What should be considered when signing a formal sales contract (baibai keiyakusho)?

Signing a Real Estate Purchase Contract (売買契約書) in Japan? Don't Panic! A Veteran's Guide to Key Points!

Hey there! Buying property in Japan? Signing the contract is definitely the most crucial step. Feeling overwhelmed by all that Japanese legal jargon? Don't worry, it's not as mysterious as it seems. Let me break it down for you in plain language so you know exactly what to focus on.

Golden Rule #1: The "Explanatory Document" BEFORE the Contract – This is MORE Important Than the Contract Itself!

In Japan, before signing the formal Purchase Contract, there is an absolutely mandatory step called the "Important Matters Explanation" (重要事項説明書 - jūyō jikō setsumeisho).

Think of it as the property's "inspection report" + "user manual". A licensed professional wearing a "Real Estate Transaction Specialist" (宅地建物取引士, commonly called "Takken-shi") badge will spend one to two hours explaining this document to you, line by line.

You need to be 100% focused during this session! Because all the important information about the property, the good and the bad, will be disclosed here. Only after you have listened, fully understood, and accepted everything, do you proceed to signing the contract.

In a nutshell: If you don't understand the Important Matters Explanation, do not rush to sign and seal the Purchase Contract!

Key Points: The Must-Understand Sections in the Purchase Contract

Alright, you've heard the "manual". Now let's look at the contract itself. The contract clauses are generally based on the Explanation document, but this is the final, legally binding document. Pay close attention to these points:

1. Confirm "What You Are Buying" - Property Information

Is the address and area correct? The contract will clearly state the land and building address, lot number, area, etc. Double-check that this matches the information you previously received. Crucially, it will specify whether the land area is based on "registered area" (公簿) or "actual measured area" (実測) for the transaction.
Are there any included items? If the seller promised to include things like air conditioners, curtains, lighting fixtures, etc., are these explicitly listed in the "Included Equipment Schedule" within the contract? Verbal promises aren't reliable; it only counts if it's written down.

2. Money Matters Must Be Crystal Clear - Purchase Price and Payment Method

Total Price (売買代金): This one shouldn't be wrong.
Deposit (手付金 - Tearai-kin): Usually 5%-10% of the total price. Paid when signing the contract.
Balance Payment (残代金 - Zandaikin): The total price minus the deposit – this is what you pay upon final delivery of the property.
Payment Timing and Method: The contract will clearly specify when you pay the deposit and when you pay the balance, typically via bank transfer.

3. The "Deposit" Isn't Just a Deposit - The Secret of Tearai-kin

This is a very unique feature of Japanese real estate transactions – you must understand it! The "Tearai-kin" you pay has a special legal status called "Cancellation Deposit" (解約手付 - Kaiyaku tearai).

If YOU back out (decide not to buy): The deposit you paid is forfeited to the seller as compensation.
If the SELLER backs out (decides not to sell): The seller must return your deposit and pay you an additional amount equal to the deposit (essentially "double the deposit").

This rule imposes a "cost of cancellation" on both parties and is effective until a certain stage of the contract fulfillment.

4. The Lifesaver Clause - Loan Contingency (ローン特約 - Rōn Tokuyaku)

For those of us buying with a loan, this is the most important safeguard!

What is it? This is a special stipulation meaning: If you apply for a bank loan but it is ultimately not approved, or the approved amount is insufficient, then you can unconditionally cancel this purchase contract. The seller must refund your deposit in full, and neither party bears further liability.
What to watch out for? The contract will state the validity period of this clause (e.g., within one month of signing). You must diligently apply for the loan within this period. If you delay applying due to your own reasons, this clause becomes void.

Pro Tip: Before signing the contract, absolutely confirm that the "Rōn Tokuyaku" clause is included! Without it, if your loan falls through, your deposit is at risk.

5. What If There's a Problem with the Property? - Liability for Non-Conformity (契約不適合責任 - Keiyaku Fu Tekigō Sekinin)

This clause protects you against buying a "misrepresented" property. It was previously called "Liability for Defects" (瑕疵担保責任 - Kashi Tanpo Sekinin) but has been renamed.

What is it? If, after taking delivery, you discover "hidden defects" that were unknown at the time of signing, such as:
- Physical Defects: Leaking roof, termites, major structural corrosion, etc.
- Legal Defects: The property violates building regulations, making it impossible to rebuild or renovate.
What can you do? Within the period specified in the contract (usually 3 months to 1 year after delivery, depending on the agreement), you can demand the seller to repair, reduce the purchase price, or even cancel the contract and claim damages.
What to watch out for? This liability only covers "hidden" defects unknown to you at signing. If the agent clearly informed you during the viewing or the Important Matters Explanation that "this corner has some seepage" and you bought it anyway, you can't later claim this as a defect.

6. Does the Seller Owe Money? - Mortgage Release (抵当権抹消 - Teitōken Masshō)

Most sellers still have a bank loan on the property, meaning the property has a "Mortgage" (抵当権 - Teitōken) (think of it as the bank's security interest).

The contract must clearly state: The seller is responsible for ensuring this mortgage is released (専門用語 - "抹消" Masshō) simultaneously with the delivery of the property (payment of the balance). This guarantees you receive a "clean" property free of debt. This procedure is usually handled by a Judicial Scrivener (司法書士 - Shihō Shoshi); you don't need to worry too much, but ensure the contract includes this requirement.

Finally, Some Veteran Advice

Don't be afraid to ask! During the Important Matters Explanation and when reviewing the contract, if there's any word, phrase, or point you don't understand, even if it feels like a silly question, ask immediately! It's the Takken-shi's duty to explain it clearly.
Language barrier. If your Japanese isn't strong, it's best to bring a knowledgeable friend or a professional interpreter. Don't let a language barrier create future problems.
Stay calm. Japan's real estate transaction process is highly standardized, and the laws are robust. As long as you understand the key points above, major issues are unlikely. The agent and Judicial Scrivener will guide you through the entire process.

Signing the contract is an exciting step – it means you're one giant leap closer to owning your own place. Best of luck!