The Purchase Contract Explained: Every Clause a Foreign Buyer Must Check

TL;DR: The purchase contract (baibai keiyakusho) is Japan’s binding property purchase agreement. It’s signed after the Important Matters statement is delivered, and it determines your financial exposure if anything goes wrong before settlement. Several clauses are negotiable before signing and nearly impossible to fix after. Read them before you stamp them.

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I’ve watched buyers receive a purchase contract, flip to the signature page, and ask where to stamp. Forty pages of binding legal terms. The only question was which box to use.

It happens when the purchase feels done — you’ve found the place, negotiated the price, you’re emotionally committed. The contract feels like the end of the process rather than the moment where actual terms get locked in.

Here’s what’s actually in it.

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What does the purchase contract cover, and how is it structured?

Japanese purchase contracts aren’t standardized nationally, but most follow a template developed by the real estate trade associations. The structure is broadly consistent:

1. Parties and property identification
2. Purchase price and payment schedule
3. Deposit terms
4. Settlement date
5. Financing contingency
6. Property condition and defect liability
7. Breach and penalty clauses
8. Special conditions

The contract is in Japanese. If you cannot read Japanese, you need a certified translation or a bilingual advisor who can explain each section before you sign. Not after.

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From the desk — The clause I see foreign buyers wave through and later regret is the financing contingency, the yuushi tokuyaku, specifically the bank name and loan amount written into it. The pattern I keep seeing is a buyer planning to borrow from one lender while the contract names another, or applying for a larger amount than the clause specifies, and a rejection that should have refunded the deposit instead becomes a fight over whether the contingency was even triggered. The contract is binding in the Japanese text regardless of any English summary, so that is the wording I slow the room down to fix before anyone stamps.

What are the deposit terms and what happens if you back out?

The deposit (tetsukekin) paid at contract signing is typically 5–10% of the purchase price. This isn’t a reservation fee. It’s a legally defined instrument with specific consequences.

Under Japan’s Civil Code (Article 557), if the buyer backs out after paying the deposit, they forfeit the entire amount. If the seller backs out, they must pay back double the deposit to the buyer.

The right to cancel using the deposit exists only until the other party begins performance — generally interpreted as the seller beginning settlement preparations. In practice, this window is shorter than most buyers assume.

Check the contract for:

• The exact deposit amount and percentage
• The deadline for deposit-based cancellation (it should be stated explicitly)
• The account to which the deposit is paid (it should not be the agent’s operating account — request a dedicated trust account or direct payment to the seller with receipts)

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What is the financing contingency and why does it matter?

The financing contingency clause (yuushi tokuyaku) allows the buyer to cancel the contract and receive a full deposit refund if their mortgage application is declined.

Without a financing contingency, a financing failure means you lose your deposit.

Japanese lenders don’t give full approval until after the purchase contract is signed — they need the property details to assess it as collateral. The financing contingency exists to protect buyers from this sequence risk.

Check:

• Whether the clause exists at all. Some agents try to remove it or soften it.
• The name of the lender(s) covered. If you plan to borrow from Bank A but only Bank B is named in the contingency, a rejection from Bank A may not trigger it.
• The deadline for exercising the contingency. Typically 2–4 weeks after contract signing.
• The loan amount and terms specified. If you apply for more than the stated amount and get approved for less, does the contingency apply?

Negotiate this clause. The wording determines your protection.

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How is property condition handled in the contract?

Japan’s residential contracts historically used a “buyer beware” standard — sellers weren’t required to disclose defects unless asked, and as-is sales were common.

The Civil Code revision of 2020 replaced the old defect warranty concept with a stricter seller obligation to deliver property conforming to the contract’s stated condition.

In practice, most resale contracts now explicitly state the property’s condition and any known defects. Check:

• What conditions are agreed to be the standard for delivery (e.g., “habitable and functional as viewed on inspection date X”)
• What known defects are listed and accepted by the buyer
• The seller’s warranty period for hidden defects (often 3 months to 1 year for resale; 2–10 years for new construction under the Housing Quality Assurance Act)
• Whether “as-is” is stated, and what exactly that excludes from seller liability

An as-is clause doesn’t exempt sellers from liability for intentionally concealed defects. Proving intentional concealment is hard.

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What are the breach and penalty clauses?

If either party fails to perform — doesn’t show up to settlement, refuses to transfer, can’t produce clear title — the contract specifies remedies.

Standard provisions:

Delay penalty: If settlement is delayed beyond the agreed date due to one party’s fault, a daily penalty rate applies (often around 14% per year on the unpaid amount, calculated daily). This isn’t symbolic — it adds up on a ¥50M–¥100M purchase.

Specific performance: A party can demand the other perform their obligations through the courts, in addition to claiming damages.

Contract cancellation and compensation: If one party’s breach is material enough to defeat the purpose of the contract, the other can cancel and claim damages beyond the deposit mechanism.

Check whether the contract specifies what constitutes a breach, the cure period before remedies kick in, and whether there are caps on liability. Liability caps in seller-prepared contracts often favor the seller.

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What are special conditions and how do you use them?

The special conditions section is where everything negotiated outside the standard terms gets recorded. Arguably the most important section for buyers with specific concerns.

Common special condition additions for foreign buyers:

• Inspection condition: “Settlement conditional on inspection report finding no structural defects or water damage exceeding [specified threshold]”
• Cleaning or repair obligations: “Seller to professional-clean the property and repair the damaged floor panel in the tatami room before settlement”
• Key and document delivery checklist: Specific enumeration of what the seller must hand over, preventing disputes at the table
• Vacant possession: If the property is currently tenanted, the date by which it must be vacant
• Foreign buyer-specific conditions: Translation or explanation requirements, adjusted timelines for international fund transfers

If it’s not in the contract, it’s not enforceable. Verbal agreements with agents don’t bind sellers. Get it in the special conditions.

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Where this goes wrong

• Buyers sign without the special conditions they negotiated. The agent said “don’t worry, it’s understood.” It wasn’t. Nothing outside the written contract is enforceable.

• The financing contingency is vague about which bank or which loan amount. A poorly drafted contingency gives the seller grounds to dispute whether the contingency was triggered at all.

• As-is clauses get used to hide known defects. An as-is clause doesn’t make knowingly concealed defects legal — but the buyer has to prove concealment, which is difficult.

• Deposit is paid into the agent’s operating account. In Japan, agent trust accounts provide some protection, but confirmed deposit handling should be verified before signing.

• Settlement date is set too tight for an international wire transfer. A 30-day settlement timeline is common, but if you’re moving funds from overseas, confirm your bank’s international transfer processing time first. A one-day delay at settlement can trigger the delay penalty clause.

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FAQ

Q: Is the purchase contract available in English? A: Legally, no. The binding document is Japanese. Some agencies provide English summaries or parallel translations for foreign clients, but these are informational. If you sign the Japanese document, you’re bound by the Japanese text regardless of what any English summary says.

Q: Can I add conditions to the contract after it’s been prepared? A: Yes — before signing. Once signed by both parties, amendments require a separate written addendum signed by both sides. Get your requests in before the signing date.

Q: What if the property doesn’t match what was described in the listing? A: The seller’s obligation to deliver property conforming to the contract is your starting point. If the contract clearly described the property’s condition and the actual delivery doesn’t match, you have a claim. Document discrepancies as early as possible — ideally with photos before or at settlement.

Q: Does the contract need to be notarized? A: For most residential property transactions, no. The contract becomes binding upon signature (and stamp) of both parties. Some specific transaction types (e.g., involving court-ordered sales) require notarization.

Q: Can I use a Power of Attorney if I can’t attend the signing in person? A: Yes. A power of attorney allows a designated representative to sign on your behalf. For international buyers, this document may need to be apostilled if it’s executed outside Japan. Confirm requirements with your agent and the judicial scrivener well in advance.