Before You Know It, the Union Has Been Taken Over!? The Dark Side of “Legal Impersonation” and Massive Bid-Rigging Brought About by the Amendment to the Condominium Act

“Legal Takeovers” Brought About by Legislative Changes  

Major legal reforms regarding condominium management and operations took effect this spring, but experts are warning that these changes could be a “double-edged sword” for owners. There are concerns that management associations could be “taken over” without owners even realizing it.

While concerns have long existed regarding collusion among contractors and management companies during large-scale condominium renovations, as well as “impersonation” of association members, experts say that the recent legal changes have lowered the threshold for passing resolutions on rebuilding aging properties, making such problems more likely to occur than ever before.

Teruyuki Tsuchiya, a condominium management consultant at Sakura Office (Shibuya Ward, Tokyo), a real estate consulting firm, is sounding the alarm.

“The scale of money involved in repairs versus rebuilding is completely different. With the legal amendments, the decision-making of individual owners has become even more critical. Owners must clearly express their intentions within the management association.”

This is particularly true for older, small-scale condominiums in prime downtown locations, where the voting weight of a single unit carries greater significance.It is not uncommon for these units to be owned by expatriates or foreign investors who rent out their units, making it difficult to gather votes in favor of reconstruction in the past. However, with the legal revisions lowering the threshold, there is a risk that someone could “impersonate” an owner to vote in favor of reconstruction and steer the project toward a specific contractor.  

The Pitfalls Lurking Behind the Significant Relaxation of Resolution Rules  

The “Amended Condominium-Related Laws (Condominium Ownership Act)” came into effect this past April. According to the Ministry of Land, Infrastructure, Transport and Tourism (MLIT), the amendments were driven by the “two aging issues” of aging buildings and an aging resident population. Consequently, the “Standard Condominium Management Regulations,” which serve as a template for management regulations, were also revised.

The Ministry of Land, Infrastructure, Transport and Tourism (MLIT) views the “existence of disinterested unit owners hindering smooth decision-making” as a problem. Against the backdrop of an increasing number of condominiums unable to make important decisions, the requirements for general meeting resolutions have been significantly relaxed.

・Relaxation of requirements for special resolutions: For certain special resolutions, such as amendments to the management regulations, a “vote of at least three-quarters of the total number of members and three-quarters of the total voting rights” was previously required.Following the amendment, resolutions can now be passed with “the approval of at least three-quarters of the members present and their voting rights,” provided that “a majority of members are present.” It is no longer necessary to secure three-quarters of the total membership; decisions are now based on the members present at the general meeting.  

・Exclusion of Members with Unknown Addresses: In cases where an owner is elderly and has moved into a care facility, leaving their unit vacant, such members may now be excluded from the denominator for resolutions if the court so certifies.

Legal Disguise Through the Domestic Administrator System  

Another key point is the establishment of the “Domestic Administrator System.” When owners residing overseas fail to express their opinions at general meetings or fall behind on management fees, it hinders the operation of the association. Therefore, a system has been established allowing overseas residents to appoint a domestic administrator.

Opinions on rebuilding projects tend to be divided, and it is not easy to obtain the consent of overseas residents by explaining the necessity in detail. There is a dilemma in that the building continues to deteriorate during this time. The greatest concern is whether the appointed manager will faithfully explain the information to the owner and confirm their intentions.There is also a risk that the property manager might engage in “impersonation” to favor a specific contractor.

“We cannot rule out the possibility of ‘impersonation’ occurring to pass a resolution for rebuilding. The possibility has emerged that someone could become a property manager legally and then engage in impersonation.”

As Mr. Tsuchiya points out, while the new system is intended to assist homeowners’ associations, there is no denying the lack of transparency in its implementation.  

The increasingly sophisticated methods of “impersonation”  

Even in large-scale renovations, problems are arising where individuals affiliated with construction companies impersonate owners to infiltrate renovation committees and secure contracts. While there have been cases where such schemes were exposed by chance and became public, the true extent of the problem remains unknown. According to Mr. Tsuchiya, the following are examples of such incidents.  

・A large-scale tower condominium in Kanagawa Prefecture: An employee of an Osaka-based construction company impersonated an owner to join the renovation committee. He had a specific company draft specifications at a bargain price and engaged in arbitrary steering of the process. It has been suggested that he intended to win the contract by offering an unreasonably low bid and then inflate the total cost later under the guise of additional fees.

・A large-scale condominium in Chiba Prefecture: An Osaka-based construction company purchased a unit, and its president joined the repair committee. Because he put forward opinions that differed from those of other committee members, a member who felt something was amiss verified his identity, leading to the discovery of the fraud. The president was subsequently removed from the committee.

In small-scale properties, where residents know each other, such behavior is easier to detect, but in large-scale properties, the sheer number of owners makes it difficult to uncover. Moreover, when it comes to legal “impersonation” using the domestic property manager system, it is extremely difficult to detect.  

The greatest tragedy caused by residents’ indifference  

Collusion among contractors is also a serious issue. At a large-scale tower condominium in Tokyo, suspicions of collusion arose regarding the consultant hired to select the construction company for a major renovation. After dismissing this consultant and proceeding with a new representative, the project reportedly resulted in cost savings of over 100 million yen.

Mr. Tsuchiya lists the following checkpoints regarding the damage caused by impersonation and signs of collusion:

・Victims of impersonation: ① Prices 10–20% higher than market rates, ② Addition of unnecessary work, ③ Alteration of specifications to favor the contractor.

・Signs of bid-rigging: ① Quotations are uniformly similar, with companies in close competition; ② Specifications are limited to specific contractors or construction methods; ③ The content of proposed questions is unnaturally uniform; ④ The management company strongly recommends a specific contractor.

While the legal revisions are expected to streamline the management and operation of condominiums, individual owners are now required to exercise greater caution than ever before. We have entered an era where even those who have previously chosen not to attend general meetings can no longer afford to remain indifferent.