The Act on Specified Joint Real Estate Ventures

What Is Specified Joint Real Estate Ventures Act ?

The law concerning Specified Joint Real Estate Ventures (the FTK Act) was enacted in April 1995 with the aim of soundly developing specified joint real estate ventures and the protection of participants.
The FTK Law imposes strict conditions on real estate operators engaged in FTK business in terms of operational details, etc. Only business operators that meet the “FTK Permission Requirements” are allowed to sell small-lot products. Business operators prepare an annual business report and submit it to the Minister of Land, Infrastructure, Transport and Tourism or prefectural governor, who is the licensee, for checking.

Overview of the Act on Specified Joint Real Estate Ventures (the FTK Act)

The FTK Act is structured to protect participants by regulating such businesses, covering contracts in which participants make contributions, etc., and professionals such as real estate companies manage and distribute income from such real estates.
The structure of the “FTK Act” consists of 1. Definitions, 2. Permission System, 3. Operational Regulations, 4. Supervisory Regulations, and 5. Penal Regulations.

1．Definitions

In order to clarify the responsibilities of business operators and protect participants, the FTK Act requires business operators to meet certain disqualification and licensing criteria. The main licensing requirements include criteria such as capital, real estate brokerage license, exclusion of persons who violate laws and regulations, assignment of a business operator, establishment of general terms and conditions, and appropriate financial basis and personnel structure for conducting business. As for trust companies, if they have filed a notification under Article 77, Paragraph 3 of the Real Estate Brokerage Act, they are considered to be a Specified Joint Real Estate Venture under a special exemption of the FTK Act.

2．Permission System

Two types of Specified Joint Real Estate Venture subject to the “FTK Act”, are defined as, “acts of distributing profits, etc. from real estate transactions conducted under a Specified Joint Real Estate Venture Agreement” and “acts of acting as an agent or intermediary for the conclusion of a Specified Joint Real Estate Venture Agreement”.In connection with these definitions, the terms “Specified Joint Real Estate Venture Contract”, “Real Estate” and “Real Estate Transaction” are defined.

3．Operational Regulations

The FTK Act establishes regulations on transparency of information and conduct to protect participants. The main regulations are listed as follows.

Transparency of information includes the delivery of pre-contract documents (Article 24), the delivery of documents upon conclusion of a contract (Article 25), the delivery of a report on the management of contracts and property under the terms and conditions (Article 28, Paragraphs 2 and 3), the establishment of documents describing the status of business and property, and the preparation of a business participant list (Article 30).

Act regulations include prohibition of name lending (Article 15), regulation of advertising (Article 18), restriction on the start of business (Article 19), and prohibition of unfair solicitation (Article 20), prohibition of re-solicitation (Article 21), prohibition of loss compensation, etc. (Article 21-2), principle of suitability, etc. 2) ・Prohibition of lending money or intermediation (Article 22) ・Cancellation of contract in written form (Article 26) ・Separate management of property (Article 27) ・Confidentiality Information (Article 31) of the Non-specified Law), etc.

*A bank, a trust company, an insurance company, a Specified Joint Real Estate Venture, a licensed real estate broker, a registered investment company, a special purpose company, and such company with a capital of 500 million or more are considered to be entities with specialized knowledge and experience related to investment in real estate. When conducting a specified joint real estate business with such entities as described above (hereinafter referred to as “specified investors”) as counterparties or business participants, the above-mentioned provisions are exempted (Article 46-2 and Article 31-1, FTK Act). Furthermore, the regulatory content is also set forth in the content standards of the General Terms and Conditions [some of the standards are not applicable to specified investors (Article 8 of FTK Act)].

4．Supervisory Regulations

Under the FTK Act, either the Prime Minister (entrusted to the Commissioner of the Financial Services Agency), the Minister of Land, Infrastructure, Transport and Tourism (in charge), and each prefectural governor are responsible for supervision, depending on the status of the establishment of the office and the content of the contractual provisions.
Major regulations pertaining to supervision include the submission of a business report to the competent minister, etc. for each business year, as well as other regulations such as instructions, orders to suspend business, orders to dismiss business managers, revocation of permits, guidance, on-site inspections, and other supervisory actions by the competent minister, etc. as needed.

5．Penalty

For example, the implementation of an unlicensed specified joint real estate venture is subject to severe penalties, including imprisonment for up to three years, a fine of up to 3 million yen, or both.
The above regulations protect participants and maintain a healthy market development.

See "Act on Specified Joint Real Estate Ventures"（Act No. 77 of June 29, 1994）for more details.