A clear explanation of the differences between security deposits, key money, and renewal fees in rental contracts. From cases where security deposits aren't returned to considerations for zero key money properties, renewal fee negotiation methods, and strategies to reduce overall initial costs—a real estate professional thoroughly addresses your questions about rental expenses.
Reviewed by: Nobuyuki MoriPresident, M-Assets Co., Ltd. / Licensed Real Estate Transaction Specialist (Miyagi #018212)
## All Initial Cost Items Required for Apartment Rental Contracts and Average Rates Renting an apartment requires more than just monthly rent. The "initial costs" paid upfront at the time of contract typically amount to three to five months of rent, making up a large portion of your moving budget. However, many renters proceed with contracts without a clear understanding of how these initial costs break down
A complete breakdown of upfront costs for rental contracts, including market rates. Learn how to calculate security deposits, key money, agency fees, prepaid rent, fire insurance, and key replacement costs—plus legal negotiation tactics to reduce your initial expenses.
Zero-deposit, zero-key-money apartments (0/0 properties) can significantly reduce your upfront costs. However, rent might be higher than market rates, and unexpected fees may arise when you move out. We explain the right way to compare and what to watch out for.
The "security deposit," "key money," and "renewal fees" included in the initial costs of rental properties are three distinct types of payments. Many people treat them as routine expenses without fully understanding them, but accurately grasping the meaning of each, whether they're refundable, and whether they're negotiable can help you save tens of thousands of yen.
A security deposit is money held as collateral. Upon move-out, restoration costs to the original condition, unpaid rent, and other expenses are deducted from it, and any remaining balance is returned to you. Legally, it is classified as "entrusted funds," and landlords are obligated in principle to return it to the tenant (Article 622-2 of the Civil Code).
Only expenses deemed the tenant's responsibility at move-out are deducted from the security deposit. The Ministry of Land, Infrastructure, Transport and Tourism's "Guidelines for Restoration to Original Condition" serve as the standard.
Expenses Commonly Deducted
Expenses That Cannot Be Deducted (Landlord's Responsibility in Principle)
The security deposit isn't returned when restoration costs the tenant is responsible for exceed the deposit amount. For extensive damage, you may be charged costs exceeding the deposit.
Even properties listed as "zero security deposit" will incur restoration costs upon move-out. Without a deposit, there's no collateral, so you're often billed separately at move-out. Zero security deposit properties aren't necessarily cheaper overall.
Key money is a non-refundable gift to the landlord. Historically rooted in the custom of thanking the landlord for renting the property, it remains a convention, especially in the Tokyo metropolitan area.
Key money customs vary by region.
| Region | Key Money Situation |
|---|---|
| Tokyo, Kanagawa, Saitama, Chiba | Typically 1–2 months' rent |
| Osaka, Hyogo | May include "Kansai-style deposit deduction" instead |
| Nagoya, Sendai, Sapporo | Many properties have no key money or minimal key money |
| Rural areas nationwide | Many areas typically have no key money |
Properties without key money offer lower initial costs, but verify the following points:
Renewal fees are paid when extending a rental lease, typically 1–2 months' rent every two years. Renewal fees are legally "optional," but if specified in the contract, payment is obligatory (the Supreme Court affirmed the validity of renewal fee clauses in a July 2011 ruling).
Renewal fee customs also vary by region.
| Region | Renewal Fee Situation |
|---|---|
| Tokyo, Kanto | Typically 1 month's rent |
| Osaka, Kansai | Most properties have no renewal fee |
| Other regions | Varies (many areas have no fee) |
The longer you live in a property, the greater the cumulative cost of renewal fees. See the following example:
Converting to effective monthly rent: ¥80,000 + (¥80,000 ÷ 24 months) = approximately ¥83,333 effective monthly rent. When comparing to properties without renewal fees, use this calculation.
| Expense Item | Negotiation Difficulty | Tips |
|---|---|---|
| Key Money | Moderate | Properties with long vacancy periods are easier to negotiate |
| Security Deposit | Low–Moderate | Negotiate separation from other items (e.g., cleaning fees) rather than reduction |
| Agency Fee | Moderate–High | Difficult during peak season, effective during off-season |
| Renewal Fee | Low | Difficult to negotiate after move-in; confirm before signing |
| Total Initial Costs | Moderate | Negotiating multiple items together is effective |
Key money negotiation is effective for properties with long vacancy periods or during off-seasons (May–August, December–January).
Example Negotiation Phrases
"Could you reduce the key money to one month? I plan to stay long-term, and I can adjust my move-in date if needed."
"I notice the property has been vacant for a while. Would you consider waiving the key money if I move in?"
Negotiation through a real estate agent is standard. Direct negotiation with the landlord proceeds more smoothly through the management company.
Even if reducing key money or security deposit proves difficult, negotiating for "free rent (first month free)" can effectively lower your initial costs. One month of free rent is equivalent in value to one month's key money.
By law, agency fees are capped at "one month's rent plus consumption tax," but in practice, some companies charge 0.5 months' rent. You can also get the same property quoted by multiple brokers and choose the one with the lower fee.
Example of initial costs for a typical rental property (¥80,000 monthly rent, 2 months' security deposit, 1 month key money):
| Item | Amount |
|---|---|
| Security Deposit (2 months) | ¥160,000 |
| Key Money (1 month) | ¥80,000 |
| Advance Rent (1 month) | ¥80,000 |
| Agency Fee | ¥88,000 (incl. tax) |
| Fire Insurance (2 years) | ¥15,000–20,000 |
| Key Exchange Fee | ¥10,000–20,000 |
| Total | Approximately ¥430,000–450,000 |
If you negotiate zero key money and 0.5 months' agency fee, you could save approximately ¥120,000.
The key to minimizing initial costs is understanding the differences between security deposits, key money, and renewal fees, then negotiating negotiable items before move-in. Key money and agency fees offer the most negotiation potential, and properties with long off-season or vacancy periods can benefit from negotiations including free rent. If planning a long-term stay, we recommend comparing properties based on effective monthly rent, including whether renewal fees apply.
A comprehensive breakdown of initial rental costs (security deposits, key money, agency fees, advance rent, guarantee fees, etc.) and their market rates. Real estate experts explain negotiation points for each cost and concrete methods to reduce initial expenses.
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