Security Deposits, Key Money, and Guarantee Money in Japanese Rental Contracts: Understanding Kansai-Region Terms and Refund Conditions

Unique Initial Fees in Japanese Rental Contracts

Japanese rental contracts feature uniquely structured initial fees—security deposits, key money, guarantee money, and non-refundable deductions—that are rarely seen elsewhere in the world. Because each term has different legal implications and refund rules, failing to understand them before signing a contract can result in unexpected financial losses at move-out. Adding to the confusion, Kanto-region and Kansai-region customs differ significantly, and terms like "guarantee money" may carry different meanings depending on the region.

Legal Nature of Security Deposits (Shikikin)

What is a Security Deposit?

A security deposit is money paid to the landlord at the time of signing to serve as collateral for unpaid rent or damage to the property. For the first time in 2020, Japan's Civil Code reform (Article 622-2) formally codified this concept with the following definition:

"Security Deposit: Money paid by the tenant to the landlord to secure payment of rent and other obligations arising from the rental agreement, regardless of the name by which it is designated."

Principles of Refund

Under the Civil Code, after the rental contract ends and the property is returned, the landlord must refund any portion of the security deposit remaining after deducting unpaid rent and restoration to original condition costs. While the law does not specify an exact return deadline, court precedent interprets this as "within a reasonable period after return of the property" (typically one to two months).

Market Range

Security deposits typically range from zero to two months' rent. In the Kanto region, one month's rent is standard; in the Kansai region, these amounts are often called "guarantee money" instead (discussed below).

Legal Nature of Key Money (Reikin)

What is Key Money?

Key money is a non-refundable payment made to the landlord as a "thank you" for renting the property. Historically, this practice originated in the post-WWII housing shortage as tenants' way of expressing gratitude for being allowed to rent.

Legal Status

The Civil Code contains no specific provision for key money; it is simply an established commercial practice. While Japan's Supreme Court has recognized key money as a valid "part of the consideration for the rental contract," excessively high amounts may violate the Consumer Contract Act.

Market Range and Regional Differences

In recent years, more landlords offer properties with no key money, and it may be possible to negotiate a reduction in key money in some cases.

Guarantee Money (Hoshokin) and Non-Refundable Deductions (Shikibiki)—Unique Kansai-Region Practices

What is Guarantee Money?

In the Kansai region (Osaka, Kyoto, Hyogo), "guarantee money" is often used in place of separate security deposits and key money. Guarantee money is a lump-sum collateral payment made at contract signing; at move-out, the landlord deducts "non-refundable deductions" before returning the remainder to the tenant.

What are Non-Refundable Deductions?

Non-refundable deductions are amounts unconditionally subtracted from the guarantee money at move-out. Like key money, these are non-refundable; however, unlike key money (paid upfront), they are deducted at the time of move-out.

Example of Typical Guarantee Money and Non-Refundable Deduction Structure

• •Guarantee money: 4 months' rent
• •Non-refundable deductions: 2 months' rent (deducted at move-out)
• •Actual refundable amount: 2 months' rent (after deducting restoration to original condition costs)

Validity of Non-Refundable Deduction Clauses

Japan's Supreme Court (ruling of March 24, 2011) established that non-refundable deduction clauses are valid if the following conditions are met:

• •The clause is clearly stated in the rental contract
• •The tenant understands the existence and terms of the clause
• •The deduction amount does not exceed approximately "3.5 times the monthly rent" (for example, if rent is ¥30,000, deductions should not exceed ¥105,000)

Excessively high non-refundable deductions may be deemed invalid as violations of the Consumer Contract Act (Article 10).

Move-Out Settlement Procedures and Key Points to Verify

Move-Out Settlement Process

After move-out, settlement proceeds in the following order:

1. Tenant returns the property and keys
2. Landlord or property manager conducts a final inspection
3. Restoration to original condition costs are estimated
4. Repair costs are deducted from the security deposit (or guarantee money), with the remainder returned
5. The remaining balance is transferred to the tenant's bank account (typically within 30–60 days of return)

Typical Refund Disputes

• •Being told "cleaning costs exceed the entire security deposit" and asked to pay the difference
• •Being charged for wall paper replacement at move-out (invalid if this constitutes normal wear and tear)
• •Being told "because a non-refundable deduction clause exists, you will receive no refund" (validity of the clause should be verified)

Using Ministry of Land, Infrastructure, Transport and Tourism Guidelines

The "Restoration to Original Condition: Disputes and Guidelines" publication clearly states that normal wear and tear and age-related deterioration are the landlord's responsibility. If any charges fall outside these guidelines, you have the right to request an itemized breakdown in writing. For the latest guidance incorporating the 2020 Civil Code reform, see the updated restoration guideline. If you have concerns, contact your local consumer affairs center, bar association, or Sumai-ru Dial (0570-016-100) for consultation.

Key Points for Foreign Tenants

Beware of Term Confusion

If an agent describes a payment as a "deposit," always verify in the contract whether it is classified as a "security deposit," "guarantee money," or "key money." The same word "deposit" can mean vastly different things in terms of how much is refundable.

Securing a Transfer Account Before Returning Home

Landlords typically transfer refunds only to Japanese bank accounts. If you plan to return to your home country, arrange to keep a Japanese bank account open until the refund is received, or provide the account details of a family member or friend in Japan.

Using Interpretation Support

If you have questions during the move-out settlement process, your local government's international resident hotline and international exchange associations often provide free interpretation services. Preparing copies of your contract, inspection report, and repair estimate before consulting will help discussions proceed more smoothly.

Summary

Although "security deposits," "key money," "guarantee money," and "non-refundable deductions" may sound similar, each carries different legal implications and refund potential. The Kanto region typically uses the security deposit and key money system, while the Kansai region typically uses the guarantee money and non-refundable deduction system—verify which applies to your property before signing. At move-out, tenants have the right to demand a settlement calculated according to Ministry of Land, Infrastructure, Transport and Tourism guidelines; always request an itemized breakdown in writing if you question any charges.