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Court Auction of Leasehold and Leased Land | Explaining the Risks of Buildings with Leasehold and Leased Land

The land is borrowed, only the building is yours—buildings with leasehold rights, and conversely, the leased land itself, may appear at auction. We will organize the risks regarding rent, consent, and profitability.

What are Leasehold and Leased Land?
When Winning a Bid for a Building with Leasehold
When Winning a Bid for Leased Land
Difference from Statutory Leasehold
Confirmation in the Three-Document Set

1. What are Leasehold and Leased Land?

Borrowing land from a landowner, building and owning your own building on it—this "right to use the land" is called a leasehold. And the land on which the leasehold is established (the landowner's side) is called leased land.

At auction, there are cases where only the "building" with the leasehold is put up for sale, and cases where only the leased land (rented land) is put up for sale. In either case, because the rights to the land and building are separated, there are risks different from ordinary freehold properties.

In terms of the rights to the land and building being separated, this is similar to a statutory leasehold, but the basis for its establishment differs (discussed later).

2. When Winning a Bid for a Building with Leasehold

When you win a bid for a building with a leasehold, you acquire ownership of the building and the leasehold. Since the land continues to be borrowed, you need to pay attention to the following points.

Ground Rent: Monthly ground rent payments are required. Arrears risk contract termination.
Consent for Transfer: The landowner's consent is required to transfer the leasehold. In the case of an auction, there is a system where court permission can substitute for consent.
Duration and Renewal: The remaining term of the lease agreement and the possibility of renewal. It is disadvantageous if the term is close to expiring.
Rebuilding and Renovations: The landowner's consent is often required.

Buildings with leasehold allow you to acquire the building without buying the land, so the price is kept down, but the relationship with the landowner and the contract terms are important. Be careful not to overlook issues such as ground rent arrears or consent problems.

3. When Winning a Bid for Leased Land

When you win a bid for leased land (rented land), you take over the position of the landowner and obtain the right to receive ground rent from the leaseholder. However, because a leaseholder exists, you cannot freely use the land yourself.

Income is primarily from ground rent. If the ground rent level is low, the yield will also be low.
The relationship with the leaseholder (ground rent revision, renewal fees, future buyout negotiations, etc.) affects profitability.
Leased land alone has low liquidity and may be difficult to sell.

On the other hand, if you can sell the leased land to the leaseholder in the future, or integrate the leasehold and leased land (under single ownership), the value may increase significantly.

4. Difference from Statutory Leasehold

	Leasehold	Statutory Leasehold
Basis of Establishment	Contract between parties (lease agreement, establishment of superficies, etc.)	Arises automatically by law (Article 388 of the Civil Code)
Typical Scenario	Originally borrowed land and owned a building	Land and building owned by the same person are separated at auction
Common Point	In both cases, the rights to the land and building are separated, and the building owner can use the land.

Both create a situation where "the land belongs to someone else, the building belongs to you (or vice versa)." They are easy to confuse, so distinguish them by the basis of establishment. For details, refer to What is a Statutory Leasehold?.

5. Confirmation in the Three-Document Set

The presence and conditions of leaseholds and leased land are confirmed in the Property Description and Appraisal Report of the three-document set. In the appraisal report, the evaluation is made considering the leasehold ratio and leased land ratio, and matters regarding ground rent, duration, and landowner consent may be described.

At KeibaiX, AI analyzes the legal relationships and reflects them in the KeibaiX Risk Score. Properties where the rights to land and building are separated are highly specialized, so we recommend consulting with an expert before bidding.

Disclaimer: This article is for general informational purposes only and does not constitute individual legal advice. The legal relationships of leaseholds and leased land vary depending on contracts and cases. When bidding, please check the original three-document set and consult with professionals such as lawyers, judicial scriveners, or real estate appraisers.