Recent Updates on the Act on Review of Important Real Estate ～Overview of the Act on Review of Important Real Estate and Latest Trends in Designated Areas～

Outline of the Act on Review of Important Real Estate

The Act on Review of Important Real Estate designates certain areas of national security importance, such as defense facilities, remote territorial islands and other important areas, as monitored areas. In the event the Japanese government determines that a property owner in a monitored area is engaged in activities of national security concern, it may implement certain measures, such as ordering cessation of use by the owner. Moreover, land transfers in some monitored areas, where the size of the land or buildings to be transferred passes a certain threshold, must notify the Prime Minister in advance of the transfer.

It should be noted that unlike investment management under the Foreign Exchange and Foreign Trade Act, which imposes restrictions on foreign investors, even Japanese nationals and Japanese corporations may be subject to this prior notification obligation if the requirements of the Act on Review of Important Real Estate are met.

The following is the outline of the designated areas and framework for review and regulation under the Act.

1. Designations of Monitored Area and Special Monitored Area

An area falls within a "monitored area" if it is within a range of approximately 1,000 meters of important facilities (i.e., defense facilities, facilities of the Japan Coast Guard and facilities supporting the public※2) or within remote territorial islands, and it is particularly necessary to prevent the use of real estate in those monitored areas where such use impedes the functions of the important facilities and remote territorial islands (such use is hereinafter referred to as a “function-impeding act※3”) (Article 5, paragraph 1). A “special monitored area” designates a monitored area where the function of important facilities, or, where applicable, the use of remote territorial islands, is particularly important or vulnerable, and not susceptible of easy substitution or replacement (Article 12, paragraph 1). When monitored areas or special monitored areas are designated, the fact and the designated areas are made public in the Official Gazette※4 (Article 5, paragraph 3 and Article 12, paragraph 3).

2. Review of Use of Real Estate

In order to prevent the use of real estate as a function-impending act in monitored areas or special monitored areas, such real estate is subject to review of use※5 (Article 6). In addition, when necessary for review of the use of real estate, the Japanese government may ask relevant administrative agencies and other authorities to provide the names, addresses, and other information from users and related parties of the relevant real estate (land users, etc.) (Article 7) and may request land users, etc. to provide certain reports or materials (Article 8).

3. Obligation of Prior Notification of Sales, etc. of Real Estate in Special Monitored Areas

When concluding a contract for the transfer or creation of certain direct or any indirect ownership rights in real estate (real estate ownership right) (see applicable contracts below) located in special monitored areas and having an area of 200 square meters or more, the parties to the contract are required to notify the Prime Minister in advance (Article 13, paragraphs 1 and 3).

Such contracts or transfers include contracts for sale and purchase, gift, exchange, and assignment, etc. of options (e.g., a purchase option and buy-back option), but do not include creation or transfer of mortgage or leasehold interests. A person who fails to notify despite the obligation to submit the notification, or makes a false notification, is subject to imprisonment for not more than six months or a fine not exceeding 1,000,000 yen (Article 26).

4. Regulation of Inappropriate Use of Real Estate

If function-impeding acts are conducted using Real Estate in monitored areas or special monitored areas, the Prime Minister may recommend or order that the user take certain necessary measures (Article 9). In cases where, as the result of such an order, the ordered party is forced to incur or cause another party to incur a monetary loss, compensation will be made by the Japanese government to the extent of "the amount of loss that would normally occur."

Outline of the Public Notice and the Points to Keep in Mind

Of the 23 wards of Tokyo, the areas surrounding the Ministry of Defense Ichigaya Building (Chiyoda and Shinjuku wards), JGSDF Ground Material Control Command (Kita and Itabashi wards), and JGSDF Camp Nerima (Itabashi and Nerima wards) have been newly designated as monitored areas by Public Notice. In addition, the area around JASDF Fuchu Base (Fuchu City and Koganei City) in Tokyo is also designated as a monitored area.

Since these areas are not designated as special monitored areas, prior notification is not required for sale and purchase of real estate. Such notification may be necessary, however, if these areas are designated as special monitored areas in the future. Thus, it has become increasingly important to pay attention to the Act on Review of Important Real Estate in central Tokyo, and it is necessary to continue to monitor trends in the addition and modification of designated areas by public notice.