REALWorld Law

Construction

Japan

Japan

Legal framework
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The main laws governing and regulating contracts for design and construction works are as follows:
- Civil Code – This law stipulates general rules applying to any contracts, including design and construction contracts, and related arrangements between the parties;
- Building Standards Act (BSA) – This act stipulates land usage requirements and building standards; and
- Construction Business Act (CBA) – This act stipulates requirements for construction business operators.
Last modified 22 Mar 2024
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There are four major requirements that building or engineering contractors must comply with prior to any construction work:
- License for construction business – Companies engaging in construction business are required to obtain license from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) or the relevant prefectural government (if it has office(s) in such prefecture only) under the Construction Business Act;
- License for design works – Design works of buildings are required to be done by a licensed architect under the Act on Architects and Building Engineers. There are several types of licenses specified in the act, varying upon building size and purposes of the building;
- Construction permit (kenchiku-kakunin) – An owner of a building needs to submit to the local government an application for construction permit under the BSA. The owner is required to obtain construction permit prior to the commencement of any building works; and
- Development permit (kaihatsu-kyoka) – Aside from the construction permit, an owner is also required to obtain a development permit from the prefectural government under the City Planning Act (CPA) if certain building construction is to take place within certain districts as specified in the CPA.
Last modified 22 Mar 2024
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Under the Industrial Safety and Health Act (ISHA), employers are obligated to take measures necessary to prevent health hazards etc. at construction sites. The ISHA also applies to the use of the completed building.

Some examples of such health hazards are as follows:
1. health damage due to raw materials, gases, dusts, pathogens or insufficient oxygen in the air;
2. health damage due to radiation, high temperatures, low temperatures, ultrasonic waves, noises or vibration;
3. health damage due to operations such as gauge monitoring;
4. health damage due to waste fluid or solid wastes; or
5. danger relating to places where there is danger of employees falling down or of land collapse.
Other than the ISHA, employers also have to comply with multiple guidelines published by the government.

Last modified 22 Mar 2024
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The general legislations dealing with environmental issues and promoting sustainable development for building construction are as follows:
- Soil Contamination Countermeasures Act – Under this act, a person who intends to develop a land which is 3,000 square meters or more must submit a notification to the relevant local government at least 30 days prior to commencement of the land development. The land developer must conduct soil contamination investigation in the case where the relevant local government determines there is a danger that the land is contaminated.
- Air Pollution Act – This act requires construction companies to take measures necessary to prevent scattering asbestos or dust at construction sites;
- Noise Regulation Act – This act prohibits construction companies from carrying out certain noise-producing building works in certain areas specified in the act. Construction companies must also submit a notification to the relevant local government prior to any construction work using a large machinery, piling machine, etc.; and
- Vibration Regulation Act – This act prohibits construction companies from carrying out certain vibration-producing building works in certain areas specified in the act. Construction companies must also submit a notification to the relevant local government prior to any construction using a piling machine, etc.
Last modified 22 Mar 2024
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Utility suppliers (electric company, gas company, etc.) carry out utility infrastructure construction at the owner's expense.

Also, for water supply works, the owner must submit a notification to the relevant local government and order such works to a construction company designated by the relevant local government.

Last modified 22 Mar 2024
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There are statutory required terms and conditions which must be stipulated in contracts for construction works under the CBA. Such terms and conditions include:
1. the content of the construction work;
2. the contract price;
3. the commencement date and the completion date for the construction work;
4. the payment date and payment method for the contract price following completion of the construction work; and
5. method of settlement of dispute concerning the construction contract.
Regarding a design works contract, under the Act on Architects and Building Engineers, the architect's office is required to explain to the owner the following statutory mandated items in writing:
1. the type of design drawing (architectural drawing or structural drawing, etc.);
2. the name of the architect engaging in the design;
3. the amount of design fee and the payment date; and
4. matters relating to termination.
Last modified 22 Mar 2024
Forms of contract/procurement methods
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Yes. There are standard contract forms for private works prepared by a Japanese joint association of contractors etc. (‘Contractors Association’). Although the use of such forms is not mandatory, in most cases, these forms are, sometimes with several amendments, used by the parties when entering into a construction or engineering contract. For public works, there are also commonly used standard contract forms which are prepared by the MLIT. It is not common to use any international contract form for constructions in Japan.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The main parties involved in a construction contract are a building owner and a construction company. Designers and other professionals are sometimes retained directly by an owner and sometimes by a main construction company. In most large-scale constructions, sub-contractors and/or a construction joint venture is used. In the case of sub-contract, master-contractor is usually responsible for all of sub-contractors' work.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Risks borne by a contractor in a construction contract are usually in relation to failure to build, defective work or delay.

In general, a contractor that is unable to perform its obligations because of a force majeure event is not liable for consequences of such event so long as the contractor exercises due care of a good manager.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Yes. Public-private partnerships (PPPs) are a common form of collaboration between the government and the private sector for real estate developments. The Act on Promotion of Private Finance Initiative (PFI) was enacted in July, 1999 in order to realize the PPPs and to promote the development of public infrastructure by utilizing private funds.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Yes, it is possible to enter into a fixed price construction contract. In fact, fixed price construction contracts are quite common in Japan.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There is no specific construction insurance required by law. Under the standard construction contract form, a contractor is required to (i) purchase property insurance against damages to executed portion of the work and building equipment and materials at the construction site and (ii) notify the owner if the contractor purchases additional insurances.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

In private works, except for large-scale infrastructure constructions, construction bonds are not very common. In public works, the government authority often requires a contractor to secure a construction bond for default of payment by the contractor. It is not common that a surety would assume specific obligations of the contractor other than payment of moneys.

Last modified 22 Mar 2024
Implementing the contract
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Parties can freely decide on methods and terms of payments in a construction or design contract. In small and short-term projects, payments are commonly made at the completion of the construction work. In large and long-term projects, payments are commonly made at the completion of agreed stages of construction. In public works, certain percentage of the contract price is often paid to a contractor before starting the construction.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Yes. It is common to specify a completion date (subject to force majeure events) in construction contracts. Construction contracts normally set out a provision for dealing with delays, including liquidated damages as compensation or termination right.

Last modified 22 Mar 2024
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The standard construction contract form includes a provision to deal with variations to the works and specifies which party may request variations:
- Variation ordered by owner – Under the standard construction contract form, the owner has the right to request variations to the works, and the contractor is entitled to additional time and money accordingly; and
- Variation driven by contractor – Under the standard construction contract form, the contractor does not have the right to request variations to the works.
Last modified 22 Mar 2024
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Yes. The BSA requires owners to submit an application for completion inspection of the completed works to a designated inspection agency that will certify that the completed building and its premises abide by the relevant building regulations. These regulations cannot be overridden by agreement between the parties.

Last modified 22 Mar 2024
Liability
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The general limitation period for a party to bring a claim in the courts for breach of a contract is five years from when the claiming party recognizes the breach or ten years from the breach, whichever is earlier.

The limitation period for defect liability under the Civil Code is five years from when the claiming party recognizes the defect (breach) or ten years from the defect (breach), whichever is earlier. (In the standard construction contract form, except for certain types of defects in residential buildings for which the defect liability period is ten years from the delivery under the Housing Quality Assurance Act, (i) the defect liability period is two years from the delivery or (ii) as to interiors, furniture, or the like, the claiming party needs to do inspection after the delivery and to make a claim immediately after that, or if a defect cannot be found in such inspection, the defect liability period is one year from the delivery; provided, however, that if the defect has been caused by the contractor’s wilful misconduct or gross negligence, not these provisions but the Civil Code provisions apply.)

In addition, the claiming party is required to notify the contractor of the defect within one year from when the claiming party recognizes the defect; provided, however, that such notice is not required if the contractor knows the defect or does not know the defect with gross negligence. (In the standard construction contract form, this one-year notice requirement is excluded.)

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The contractor is liable to the owner (end-user) which is a party to the construction contract for any physical damage or economic loss suffered by the owner in accordance with the general defect liability rules. In addition, the owner may request the contractor to repair defect(s) of the building. Even though there is no contractual relationship between the contractor and the owner, tort liability of the contractor could be sought by the owner in some cases. Or, in some cases, subrogation by the owner could be an option.

Can such liability be excluded in any way?

In the case where the owner is an individual executing a contract not for business, the contractor’s liability for damages cannot be excluded totally by any agreement between the parties. In the case of structural defect(s) of a new residential building, defect liability of the contractor (and the seller) cannot be excluded by any agreement between the parties. Under the Product Liability Act, the manufacturer of a product is liable for damages caused by a defect even if there is no negligence on the part of the manufacturer. This act does not apply to real properties, but applies to building equipment etc.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

For sub-contractors, there is usually no contractual relationship with the owner (end-user). For an architect, designer or consultant, it depends on each case. Even though there is no contractual relationship between the contractor and the owner, tort liability of the contractor could be sought by the owner in some cases. Or, in some cases, subrogation by the owner could be an option.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Due to lack of contractual relationship with the contractor, third parties may not seek the contractor's contractual liability. Tort liability of the contractor could be sought by a third party in some cases. Or, in some cases, subrogation by a third party could be an option.

Last modified 22 Mar 2024
Dispute resolution
What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

There are no specific courts dealing with construction disputes. Construction disputes are dealt with by normal civil courts, therefore, decisions of the courts can be appealed.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

The Construction Works Dispute Settlement Board (CWDSB) was established under the BSA, which provides for settlement of construction disputes through mediation (assen), conciliation (chotei) or arbitration (chusai). In domestic deals, the CWDSB is often used, and in CWDSB about 30% is settled through arbitration. There is an arbitration agreement form to submit disputes to the CWDSB prepared by the Contractors Association.

Arbitration is more flexible in procedures than litigation through the courts and less time is required to obtain a resolution. In addition, arbitrators are usually experts in construction matters.

The CWDSB's arbitration is not very expensive because reward of arbitrators is not paid by the parties in the dispute.

Last modified 22 Mar 2024

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

As mentioned above, in addition to arbitration, mediation and conciliation are also available in CWDSB. Though the CWDSB was established under the BSA, use of ADR or the CWDSB is not mandatory.

Last modified 22 Mar 2024
Key contacts
Mitsuharu Kataoka
Partner DLA Piper Tokyo Partnership mitsuharu.kataoka@dlapiper.com T +81 3 4550 2936 View bio

Licences and permits

What official permissions, licences or consents are required by a building or engineering contractor before it can start work?

Japan

Japan

There are four major requirements that building or engineering contractors must comply with prior to any construction work:

License for construction business – Companies engaging in construction business are required to obtain license from the Ministry of Land, Infrastructure, Transport and Tourism (MLIT) or the relevant prefectural government (if it has office(s) in such prefecture only) under the Construction Business Act;
License for design works – Design works of buildings are required to be done by a licensed architect under the Act on Architects and Building Engineers. There are several types of licenses specified in the act, varying upon building size and purposes of the building;
Construction permit (kenchiku-kakunin) – An owner of a building needs to submit to the local government an application for construction permit under the BSA. The owner is required to obtain construction permit prior to the commencement of any building works; and
Development permit (kaihatsu-kyoka) – Aside from the construction permit, an owner is also required to obtain a development permit from the prefectural government under the City Planning Act (CPA) if certain building construction is to take place within certain districts as specified in the CPA.

Last modified 22 Mar 2024