What Is a Rent Guarantee Company? Mechanisms, Costs, Selection Tips, and Precautions for Owners Regarding Delinquency
In current rental contracts, it has become common to require tenants to use a rent guarantee company. On the other hand, if you think "there is no worry about delinquency if a guarantee company is attached" or "all guarantee companies are the same," you may find that the expected guarantee is not provided when the time comes.
This article explains the mechanisms of rent guarantee companies, cost burdens, types and selection of guarantee companies, and important points to be aware of when delinquency occurs, aimed at owners of apartments and condominiums.
What Is a Rent Guarantee Company?
A rent guarantee company is a company that guarantees rent payments on behalf of the tenant’s joint guarantor. If a tenant falls behind on rent payments, the guarantee company advances the rent to the owner (subrogation payment) and then collects the amount from the tenant.
From the owner’s perspective, the main role is transferring the risk of rent collection to the guarantee company. From the tenant’s perspective, there is the advantage of being able to rent a room even without a relative or other person acting as a joint guarantor.
Background to the Spread of Guarantee Company Use
The reasons why the use of guarantee companies has become standard involve both changes among renters and legal revisions.
- Increase in tenants who find it difficult to secure joint guarantors: The number of tenants such as single-person households, elderly people, and foreign nationals who find it difficult to ask relatives to act as guarantors is growing.
- April 2020 Civil Code revision: In rental agreements where individuals become joint guarantors, the credit limit amount (kyokudo-gaku) must be specified in writing, or the guarantee contract becomes invalid. As the burden on individual guarantors became clearer, it became more difficult to obtain guarantors, further expanding the use of guarantee companies.
- Registration system for rent debt guarantee businesses: Since October 2017, a registration system by the Ministry of Land, Infrastructure, Transport and Tourism for rent debt guarantee providers has started (a voluntary registration system). This provides a guideline for selecting guarantee companies that meet certain standards.
Guarantee Mechanisms and Scope of Guarantee
Rental contracts using guarantee companies generally proceed through the following steps.
- The prospective tenant applies, and the guarantee company screens them (checking income, employment, past payment history, etc.)
- If the screening is passed, the tenant and the guarantee company enter into a guarantee entrustment contract, and the owner (or management company) and the guarantee company enter into a guarantee contract
- If delinquency occurs, the owner reports it to the guarantee company, which then advances the payment
- The guarantee company bills and pursues the tenant for payment
The scope of what is guaranteed varies depending on the guarantee company and the plan. Confirm the following items before contract signing.
| Guarantee Subject | Points to Confirm |
|---|---|
| Monthly rent, common service fee, management fee | How many months are guaranteed (upper limit) |
| Additional fees such as parking fees | Whether they are included in the guarantee |
| Renewal fees, penalty fees | Whether they are included in the guarantee |
| Restoration costs at the time of moving out | Whether covered and the upper limit amount |
| Legal procedure costs such as eviction lawsuits | Whether borne by the guarantee company |
| Removal costs for remaining items | Whether covered and the upper limit amount |
Who Pays the Guarantee Fee and How Much?
The guarantee fee is generally borne by the tenant. There are two main payment methods.
- Initial + renewal type: A certain percentage (several tens of percent up to 100%) of the monthly rent etc. is paid at contract signing, followed by an annual renewal fee or similar periodically
- Monthly type: A certain percentage of the rent etc. is paid monthly
If the guarantee fee is high, the tenant’s initial costs increase, which can deter applications. When trying to reduce initial costs as a vacancy countermeasure, compare guarantee companies including fee structures. Since guarantee fee levels vary by company and plan, confirm the latest conditions via the management company.
Types of Guarantee Companies
| Type | Features |
|---|---|
| Credit-affiliated | Operated by credit card companies, etc. Use credit information agency data for screening, so tends to have strict screening. Has systems to collect rent via credit card or account transfer. |
| Association-affiliated | Guarantee companies affiliated with industry groups. Share delinquency histories and other information among member companies. |
| Independent | Guarantee companies not belonging to the above. Screening criteria are unique to each company, with some offering flexible screening. |
The stricter the screening of a guarantee company, the lower the delinquency risk among tenants, but the fewer people pass screening, which may lengthen vacancy periods. Decide which guarantee company to use with the management company according to the property’s location and expected tenant demographics.
Points for Owners When Choosing a Guarantee Company
- Scope and limits of guarantee: Which items from the earlier table are covered.
- Speed of subrogation payment: When payment is made to the owner after reporting delinquency.
- Whether registered provider: Whether registered as a rent debt guarantee provider with the Ministry of Land, Infrastructure, Transport and Tourism.
- Method of collection: Whether pursuing payment according to laws. Excessive pursuit can affect the reputation of owners and management companies.
- Handling of foreign tenants: Whether screening, contracting, and collection procedures can be conducted in multiple languages.
- Management stability: There is a risk that guarantee service will stop if the guarantee company goes bankrupt.
Relationship Among Guarantee Company, Joint Guarantor, and Emergency Contact
Even when using a guarantee company, most require the tenant to register an emergency contact (such as a relative). The emergency contact is not a guarantor and has no rent payment obligation, but acts as an important contact point if the tenant cannot be reached or in emergencies.
Also, if the contract requires both a guarantee company and an individual joint guarantor, from April 2020 onward, the credit limit amount (kyokudo-gaku, ceiling of guarantee) must be stated in the contract. Personal guarantees without stated credit limits are invalid, so check that old contract templates are not being used.
Precautions When Delinquency Occurs
Even with a guarantee company, there are things owners should do and should not do.
- Report delinquency immediately: Many guarantee contracts have deadlines for reporting delinquency. Missing the deadline may result in losing guarantee coverage, so check payment status monthly.
- Do not evict by yourself: Even if delinquency continues, owners or management companies are not legally allowed to change locks or remove belongings on their own (prohibition of self-help). To seek vacation of the property, negotiation or legal procedures such as an eviction lawsuit must be used.
- Guarantee contract terms also have limits: The December 2022 Supreme Court ruling ordered a ban on guarantee company contract terms that deemed tenants to have vacated the property if certain conditions were met, ruling it violates the Consumer Contract Act. Having a guarantee company does not necessarily mean you can entrust eviction procedures entirely to them.
It is safest to handle delinquency and eviction responses cooperatively with the guarantee company, management company, and, as needed, a lawyer.
Summary
- Rent guarantee companies guarantee rent payments on behalf of joint guarantors and advance payment in case of delinquency.
- The April 2020 Civil Code amendment requiring credit limit specification for individual guarantors expanded guarantee company use.
- Guarantee scope (rent limit, restoration costs, litigation fees, etc.) varies by company and plan, so confirm before contracting.
- Guarantee fees are generally borne by tenants; excessively high fees can cause vacancies.
- Report delinquency promptly and do not evict by yourself.
Selection of guarantee companies and response to delinquency are tasks that can be entrusted to management companies. TLL’s property management services include selecting guarantee companies suitable to the property and tenant demographics, and coordinating with guarantee companies in case of delinquency. For details, please see Asset Management and Operation Services. For vacancy countermeasures, also refer to "Apartment Vacancy Measures".
About this article
- Author
- Xiao Li（Asset Management）Qualifications: Real Estate Transaction Specialist, Building Management Specialist
The operational lead for real estate sales and property management. At NTT Communications, he spent more than eight years managing DX projects for major enterprises, overseeing the full process from requirements definition through delivery and operations. At TLL, he handles the entire deal management cycle for income-producing properties, including sales strategy planning, investor sourcing, contract execution, settlement, and handover, providing well-matched opportunities and smooth transaction execution for domestic and international investors and operators.
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- TLL合同会社宅地建物取引業 東京都知事(1)第108202号住宅宿泊管理業 国土交通大臣(01)第F03424号
Data in this article cite their source and as-of date. Market conditions and regulations change, so check the latest information and consult a professional before deciding. Translated from the Japanese original.
