Table of ContentsWhen venturing into the realm of Japanese real estate acquisition, obtaining comprehensive information regarding the property's rights and condition becomes paramount. This becomes even more critical when dealing with high-value properties, as unforeseen defects discovered after finalizing the sales contract could lead to contractual complications. To address this, Japanese law mandates the obligation of real estate companies to provide an Explanation of Important Matters (both in writing and verbally). In this article, we will delve into the significance of understanding this explanation before making a real estate purchase, along with essential points and cautions to consider during the process.Call or email us here >>What is the “Explanation of Important Matters” in a real estate purchase？When embarking on a real estate purchase, the desire to minimize mistakes is crucial, given the significant financial implications involved. That's why thoroughly understanding the Explanation of Important Matters during the sales contract becomes essential. In this section, we will elucidate the concept of the Explanation of Important Matters and provide an overview of its key components.What is the “Explanation of Important Matters”?The "Explanation of Important Matters"（重要事項説明書） is a legal obligation imposed on real estate companies under the Building Lots and Buildings Transaction Business Law. When facilitating real estate transactions, these companies are required to provide crucial information about the properties to both buyers and tenants who are entering into sales or lease contracts.This obligation arises because typical buyers and tenants might not possess the same level of familiarity with real estate matters as these companies do. As a result, there's a risk that contracts may be signed without a full comprehension of their contents.To address this, real estate companies must ensure that they present detailed information about the properties in an easily understandable manner to potential buyers and tenants before any contracts are finalized. This explanation is carried out by a real estate transaction specialist, who is well-versed in the legal aspects of real estate transactions. Their role is to provide clarity and transparency throughout the process, safeguarding the interests of all parties involved. What is included in the “Explanation of Important Matters”？The real estate company fulfills its obligation by preparing a written document known as the "Explanation of Important Matters," which encompasses three key aspects:① Matters concerning the property: This section encompasses essential information about the property itself. For instance, it includes details about registered rights, ensuring buyers are aware of any encumbrances or restrictions on the property. Additionally, it may mention whether the property falls within a disaster-prone area, providing crucial risk-related information.② Matters concerning the terms and conditions of the transaction: In this part, the document delves into the specific conditions governing the transaction. For example, it may break down the additional expenses to be incurred on top of the sales price, such as taxes or maintenance fees. Moreover, it might outline the terms for contract cancellation, providing buyers with an understanding of their rights and obligations.③ Any additional explanatory items: This category covers supplementary information that becomes relevant based on the type of property or the nature of the transaction. For instance, when purchasing a part of a building, like a condominium, the document might elaborate on terms and conditions pertaining to shared/common areas. Similarly, when buying an unfinished property, the document might describe the envisioned shape and structure of the property upon completion.(Note: The extent of information included in the "Important Matters Explanation" is vast and varies depending on the specific type of contract and property involved.)What are the important points to note during the “Explanation of Important Matters”?Now that you have an overview of the Important Matters Explanation, you are probably wondering what points you should confirm.This chapter is divided into two sections: points to check about the property to be purchased and points to check about the terms and conditions of the contract.Check the property details There are five points to check regarding information about the property you are buying ●1.Property Registration●2.Whether there are any legal restrictions ●3.Land and roads ●4. Infrastructure improvements ●5. Condition of the site and building 1. Registered Items of the Property: The registered items of a property, as listed in the real estate registry, include vital details such as location, area, and rights. It is essential to ensure accuracy, particularly when dealing with newly built properties. Verifying that the actual area matches the brochure description prevents potential discrepancies. Similarly, when purchasing an existing property with a mortgage, it's prudent to confirm the mortgage removal date and have it explicitly stated in the contract to avoid future issues.2. Legal Restrictions: Be diligent in checking for building restrictions based on pertinent laws and regulations, such as zoning and building-to-land ratio. Understanding if there are any limitations on constructing a house, as well as height or area restrictions for buildings, is very important. Knowledge of these legal constraints helps in making informed decisions during the property acquisition process.3. Land and Road Considerations: Pay close attention to any width or driveway burdens on the road adjacent to the property. The relationship between the land and the road holds significance; for instance, adhering to minimum distance requirements between the road and the site is crucial for construction projects. Additionally, if the width of the road abutting the site is less than 4 meters, specific setback regulations may apply.4. Infrastructure Development: Assess the status of essential utilities such as water, electricity, and gas. Adequate infrastructure development is crucial for a comfortable daily life. When dealing with newly constructed properties, it's vital to verify the timeline for the completion of infrastructure, and whether any construction costs are covered.5. Condition of the Site and Building: When purchasing an existing property, inspect the overall condition of the site, building structure, and interior. Look for signs of deterioration that may have occurred over time. Condominium buyers should also review the rules governing common areas to ensure they align with their preferences and lifestyle.By meticulously examining these important matters, potential property buyers can make well-informed decisions and safeguard themselves from future complications.Check the terms and conditions of the Purchase AgreementThe following points should be checked and confirmed: ●1. Costs other than the purchase price ●2. Cancellation of the Contract ●3. Deposit and insurance coverage ●4. Other items to be approved Other expenses besides the purchase price in 1 are the deposit at the time of contract and the settlement of property tax, etc.It is important to check how much is required for each item.For the contract cancellation in 2, check in what cases the contract will be cancelled.In the third item, deposit and insurance, check whether you will receive the deposit or insurance money in case of any defects in the property you are purchasing or if the seller goes bankrupt and is unable to pay the price.The other approval items in 4. include information that the buyer should know in advance, such as the surrounding environment of the real estate to be purchased and any defects in the facilities.To avoid regrets after purchasing real estate, be sure to confirm these points. Points to consider when receiving the “Explanation of Important Matters” when purchasing real estateFinally, let’s discuss the important things to be aware of when receiving the Explanation of Important Matters. Here are three things to consider:Important Note 1) Ask for a copy in advanceAs previously discussed, the Explanation of Important Matters encompasses a substantial amount of information. Given that real estate transaction agents typically provide this explanation on the day of the sales contract, it might be challenging to thoroughly review all the details at that time.To ensure a comprehensive understanding, it is highly advisable to request and obtain a copy of the Explanation of Important Matters in advance. Taking this step allows you the opportunity to carefully read through the contents before the contract date. Should any queries arise while reviewing the document, you can then bring them up and seek clarification during the contract signing meeting.By proactively familiarizing yourself with the Explanation of Important Matters beforehand, you can make informed decisions and gain greater confidence in the real estate transaction process. This approach ensures that all critical aspects are addressed, minimizing the risk of misunderstandings or unforeseen complications later on.Important Note 2) Ask for a new written document if there are any changesIf there are any changes to the contents of the contract, have the contents of the Explanation of Important Matters redrafted to reflect the changes.Since the Explanation of Important Matters is a document that will be used as evidence in the event of any problems after the Purchase Agreement, corrections made with correction tape or double lines may be suspected of being tampered with.Therefore, if there are any changes, please have the document redrafted with the corrected version.Important Note 3) Only sign if you are satisfiedSigning a contract without a complete grasp of the Explanation of Important Matters can lead to troublesome situations, particularly when the motivation is to expedite the real estate purchase process. To prevent potential regrets such as discovering discrepancies between expectations and reality, or uncovering defects in the property post-purchase, it is crucial to attentively listen to the Explanation of Important Matters.Before proceeding with the Purchase Agreement, take the time to thoroughly understand and clarify any uncertainties you may have regarding the information presented. Only when you are entirely satisfied with the contents should you proceed with signing the contract. It's essential to be aware that canceling the contract after it has been signed may entail penalties or consequences, making careful consideration beforehand all the more imperative. By exercising due diligence and care during this phase, you can safeguard yourself from unnecessary difficulties and make an informed and confident decision in your real estate purchase.In conclusionIn conclusion, purchasing real estate in Japan comes with a set of responsibilities and risks, making the "Explanation of Important Matters" a crucial aspect of the process. This document, provided by real estate transaction agents, contains a wealth of essential information about the property, transaction conditions, and additional explanatory items. To ensure a smooth and informed transaction, it is highly advisable to obtain and review a copy of the Explanation of Important Matters before the contract date. By taking the time to understand all aspects thoroughly and seeking clarification for any uncertainties, buyers can avoid potential troubles and regrets that may arise from hasty decisions. Remember, once the Purchase Agreement is signed, canceling it could lead to penalties. Thus, a prudent approach involves being well-prepared, actively engaging in the process, and making well-informed choices to embark on a successful and satisfying real estate journey in Japan.