No Right to Demand Purchase of a Co-ownership Share in a Building on Leased Land: Supreme Court Judgment of August 28, 2026, and What to Do Before Buying or Selling Such a Share

INSIGHTS｜CASE LAW UPDATE

Akira Kaneko, Attorney at Law (Kaneko Law Office)

Introduction

It is not unusual in Japan, particularly for small and medium-sized businesses, for a company’s head office, a shop or a founder’s home to stand on leased land. When the owner of such a building dies, the building often passes to several heirs in co-ownership, and some of them may then sell only their own shares to a third party. Businesses that specialize in buying co-ownership shares have also become more visible in recent years.

When a building on leased land is transferred to a third party, the leasehold (the lease of the land) is transferred together with the building. An assignment of a lease requires the landowner’s consent (Civil Code, Article 612, paragraph 1). Where the landowner refuses consent, the transferee of the building is protected by the right to demand purchase of the building under Article 14 of the Act on Land and Building Leases. However, until now the Supreme Court had not ruled on whether this right is also available where what was transferred is not the whole building but a co-ownership share in it.

This article explains the Supreme Court judgment of August 28, 2026 (Second Petty Bench, Case No. 2024 (Ju) No. 2169, a claim for payment of a building purchase price), the first Supreme Court decision on this issue, and summarizes the practical points to consider when buying or selling a share in a building on leased land.

1. Facts of the Case

The facts found in the judgment are summarized below.

Date	Event
July 1990	The landowner (the respondent) leased part of its land (the “Land”) to A for the purpose of owning a building, for a term of 30 years from October 1989.
―	A built a condominium-type building (a building under sectional ownership) on the Land and owned one of its exclusively owned units (the “Unit”).
August 2018	A died. A’s four children each inherited a one-quarter share in the Unit.
October 2019	The lease was renewed for a term of 30 years.
February 2021	The appellant purchased the shares of three of the children, totaling three-quarters (the “Shares”).
November 2021	The appellant, asserting that the landowner did not consent to the assignment of the corresponding share in the lease, gave notice that it was exercising the right to demand purchase of the building with respect to the Shares.

The appellant claimed from the landowner an amount equal to the market value of the Shares plus late-payment damages. The court below (Tokyo High Court, judgment of August 1, 2024) dismissed the claim, and the appellant filed a petition for acceptance of final appeal.

The appellant argued that, since the central purpose of the right to demand purchase of a building is to allow recovery of invested capital, the right should also arise where a share in a building is transferred.

2. Background: Rules on Transferring a Building on Leased Land

To understand the judgment, it is helpful first to outline the rules that apply when a building on leased land is transferred.

1. Landowner’s consent (Civil Code, Article 612): Because the leasehold passes to the transferee together with the building, the landowner’s consent is required. A transfer without consent generally cannot be asserted against the landowner and may also give grounds for termination of the lease.
2. Court permission in lieu of consent (Act on Land and Building Leases, Article 19): If the landowner refuses consent, the leaseholder may ask the court to grant permission in lieu of the landowner’s consent. Under the wording of the statute, this application is made “where the leaseholder intends to transfer” the building to a third party, and “upon the application of the leaseholder.” When granting permission, the court usually orders a payment corresponding to a consent fee, and the landowner may itself apply to purchase the building and the leasehold (the so-called right of intervention; Article 19, paragraph 3).
3. Right to demand purchase of the building (Article 14): If a third party acquires the building without either consent or permission, the third party may demand that the landowner purchase the building at market value. A characteristic feature of this right is that a contract of sale is formed by the demand itself, regardless of the landowner’s wishes.
4. Auctions and public sales (Article 20): If a third party acquires a building on leased land through a compulsory auction or a public sale, the acquirer itself may apply for permission in lieu of consent. However, the application must be made within two months after payment of the purchase price (Article 20, paragraph 3).

In short, in an ordinary sale, the application for permission is a procedure that the seller (the leaseholder) takes before the transfer, and the only remedy available to the buyer after the fact is the right to demand purchase of the building. The question in this case was whether that last resort is also available to the buyer of a share.

3. The Supreme Court’s Decision

The Supreme Court dismissed the appeal, holding as follows.

(1) Purpose of the right to demand purchase

The Court first held that the right to demand purchase of a building is intended to allow a transferee who cannot obtain consent to recover its invested capital and to preserve buildings that have social and economic utility. It then pointed out that, where the whole building is purchased, the landowner acquires ownership of the building and can either transfer the building and grant a new leasehold, or demolish the building and put the land to a new use.

(2) Risk of serious disadvantage to the landowner in the case of a share

By contrast, if the right were recognized for a share, the landowner would generally be drawn into co-ownership of the building. As a result, the landowner would be forced, against its will, to pay the market value of the share, yet could not freely dispose of the building and could only use the building and receive income from it while coordinating with the other co-owners. The Court held that, compared with the purchase of the whole building, the landowner could “suffer serious disadvantage.”

(3) Little need to recognize the right

The Court further held that, because “the recovery of capital invested in a share in a building can be achieved by bringing a claim for partition of co-owned property,” there is little need to recognize the right compared with a transfer of the whole building.

(4) Conclusion

On this basis, the Court held that “it is reasonable to interpret that the right to demand purchase of a building does not arise with respect to a share in a building standing on land that is the subject of a lease.” It added that this “does not differ even where the subject of the transfer is a share in an exclusively owned unit of a building under sectional ownership.”

4. The Concurring Opinion

The judgment is accompanied by a concurring opinion of Justice Akira Ojima, the presiding justice. Two points are of particular practical importance.

(1) Relationship with permission under Article 19

The appellant had argued that it is settled practice to interpret “a building on the land” in Article 19, paragraph 1 as including a share in a building, and that it would be inconsistent to interpret the same words in Article 14 as excluding a share.

The concurring opinion responded that Article 19, under which the court grants permission after considering all circumstances where a leaseholder intends to transfer a building, and Article 14, under which a contract of sale is formed regardless of the landowner’s wishes where a third party has acquired a building without consent, “differ greatly in both the situations to which they apply and their effects.” Interpreting the two provisions differently is therefore not unnatural or unreasonable.

The concurring opinion does not reject the practice of interpreting Article 19 as covering shares. Rather, it proceeds on the basis of the difference between the two provisions. What can be drawn from this is the following approach: for the transfer of a share, the proper route is permission under Article 19, sought before the transfer, and a person who acquires a share without going through that procedure will not be rescued by Article 14.

(2) Scope of the holding: “in any case whatsoever”

Part of the appellant’s argument could be read as questioning whether, where a building was originally co-owned by the landowner and another person, the landowner would suffer any disadvantage from being drawn into co-ownership, since buying the other share would simply make the landowner the sole owner of the whole building.

The concurring opinion stated that the majority opinion “is premised on the determination that, generally, that is, in any case whatsoever, the right to demand purchase of a building does not arise,” and expressed the view that the right does not arise even where the landowner would suffer no disadvantage from being drawn into co-ownership. As reasons, it noted that even in such a case, the burden of paying a purchase price not based on one’s own will falls only on the landowner, while both the landowner and the third party have access to a flexible means of adjustment in the form of partition of co-owned property, including partition by full compensation in money.

5. What Remains for the Buyer of a Share

As a result of this judgment, the position of a person who has bought a share in a building on leased land without the landowner’s consent or court permission has become considerably more difficult.

(1) Obtaining permission under Article 19 after the fact is difficult

Under the wording of the statute, permission under Article 19 is granted “upon the application of the leaseholder” “where the leaseholder intends to transfer” the building. Accordingly, a buyer who has already acquired a share generally cannot expect to secure its position by obtaining permission under Article 19 on its own initiative.

(2) Claim for partition of co-owned property

The means of recovering invested capital identified by the Supreme Court is a claim for partition of co-owned property. Following the 2021 amendments to the Civil Code, the methods of judicial partition now expressly include ordering a co-owner to assume a debt and acquire the shares of the other co-owners (so-called partition by full compensation in money; Civil Code, Article 258, paragraph 2, item 2).

However, a partition claim is brought against the other co-owners, not against the landowner. If no co-owner wishes to acquire the building, the court may order the building to be sold at auction (Article 258, paragraph 3), and valuing a building on leased land involves the added uncertainty of what will happen to the leasehold. For the buyer, partition is not as certain a remedy as the right to demand purchase of the building.

6. Practical Steps by Position

(1) Co-owners who wish to sell a share in a building on leased land

• As a rule, obtain the landowner’s consent before selling. If consent cannot be obtained, you must apply for permission under Article 19 before the transfer.
• The sale agreement should make obtaining the landowner’s consent or the court’s permission a condition of closing (the transfer of ownership) and should include a termination clause in case the condition is not fulfilled.
• In Article 19 proceedings, the landowner may apply to purchase the building and the leasehold itself. In that case, the sale to your buyer will not go ahead, and you should plan for that possibility.

(2) Businesses buying a share in a building on leased land

• Before signing the agreement, confirm whether the landowner has given written consent or whether permission under Article 19 has been granted. Closing without consent or permission carries the risk of acquiring a share that cannot be asserted against the landowner and has no exit through a purchase demand.
• Investment decisions premised on “ultimately making the landowner buy it” are no longer viable after this judgment. Where recovery through partition is contemplated, the time, cost and valuation uncertainty involved must also be taken into account.

(3) Landowners (companies and individuals leasing land)

• Following this judgment, you are not required to comply with a demand by the buyer of a share to purchase the building.
• On the other hand, if the seller (the leaseholder) applies for permission under Article 19, you may contest whether permission should be granted and the amount of the consent fee, and you may also consider exercising the right of intervention.

7. Conclusion

This judgment makes clear that the right to demand purchase of a building does not arise with respect to a share in a building on leased land, and the concurring opinion indicates that this conclusion applies generally. As a result, in transactions involving shares in buildings on leased land, the after-the-fact route of “acquire without consent and, if refused, make the landowner buy” is no longer available.

Whether you are selling or buying a share in a building on leased land, it is essential to obtain the landowner’s consent, or to apply for permission under Article 19, before the transfer takes place.

This article provides general information based on laws, case law and published materials as of October 11, 2026, and does not constitute legal advice on any specific matter. The quotations from the judgment are the author’s translations of the original Japanese text.