you will make, and it is one almost nobody explains clearly before you sign your first tenant.
What Teishaku Ken Actually Means
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A teishaku ken contract is a fixed-term lease. The agreement ends automatically on the date written into the contract, typically 1 to 2 years for residential units in my experience, with no automatic renewal. If both sides want to continue, they sign a brand new contract. If the landlord does not want to renew, the tenant has to leave when the term ends, as long as you send the required notice 6 to 12 months before expiration. That notice window matters a lot; miss it and you can lose the right to end the tenancy on schedule.
Why Standard Leases Put Landlords at a Disadvantage
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A standard lease, called futsu shakuya keiyaku, renews itself indefinitely unless the landlord can prove what the law calls seito jiyu, or legitimate grounds, to refuse renewal. In practice that bar is extremely high. Courts have historically sided with tenants in the large majority of contested cases I have read about, and even when a landlord wins, the process can drag on for a year or more and often requires paying the tenant a move-out settlement of anywhere from 500,000 to 2,000,000 yen depending on the region and how long they have lived there. I learned this the expensive way with my second property, where a tenant with unpaid rent for 4 months still took almost 8 months to remove through the standard lease process.
Where I Use Teishaku Ken Across My 9 Units
Out of my current 9 properties, 5 run on teishaku ken contracts and 4 are still on older standard leases signed before I understood the difference. The 5 fixed-term units are the ones where I always intended to eventually renovate, sell, or move a family member in, so I did not want to be locked into an indefinite tenancy. On one 1LDK unit near a train station, switching to a fixed 2 year teishaku ken term let me plan a full kitchen renovation 14 months in advance, because I knew exactly when the unit would be vacant.
Setting Up the Contract Correctly
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A teishaku ken agreement only holds up legally if you follow a specific process. Skip a step and a court can treat it as a standard lease instead, which defeats the whole purpose. Here is the checklist I hand to every new property manager I work with:
- Use a written contract, never verbal, and label it clearly as a teishaku ken agreement
- Provide a separate written explanation document to the tenant before signing, describing that the lease will not renew automatically
- Explain this document to the tenant in person or over a recorded call, not just by email
- Send the end-of-term notification 6 to 12 months before the contract expires
- Keep signed copies of every document for at least 5 years in case of a dispute
I once had a management company skip the separate explanation document on a unit, and when I later wanted to move a relative in, a lawyer told me the contract would likely be reclassified as standard. I ended up negotiating a 300,000 yen move-out payment instead of fighting it, which cost far more than doing the paperwork right the first time.
Rent and Vacancy Differences I Track
Across my own portfolio, teishaku ken units typically rent for about 3 to 8 percent less than comparable standard-lease units in the same building or neighborhood, because tenants know they cannot stay indefinitely. My vacancy period after a fixed-term lease ends averages around 18 days, since I can start marketing the unit well before move-out. Standard lease units, by comparison, have sat vacant for as long as 45 days in my records when a long-term tenant finally leaves on their own terms, mostly because I get little advance warning.
Which Structure Should You Choose
If you plan to eventually renovate, sell, or reclaim a unit for personal use, teishaku ken gives you control and a predictable timeline, even if it means accepting slightly lower rent. If your goal is pure long-term buy-and-hold income with a stable, reliable tenant and you are not worried about ever needing the unit back, a standard lease with a good tenant can work fine and often commands a small rent premium. I now default to teishaku ken on any property I acquire, and I only keep standard leases on the older units where switching would mean renegotiating with tenants who have been paying reliably for over 6 years.
That’s the calculation I run on every one of my 9 properties before a single contract gets signed, and it’s saved me more headaches than almost any other landlord decision I’ve made.
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