A Real Estate Matter that Illustrates a Variety of Things
Recently a real estate transaction got resurrected, which I had thought was long finished for me.
Several years ago, a friend of my late father in-law needed to sell off a piece of land. My father in-law—who worked as a real estate broker employed by my company—died before he could help his friend sell the land. There were several deals in progress when he died. Since they were under the auspices of my company I had a duty to somehow get them done. This was an ordeal since I had not before shepherded real estate deals anywhere including Japan. Also, this specific deal was not even in progress; a potential buyer had dropped out, and no new buyer had emerged in the subsequent three or four years. I did not know if the agreed-upon price of that unsuccessful sale was realistic. I asked around to some real estate companies, all of which provided only what I felt in my gut were low-ball offers.
Long story short, I found a buyer. They purchased the land for what was an attractive price to my inherited client, the seller—and over 10 million yen above the prices of both the more recent low-ball offers and that of the previous unsuccessful deal. It was an enormous success and relief. My company got a commission as broker. I shall not analyze what was my hourly rate after all the work and sheer running around to get the deal done. But…huzzah. I visited my father-in-law’s grave and reported the completion. It felt really good. A tear was shed.
A year later, the buyer, which was another real estate brokerage, called me. If possible, would I please go and visit the owner of an adjacent piece of land to the sold property and get them to sign a memorandum of understanding regarding their retaining wall, which was leaning into the sold property?
Wut.
Part of the above long story was that the adjacent piece of land was higher than the one I sold, and had a retaining wall, which was encroaching slightly into the sold property. How slightly? About 1.5cm at its two-meter height above the surface of the sold piece of land. This had been discovered by the initial survey of the land prior to putting it on the market, and its existence was acknowledged by both my seller client and the adjacent property owner when the property lines were finalized.
Before the contract signing to officially exchange the property for monies, the buyer had wanted me to obtain the official stamp (signature equivalent) of the adjacent property owner on a memorandum of understanding stating that both parties acknowledged the encroachment, and that if the adjacent property owner were to ever rebuild the retaining wall, they would promise to eliminate the state of encroachment. Until such time, the owner of the sold property and all their successors as owners of the property would approve—meaning, not contest or demand elimination of—the state of encroachment.
The meat of the memorandum, outlining the conditions described in the paragraph above, and some others
I visited the adjacent property owner a few times, usually getting no response in the intercom, and finally only getting one from their child, saying that the parents were out of town until after our contract signing. This was a major concern, because my buyer could justifiably back out of the purchase without assurances that the encroachment would be eliminated the next time there was a chance to do so.
To be clear, neither party expected the retaining wall to ever require replacement; it was just a hypothetical thing that had to be promised. Otherwise, Japanese law could be interpreted to technically allow the encroaching property owner to acquire the bit of land onto which they encroached by what is called 取得時効 acquisitive prescription—basically “squatter’s rights.”(Side note for those interested: This same term 時効 / jikō is also used to express a legal statute of limitations.) In Japan it takes 20 years of a person occupying a property “peacefully and openly” with the intention to acquire it by prescription due to no other party opposing that occupancy. It only takes 10 years for the same, if the non-owner occupant occupies the property in good faith, i.e. not knowing that it was someone else’s property. In basic terms, anyway. It’s a fascinating bit of law.
Japanese Civil Code regarding 時効 acquisitive prescription
Because we couldn’t contact the encroaching property owner before our transaction, the sale contract signing went ahead and was concluded with ambiguity about who would try and get the memorandum signed in the future, if anyone.
Which brings us back to a week or so ago when the buyer called out of the blue to ask that I get the memorandum signed by the encroaching property owner. One of the two homes they had built in the portion of the parcel that abutted the encroaching property had been sold to an individual buyer, whose bank demanded that the encroachment be satisfactorily addressed via stamped memorandum in order to fund the home loan.
An interesting thing: One real estate veteran I know estimates that 30% of property line confirmations discover some kind of encroachment, by a building or structure like this wall, or whatever other thing or circumstance. Therefore, executing this kind of memorandum is correspondingly common in real estate matters, as many encroachments are not feasible to eliminate and most people just want to get on with life and contain the encroachment, rather than pursue perfection.
Since I had failed to obtain the memorandum the first time around, I did feel some duty to do it this time. I had already received my brokerage commission and would not be remunerated further for doing this. But I had at least briefly met the encroaching property owner before, when a different property we sold that was also adjacent to theirs was surveyed and needed to be confirmed physically by the respective sides of the property line that was to be finalized.
In Japan, many property lines, although generally understood and agreed-upon, remain officially unconfirmed by the respective sides; when property on a given side of the line is sold, an exact confirmation has to be done by a licensed surveyor, who gathers the parties, shows and explains the property line and supporting stakes or other markers in detail at the site, (hopefully) obtains their assent, collects the official seals of each owner, and registers the finalized property line at the 法務局 Legal Affairs Bureau.
I figured it would be an easy stamp to obtain from the adjacent property owner, since again, the parties had previously done the above finalization for the property line across which the encroachment existed.
It was not to go smoothly, though, because when I went to visit, I found out that my buyer had not gone on to do things in the customarily polite way a company constructing homes should do them.
To wit: The buyer should have visited and greeted at least all adjacent property owners in person, and preferably all households on the street too, and for bonus points, given each some small gift such as a towel or treat. They should have explained the nature of the construction project and what nuisances, however temporary, they would be imposing on the neighborhood. This could have been to each individual household, or in a single 説明会 explanation meeting to which affected residents would be invited in advance and given a chance to attend. At such a meeting, they would be invited to ask questions and have their concerns resolved. The buyer did not do these things.
The first thing the buyer did to the property was use earth fill to raise its level to that of the street. This required using 4-ton trucks to haul in the several hundred cubic meters of fill sufficient to bring the level up 1.5 meters or so. These trucks, while not gargantuan, were sufficiently large and laden to cause concern among residents, who used the same narrow street to access their homes that the trucks would use. The street was also already susceptible to potholes and depressions due to the lack of side gutters and resulting poor drainage and frequent moisture buildup, so when trucks used it heavily for a focused period of time, it created or exacerbated more bumps. For the encroaching property owner specifically, although their retaining wall was technically “in the wrong,” and was also physically helped not to lean further thanks to this filling-in, they had expected a chance to discuss with the buyer before having a lot of fill dumped up against their wall. This did not happen. Instead, a work crew showed up one day and mentioned to the adjacent property owner “we’ll be starting construction.” The owner did not count this as the customary courtesy.
What’s more, the contractor doing the fill, who was not the buyer but a subcontractor or possibly sub-sub-contractor (as often happens in the stratified construction business here), did not bring a portable toilet for its workers who were there to spread and pack down and move the fill around. The adjacent property owner and other neighbors observed these workers urinating on the retaining wall during the work. This was of course highly uncouth and incensed the neighbors, as would be expected.
Upon completion of the hauling-in of fill and raising of the land’s level, the neighbors called city hall to complain about this contractor that had marred the road and not repaired it. The city called the buyer and seems to have gotten them or the contractor to pave over the most proximal and egregious bits, but definitely not to the satisfaction of the neighbors.
It was my lot to hear, from the (actually very cool) wife of the adjacent property owner, all of the above grievances and more, when I combed my hair and put on business attire and walked over to ring their doorbell on a beautiful 37-degrees-celsius day. Sweat of heat and of other discomfort ensued.
In these moments you almost never benefit by becoming defensive. I was open with her and freely apologized. I really had thought my buyer would go through the culturally proper procedures, however legally optional they might be. Truthfully, I told her that the buyer had done everything right when I previously sold them a different piece of land not far from this one that they subsequently built on, so I had trusted them to handle this project right as well. I said I was not okay with the way my buyer had done things in this case. I am the person who has to face all the annoyed neighbors as a person permanently doing business in town, and I take seriously the responsibility of only doing business in a way that benefits the community. I said it was my fault (and it really was) that these things had happened but not yet come to my attention. When we closed the sale, my instincts had told me to stay abreast of the project as it proceeded and put out any fires immediately, such as the fire of unhappy neighbors. I failed to do this and that was squarely on me, even if my legal obligations were concluded.
Aside from the airing of grievances, she also wanted a detailed explanation of each clause in the memorandum. She was especially concerned to know what constituted 再構築 rebuilding of the retaining wall. I helped her understand that it was worded to her advantage, since it did not require elimination of the state of encroachment upon, for example, simple 修理 repair of the wall. In fact, it was quite friendly to her in other ways: Typically these memoranda will require remediation of the encroachment even upon the rebuilding of just the house on the encroaching property, regardless of its involvement in the encroachment. Rebuilding the house itself is a far more likely event and would bring her great hardship if included in the memorandum, but the buyer had struck that out to make it as palatable as possible. She was pleased with that. (And I admit it was a moment of the opposite of imposter syndrome in acquiring a language—as someone born in the United States I was explaining Japanese contractual terms and associated Civil Code points to a person who, at one time in my life journey, I would have considered light years ahead of me in understanding. That she trusted me and never once mentioned nationality or origin, etc. was gratifying to my always-somewhat-insecure psyche.)
With all acknowledgment of the poor behavior of my buyer and the legitimacy of her anger, I helped her to understand that in the end, her property was the encroaching one, and stamping this memorandum was actually a protection to her going forward. It would firmly set expectations for all involved then or subsequently, and prevent a lot of potential hardship. If possible, she might want to set aside the grievances and sign the thing right away. Either way, I would be calling and demanding remediation and apology for the things the buyer had done and not done. Subsequent property owners really could be far less reasonable about the encroachment in the absence of the memorandum, which, again, included the clause that successors must also approve of the existence of the encroachment. Without signing, she would always have to worry about multiple potentially unreasonable neighbors someday demanding that they dig up and rebuild their retaining wall, which would be a massive hardship financially and logistically. But it was fine if she wanted to tie stamping the memorandum with getting redress from the buyer.
In an impressive testament to her will, she did not agree to stamp it on the spot, but instead first wanted satisfaction regarding the peeing and other discourtesies.
I gladly agreed to this. I also did not care in the end if the buyer got their sale finalized as planned—or at least not nearly as much as I cared that they had jeopardized my reputation by behaving badly.
In front of her, I called my counterpart at the buyer company and said that the above things had happened, and this was not acceptable, and of course they would not be getting their memorandum signed until they came and apologized and explained what went wrong with the project. And they would not be buying any more land offered for sale through my company if they were going to shit where I eat. The owner’s wife looked on approvingly, as was my intent, although I would have said everything the same without her there too.
The man who represented the buyer in my transaction and the man in charge of the fill portion of the project came two days later, hats in hand, and faced her righteous wrath. They were motivated by equal parts shame and urgency to not delay the impending sale. Well, maybe not equal, I dunno. As they arrived and before we rang the doorbell, I told them, “Your job is to listen to her every grievance, make zero excuses, and tell her (and me) how you’ll prevent recurrence of this kind of thing in the future.” To their great credit, they did just that and sincerely apologized. It took an hour or so. Lots of the same things were repeated and emphasized and re-apologized for. A nice thorough proceeding, if very consuming of my time. She then produced the stamped memorandum, all ready to go, from her hand, where it had been the whole time. Haha.
As a bonus—because I liked the lady and also wanted the neighborhood to ultimately feel like the project had benefitted them—I called city hall and the city assemblyman I helped get elected in April and communicated how unacceptable the street conditions were. Although the adjacent property owner’s wife attributed a lot of the street’s bumpiness to the trucks, I knew from having jogged it many times that it was also actually quite bad before that mere week or so of truck traffic. Now the city street department is being spurred on by my assemblyman to repave all of the street. And my assemblyman has visited and become acquainted with the woman, who will love having someone to call when other undesirable things happen, just as the assemblyman will love to have constituents relying on him who will surely vote his way next election. Several simultaneous wins! This is what it’s all about. I don’t mind having done some extra work for this outcome. And I share it here because it illustrates a lot of real estate and Japan society tidbits.