Deposits, Key Money, Renewal Fees, and Restoration Cash Flow

The short answer

Japanese residential leases can involve a security deposit, shikikin (敷金), key money, reikin (礼金), renewal fees, guarantee charges, brokerage, insurance, cleaning, and restoration. Their treatment depends on the lease, payer, recipient, timing, and current law and tax rules. A landlord should not add every tenant-paid amount to recurring rent or assume the deposit funds all turnover work.

Build a tenant cash schedule from signed documents and actual receipts.

Keep deposits as a liability ledger

For each tenant, record original deposit, transfer from a prior owner, permitted non-refundable or amortised amount if any, deductions, interest if relevant, refund, and closing balance. Reconcile the ledger to receipts, lease, property manager, sale settlement, and bank handling.

When a property sells, the buyer may inherit repayment obligations. A cash transfer or price adjustment at settlement should match the liability. Do not count the amount as acquisition income.

At move-out, document condition, age, normal wear, tenant damage, owner maintenance, agreed cleaning, estimates, work, and deduction communication. Keep photographs from move-in and move-out.

Separate one-time receipts

Key money can be a non-refundable receipt under the agreed lease structure. Renewal fees may arise at specific contract events. Guarantee and insurance charges can go to third parties. Brokerage can be paid by tenant, owner, or both within the applicable arrangement.

For yield, show recurring base rent and charges first. Place key money, renewal, deposit retention, and other one-time amounts in the months they are supportably expected, with a probability or scenario. Do not divide a historical seller receipt across future years unless the buyer will actually receive it.

Model turnover cash

At lease end, show lost rent, deposit refund, cleaning and restoration, owner repair, equipment replacement, leasing fee, advertising, guarantee, free rent, and new deposit separately. Timing matters: the owner may pay work and refund before the new tenant's money arrives.

Example: a JPY 400,000 deposit does not make JPY 400,000 of work free to the owner. If JPY 80,000 is supportably deducted and JPY 320,000 refunded while the owner pays JPY 250,000 of normal wear and equipment work, the owner still has a material cash outflow. The example illustrates categories, not legal responsibility.

Tax and management records

Ask the accountant when deposits, deductions, key money, renewal fees, repairs, and improvements are recognised. Cash timing and taxable timing can differ. Keep tenant-level records and invoices.

The management agreement should state who holds deposits, approves deductions, communicates with tenants, pays refunds, and transfers the ledger on manager or owner change. An unexplained net remittance prevents accurate tax and investment analysis.

Work a full turnover example

Assume monthly rent of JPY 180,000, a two-month refundable deposit, one month of non-refundable key money and a two-year ordinary lease. At move-in, the bank account may receive JPY 720,000 before prorated rent and fees, but only JPY 180,000 is an owner receipt from key money. The JPY 360,000 deposit remains economically owed to the tenant until deductions are properly established. Treating the full JPY 720,000 as income overstates distributable cash by two months of rent.

At exit, assume JPY 120,000 of documented tenant-responsibility work, JPY 210,000 of owner restoration and cleaning, a half-month leasing commission, one vacant month and no rent-free incentive. The owner must return JPY 240,000 of the deposit, pay JPY 210,000 for its own work, lose JPY 180,000 of rent and pay JPY 90,000 to re-let. That is JPY 720,000 of turnover cash use before any improvement intended to raise the next rent. A model that records only “one month vacancy” misses most of the event.

Questions to settle before purchase

Request the signed lease, renewal memorandum, deposit ledger, move-in condition record, guarantor or guarantee-company agreement, last twelve months of collections, and any restoration dispute. Confirm whether management accounts hold tenant deposits separately, how deductions are approved, and whether a change of owner requires notice or account transfer. For a portfolio, reconcile total deposits in the rent roll to the balance-sheet liability and the actual segregated or operating bank balance.

Do not assume that a local custom transfers unchanged to every lease. The contract, statutory framework, MLIT restoration guidance and documented condition control the analysis. If the seller cannot reconcile the deposit balance, treat the difference as a closing adjustment or unresolved liability rather than future income.

Primary sources

• MLIT — Rental housing guide for foreign tenants and landlords: https://www.mlit.go.jp/jutakukentiku/house/jutakukentiku_house_tk3_000017.html
• MLIT — Rental housing management portal: https://www.mlit.go.jp/tochi_fudousan_kensetsugyo/pm_portal/
• National Tax Agency — Real-estate rental income: https://www.nta.go.jp/taxes/shiraberu/taxanswer/shotoku/1370.htm

Reviewed against the linked sources on 23 August 2026. The lease, evidence, current guidance, and professional advice control.