Case Study

Master Lease Agreement

In Singapore, a multinational investment company (the “Multinational”) works closely with a local Japanese real estate firm (a “Local Firm”). The Multinational markets Japanese property to retail investors, who upon purchase are prompted to sign a Master Lease Agreement with the Local Firm.

Under Japanese tax legislation, corporate lessees are liable to a monthly withholding tax of 20.42% if the property owner is a non-resident foreigner. This discourages them from renting foreign owned property. As the Local Firm is also a corporate entity, they become the party liable to this tax instead of the corporate tenants. The foreign investors receive rental income less the withholding tax, which is refunded at the end of the financial year.

Foreigners appreciate the benefits of this tax avoidance scheme and readily sign up for the Local Firm’s services on that basis. However many investors do not examine the terms and conditions of the Master Lease Agreement, which contains provisions for the Local Firm to act as an exclusive agent. This means their involvement goes beyond tax avoidance and includes property management.

One of our clients from Singapore purchased a brand new condominium in Japan through the Multinational, who were marketing it on behalf of developer Mitsubishi. This client wanted Axios Management to represent and market his new property, but found to his dismay, the exclusive agent restriction in the Local Firm’s agreement.

As a result of this, the investor also compared the fees the Local Firm charged for acting as a tax agent and accountant. He found Axios Management to be significantly more competitive, to the extent that he felt misled by the Multinational. The client proceeded to terminate his Master Lease Agreement with the Local Firm and appointed Axios to manage all of its properties in Japan.

Foreign property owners rely heavily on their Japanese agents and advisors. With limited bargaining power, they are easy targets for financial misspelling. It is difficult to seek recourse from abroad, so it is crucial to work with trusted providers from the outset. Our competitive fees will help you maximize profits.

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