Issuing Body: Guozun Cathay Associates, Japan Office
Date of Conclusion: 11 August 2025
Core Outcome
Adopting the dual-track model of "cross-border negotiation + judicial pressure", the legal team facilitated a settlement between the two parties prior to the substantive trial stage, successfully terminated the two relevant property sale and lease agreements, and recovered the full amount of outstanding rent and damages for breach of contract. The client expressed full satisfaction with the case outcome.
This case has been included in Guozun Cathay Associates’ 2025 Typical Case Library for Foreign-Related Real Estate Dispute Resolution. Its case-handling framework of "mutual evidence recognition across two jurisdictions + local property preservation + coordinated judicial assistance" has been widely applied in the resolution of China-Japan cross-border real estate disputes.
I. Case Background and Entrustment Process
Mr. Li, a Chinese national, signed two core legal documents with a prominent Japanese real estate operating company in 2019: a Contract for the Sale of Real Estate and a 10-year Master Lease Agreement for two properties located in the core area of Tokyo Metropolis. The contracts explicitly stipulated that after Mr. Li paid the full purchase price, the Japanese company would take a full lease of the properties and be responsible for their unified operation, paying a fixed monthly rent of JPY 210,000 to Mr. Li. The rights and obligations of both parties, default scenarios and conditions for contract termination were also stipulated in detail.
Performance proceeded normally between 2019 and 2023, with the Japanese company paying rent in full each month. However, from January 2024 onwards, the company ceased paying the agreed rent without justifiable cause, citing "a downturn in the Japanese real estate rental market and operational losses". Mr. Li issued 11 formal demands for performance via email and written correspondence, but the opposing party consistently refused to respond and made no payments, constituting a fundamental breach of contract.
On 12 August 2024, Mr. Li was referred to the Japan Office through the Beijing Headquarters of Guozun Cathay Associates. Given three core challenges in the case – conflict of laws between China and Japan, asset recourse against an overseas legal entity, and service/enforcement of cross-border legal documents – the Japan Office activated the "China-Japan Emergency Collaborative Case Handling Mechanism" on the same day, and established a dedicated case team in conjunction with the Beijing Headquarters. The team comprised 3 local Japanese lawyers specialising in real estate law and 2 members of the Foreign-Related Lawyer Talent Pool of the Beijing Lawyers Association, and was granted full authority to handle all legal proceedings in the case.
II. Full Process of China-Japan Joint Case Handling
The case strictly followed the standardised collaborative model: the Beijing Headquarters oversees evidence construction under the Chinese legal regime and overall legal strategy planning, while the Japan Office manages local judicial implementation and enforcement pressure on the debtor. Written records and verifiable outcomes were produced at every stage:
1. 12 August 2024 – 17 August 2024: Cross-Jurisdictional Case Risk Assessment
Beijing Headquarters: Comprehensively collated Mr. Li’s property payment vouchers, real estate ownership certificates, lease agreements, historical rent statements and demand records, and issued the Assessment Report on the Client’s Rights and Obligations under Chinese Law, confirming the legality of the claim and the factual basis for contract termination.
Japan Office: Leveraging the Legal Person Registration System of the Japanese Ministry of Justice, the Real Estate Registration Information System and local judicial cooperation resources, the team completed verification of the opposing company’s legal status and confirmation of the properties’ ownership status within 3 working days. It also identified asset leads including 3 bank accounts, 2 office properties and 1 investment property held by the company, eliminating the risk of the debtor having no enforceable assets.
2. 18 August 2024 – 25 August 2024: Drafting of Multilingual Legal Documents and Efficient Service
Beijing Headquarters: In light of both Chinese and Japanese legal provisions, the team drafted a formal lawyer’s demand letter in Chinese, English and Japanese, clearly specifying the deadline for performance, claims for contract termination, calculation standards for outstanding rent and default damages, and the legal consequences of non-compliance.
Japan Office: Effected personal service of the demand letter via the Japanese courts’ postal delivery system, and also conducted on-site service at the company’s registered address and actual business address, with full proof of service retained throughout. Compared with traditional diplomatic service (which takes 3–6 months on average), this service was completed in just 3 working days, saving over 90% of the typical timeframe.
3. 26 August 2024 – 31 December 2024: Evidence Preservation and First Round of Cross-Border Negotiation
Beijing Headquarters: Assisted Mr. Li with hash value verification and blockchain timestamp-based preservation of all electronic communication records, bank statements and demand letters. The Beijing Notary Public Office issued a notarial certificate for the electronic evidence, ensuring its admissibility in judicial proceedings in both China and Japan.
Japan Office: Obtained lease filing records for the properties from the Japan Real Estate Registration Centre, as well as the company’s tax declaration records and bank statements, establishing core evidence that the company actually occupied and used the properties and had the capacity to pay. The team also held 4 rounds of in-person negotiations with the opposing party’s legal representatives, and clearly rejected the unjustified defence that "commercial losses should be borne by the property owner".
4. 1 January 2025 – 30 June 2025: Initiation of Cross-Border Judicial Proceedings and Legal Pressure
Beijing Headquarters: Pursuant to the China-Japan Treaty on Judicial Assistance in Civil and Commercial Matters, assisted the Japan Office with consular authentication of evidence collected in China, and liaised with the Judicial Assistance Centre of the Ministry of Justice of the People’s Republic of China to prepare for cross-border investigation, evidence collection, and recognition and enforcement of judgements.
Japan Office: In response to the opposing party’s delayed negotiations and refusal to perform, the team filed proceedings with the Tokyo District Court for termination of the lease agreement and payment of damages. A pre-action property preservation application was filed simultaneously, freezing 2 of the company’s principal bank accounts with sufficient funds to cover the full amount of the claim. Sustained legal pressure forced the opposing party to proactively contact the team to restart negotiations at the end of June 2025.
5. 1 July 2025 – 11 August 2025: Settlement Negotiation and Full Payment Recovery
The joint China-Japan legal team participated in 3 rounds of core negotiations. Citing a 2024 leading judgement of the Supreme Court of Japan on "the allocation of commercial risks under fixed-rent master lease contracts", the team clarified the opposing party’s liability for fundamental breach and the full scope of compensable losses. The parties ultimately reached a comprehensive settlement agreement on 28 July 2025, under which the opposing party agreed to pay all outstanding rent and default damages in a lump sum within 15 days, and to cooperate in completing contract termination and property handover procedures. On 11 August 2025, Mr. Li confirmed receipt of all payments, the relevant contracts were lawfully terminated, and the case was formally concluded.
III. Core Case Handling Difficulties and Authoritative Solutions
The challenges encountered in this case are common to China-Japan cross-border real estate investment lease-back disputes. Drawing on dual-jurisdiction expertise and extensive practical experience, the Guozun joint team developed a replicable standardised solution:
1. Conflict of Applicable Law and Jurisdiction in Cross-Border Contracts
Legal Basis: Article 36 and Article 41 of the Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations; Article 1-2 of the Civil Code of Japan; Article 1 of the China-Japan Treaty on Judicial Assistance in Civil and Commercial Matters
Solution: The team conducted a comprehensive analysis of connecting factors including the place of contract execution, location of the subject matter and principal place of performance, and determined that the real property rights and leasehold relationship in this case are governed by Japanese law. Meanwhile, relying on the China-Japan judicial assistance treaty, the team established channels for cross-border mutual evidence recognition, document service and judgement enforcement, ensuring that evidence obtained in China carries full legal weight in Japanese courts.
2. Determination of the Binding Force of Fixed Rent Obligations
Legal Basis: Article 601 and Article 619 of the Civil Code of Japan; Article 8 of the relevant Real Estate Lease Agreement
Solution: The team systematically reviewed similar judicial precedents in Japan over the past 5 years, and established the principle that "commercial operating losses are business risks to be borne by the lessee, and cannot constitute a lawful reason for refusing to pay fixed rent". The team also submitted records of the company’s operating income from other properties and its financial statements for the same period, proving that it was not without payment capacity and completely invalidating the opposing party’s defence.
3. Ensuring Enforceability of Cross-Border Dispute Outcomes
Legal Basis: Article 21 and Article 22 of the China-Japan Treaty on Judicial Assistance in Civil and Commercial Matters; Article 123 of the Civil Execution Act of Japan
Solution: Adhering to the principle of "property investigation upfront", the team completed a full asset trace of the opposing company at the outset of the case. A pre-action property preservation application was filed concurrently with the statement of claim to freeze sufficient assets of the defendant. A backup plan of "Japanese court judgement + recognition and enforcement by Chinese courts" was also developed to guarantee that the client’s successful claims could be fully enforced.
4. Liquidation of Rights and Determination of Loss Scope Post Contract Termination
Legal Basis: Article 415 and Article 416 of the Civil Code of Japan; default clauses of the relevant contracts
Solution: The team accurately calculated the principal amount of outstanding rent, late payment penalties, loss of expected profits from early contract termination, as well as reasonable costs incurred by the client in enforcing its rights, including cross-border legal fees, notarisation and authentication fees, and travel expenses – all of which were included in the scope of the claim. Through robust advocacy during settlement negotiations, the team ultimately secured full compensation for all losses.
IV. Authoritative Legal Bases Applicable to the Case
A. Chinese Laws
1.Article 36 of the Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations: The law of the place where real property is situated shall govern rights in rem in respect of real property.
2.Article 41 of the Law of the People's Republic of China on the Application of Laws to Foreign-Related Civil Relations: The parties may choose the law applicable to a contract by agreement. Where the parties have not made such a choice, the law of the habitual residence of the party whose performance of obligations best reflects the characteristics of the contract, or other laws most closely connected with the contract, shall apply.
B. Japanese Laws
1.Article 415 of the Civil Code of Japan: If a debtor fails to perform an obligation in accordance with its nature, the creditor may claim compensation for damages arising therefrom. Where the debtor fails to perform the obligation intentionally or negligently, the creditor shall be entitled to claim full compensation including direct losses and lost profits.
2.Article 416 of the Civil Code of Japan: Damages shall be based on the principle of compensating for damages normally caused by non-performance of an obligation. Even where damages arise from special circumstances, the creditor may claim compensation if the parties foresaw or could have foreseen the occurrence of such circumstances.
3.Article 541 of the Civil Code of Japan: If one party fails to perform its contractual obligations, the other party may fix a reasonable period and demand performance. If performance is not rendered within that period, the other party may terminate the contract.
4.Article 542 of the Civil Code of Japan: If the purpose of the contract cannot be achieved due to non-performance of an obligation, the other party may terminate the contract directly without the demand prescribed in the preceding Article.
5.Article 601 of the Civil Code of Japan: A lease contract shall take effect when one party agrees to confer the right to use and obtain profits from a thing upon the other party, and the other party agrees to pay rent therefor.
6.Article 619 of the Civil Code of Japan: If a lessee delays payment of rent for two or more installments without justifiable reason, the lessor may terminate the lease contract.
C. International Treaty
China-Japan Treaty on Judicial Assistance in Civil and Commercial Matters: The treaty clarifies the cooperation obligations of China and Japan in relation to service of documents, investigation and evidence collection, and recognition and enforcement of court judgements and arbitral awards in civil and commercial cases, providing a solid treaty basis for advancing cross-border legal proceedings in this case.
V. Authoritative Practical Recommendations Based on Case Experience
Drawing on years of experience in China-Japan cross-border real estate legal services at Guozun Cathay Associates Japan Office, the following three authoritative recommendations are put forward for Chinese citizens and enterprises investing in real estate in Japan:
1.Refine Contract Terms: When signing foreign-related real estate sale and master lease contracts, it is essential to explicitly stipulate the applicable law (it is recommended that real estate-related disputes be governed by the law of the place where the property is situated), dispute resolution body (priority should be given to credible local arbitration institutions in Japan), payment schedule for fixed rent and calculation standard for late payment penalties. The specific conditions for contract termination and scope of damages should also be defined in detail to avoid subsequent disputes arising from vague clauses.
2.Implement Pre-emptive Investment Risk Control: Prior to signing contracts, entrust a legal team with service capabilities in both Chinese and Japanese jurisdictions to conduct comprehensive due diligence on the Japanese real estate operating company’s legal qualification, past performance record, financial status and credit rating, so as to avoid cooperation with unqualified or poorly reputed entities. It is also recommended to purchase relevant real estate investment performance insurance to diversify operational risks.
3.Act Precisely When Enforcing Rights: Upon detecting signs of breach such as rent arrears or delayed performance, professional lawyers should be engaged within 3 months to promptly preserve evidence and issue formal legal demands. If the opposing party refuses to perform, property preservation and judicial proceedings should be initiated as soon as possible to prevent asset transfer or procedural delay, thereby minimising enforcement costs and safeguarding legitimate rights and interests.