Unless stated in the contract, it is unlikely that you will have to pay a cancellation penalty. Any action that is not specified in the contract cannot be taken or enforced. In the case of cancellation of the contract, however, you will generally need to notify the real estate agent one month prior to the cancellation.
Even if the unit is actually vacated tomorrow (and returned to its original state), you will have to pay the rent for another month after making notification of cancellation. Some contracts include a clause stating that "rent will not be calculated on a pro rata basis at the time of the cancellation of the contract" and you may have to pay the rent until the end of the following month.
What is a "cancellation penalty"?
A cancellation penalty is a fee you pay when vacating the premises.
If a tenant abruptly decides to move out after three months, despite an original contract term of two years, it causes problems for the real estate agent. In the strictest of terms, however, it is illegal to charge a cancellation penalty. Still, some real estate agents may request that you to pay a penalty even if it is not stated in the contract. Although the amount varies, one half to one month's rent is said to be the average.
According to the Building Lots and Buildings Transaction Business Law, any actions that are disadvantageous to tenants are invalid. In that sense, cancellation penalties may be practically non-existent, but it also depends on local practices. In some regions, penalties for mid-term cancellation will be automatically deducted from the security deposit. This may be particularly common in rural areas, although it is very unlikely in Tokyo.
For that reason, it is difficult to give a clear explanation about cancellation penalties. Still, whatever the case may be, it is important to ask about it when signing the contract. If the penalties seem to be too high, it is important to negotiate.
Incidentally, "cancelable earnest money" is a kind of deposit to be paid at the time of "signing" a contract.
The deposit is money paid before signing the contract (for example, to secure the property) and will be used as part of the contract fee.
If the buyer decides not to conclude the contract after making a deposit, there will be a loss caused to the real estate agent for securing the property. In order to cover that loss, the cancelable earnest money will be kept by the real estate agent, allowing the buyer to cancel the contract. On the contrary, if the owner wants to cancel the contract, it is possible to do so by paying twice the amount of the deposit to the buyer.
However, this is only in the case of property sales. In the case of rental properties, what you are paying to secure the property is most likely treated as an "application fee" or a "temporary deposit for application," as the amount of contract fee is rather small. Since it is not a deposit, the whole amount will be refunded.
In addition, although many ads recently claim to offer "no deposit," there are often cases where you have to pay "guarantee money" separately. Care must be taken as guarantee money is not refundable.
The contents of contracts vary widely depending upon the property owner and the real estate agent, so you should find a contract plan that suits you the best.
