Explanation of the Risks of Loss, including the Risk of Loss of Principal and Losses Exceeding Principal, Concerning Real Estate Trust Beneficial Interests
In accordance with the Act on Provision of Financial Services, we are providing the following explanation of the risks associated with this product (Real Estate Trust Beneficial Interest). Please review and ensure you understand the following.
Price Fluctuation Risks, etc.
1. Risk of Loss of Principal and Losses Exceeding Principal Due to Fluctuations in the Real Estate Market, etc.
The principal (meaning the purchase price in this Sales and Purchase Agreement, and the same shall apply hereinafter) may decrease due to fluctuations in the real estate market, such as changes in real estate prices and rents. Furthermore, depending on fluctuations in the real estate market, the liabilities within the trust account may exceed the trust property (insolvency).
2. Risks Concerning Changes in Occupancy Status, Rent Levels, Interest Rates, and Expenses
Changes in the occupancy status (vacancy rate) of the trust real estate, fluctuations in rent levels (including those due to the surrounding market rates and causes specific to the real estate as trust property), interest rate fluctuations, and changes in the necessary expenses for the leasing/hotel business may lead to a decrease in trust income, a loss of principal, or the need for additional capital contributions.
3. Price Risk at the Time of Disposition of the Trust Real Estate
When disposing of the trust real estate, there is a possibility of a loss of principal or the need for additional capital contributions depending on the disposition price.
Risks Due to Changes in Creditworthiness, etc.
1. Risks Concerning Changes in the Creditworthiness of the Trustee
In the event of the Trustee's bankruptcy or similar circumstances, it is interpreted that as long as the perfection requirements, such as registration, are met, the trust property will not be subject to the bankruptcy estate, etc., and the Beneficiary may exercise the right of reclamation, due to the provisions of the Trust Act and the separateness of the trust property. However, if the trust property includes assets for which there is no method of public notification, such as cash, or for which public notification has been omitted by the trust agreement, risks may arise concerning their reclamation.
2. Matters Concerning Changes in the Creditworthiness of the Initial Settlor
Changes in the creditworthiness of the Initial Settlor may prevent the Initial Settlor from fulfilling its obligations under the trust agreement, which may result in a decrease in trust income, a loss of principal, or the need for additional capital contributions.
3. Risks Concerning Changes in the Creditworthiness of Tenants
Changes in the creditworthiness of the tenants of the trust real estate may lead to non-payment of rent, which may result in a decrease in trust income, a loss of principal, or the need for additional capital contributions for expenses such as rent collection due to the tenants' non-payment.
4. Risks Concerning Changes in the Creditworthiness of the Investment Destination of Monies within the Trust Property
Changes in the creditworthiness of the financial institution, etc., where monies included in the trust property are deposited (including the Trustee if the Trustee is managing the funds in its own bank account) may lead to a decrease in trust income, a loss of principal, or the need for additional capital contributions due to the failure or change of the financial institution, etc.
5. Risks Concerning Changes in the Creditworthiness of the Building Management Service Provider
The creditworthiness of the building management service provider for the trust real estate may lead to a decrease in trust income, a loss of principal, or the need for additional capital contributions due to the failure or change of the building management service provider.
6. Risks Concerning Changes in the Creditworthiness of the Design/Construction Company, etc.
If a non-conformity with the contract is discovered in the trust real estate, changes in the creditworthiness of the building's design/construction company, etc., as the party to which a claim for reimbursement would be made, may lead to a decrease in trust income, a loss of principal, or the need for additional capital contributions due to the failure or change of the design/construction company, etc.
Risks Arising from the Trust Structure and Other Factors
1. Risk of Loss of Principal and Losses Exceeding Principal Borne as a Beneficiary
A Beneficiary is a person who enjoys the benefits of the trust; however, the Beneficiary will ultimately bear the trust expenses, such as taxes related to the trust property incurred by the Trustee in the course of processing trust affairs, the Trustee's fees, and compensation costs in the event a third party suffers damages due to a defect in the trust property.
Furthermore, the Trustee may receive payment from the trust property or demand compensation from the Beneficiary for damages incurred in connection with the performance of trust affairs. For this reason, if payment is made from the trust property or a demand is made to the Beneficiary, the Beneficiary's income, etc., may incur a loss.
In either case, the Beneficiary shall also be responsible for any debts remaining after they exceed the value of the trust property.
2. Regarding Trust Distributions and Delivery of Trust Principal
Trust distributions and the delivery of the trust principal shall be made in the manner stipulated in the trust agreement. Additionally, regarding the delivery of the trust principal, there is a possibility that the trust property will be delivered in its current state, etc., without being converted to cash. The Trustee does not promise fixed trust distributions or the delivery of the trust principal.
3. Liquidity Risk of the Beneficial Interest
When disposing of the trust real estate through the Trustee, there is a liquidity risk as it is real estate. Furthermore, if you intend to transfer this Trust Beneficial Interest, the consent of the Trustee is required under the trust agreement.
4. Risk of Debt Assumption
In managing and operating the trust property, the Trustee may incur debts such as taxes and other public charges. If these debts remain at the termination of the trust, the trust property at termination and the Beneficiary will be liable for them to the Trustee.
5. Risk of Tax System Changes
Changes to the tax system applicable to the trust real estate (such as property tax and city planning tax) may lead to a decrease in trust income, a loss of principal, or the need for additional capital contributions due to tax increases, etc.
6. Risks Concerning the Destruction, Damage, or Deterioration of the Trust Real Estate
The destruction, damage, or deterioration of the trust real estate may lead to a decrease in trust income, a loss of principal or losses exceeding principal, or the need for additional capital contributions for reconstruction or repair costs due to such destruction, damage, or deterioration.
Please note that buildings are also subject to deterioration over time (equivalent to depreciation under tax law).
7. Risks Concerning Defects in the Trust Real Estate
Defects in the trust real estate may lead to a decrease in trust income, a loss of principal or losses exceeding principal, or the need for additional capital contributions for repair costs of such defects.
8. Disaster Risks such as Earthquakes and Environmental Risks such as Soil Contamination Concerning the Trust Real Estate
If all or part of the trust real estate is destroyed, damaged, or deteriorates due to a disaster such as an earthquake, or if defects such as soil contamination are found, it may lead to a decrease in trust income, a loss of principal or losses exceeding principal, or the need for additional capital contributions.
9. Risks Associated with Changes in Laws and Regulations
The building(s) among the trust real estate have been constructed in accordance with the regulations of the Building Standards Act; however, due to amendments to said Act or changes to various other laws, ordinances, and regulations applicable to buildings, it may become impossible to construct the same building as at the time of its original construction. In addition, changes to laws and regulations applicable to the trust real estate may cause a decrease in the asset value and transfer value of the trust real estate.
10. Risk in the Event of the Bankruptcy of the Initial Settlor (Seller)
If bankruptcy proceedings, civil rehabilitation proceedings, corporate reorganization proceedings, or other insolvency proceedings are commenced against the Initial Settlor or the Seller, the transfer of this Trust Beneficial Interest may be deemed as the creation of a security interest and be subject to the restrictions of the insolvency proceedings, or even after this Trust Beneficial Interest has been transferred to the buyer, this Sales and Purchase Agreement may be rescinded due to the exercise of the right to avoid fraudulent acts, etc., which may cause damages to the Beneficiary.
11. Risk of Loss of Principal and Losses Exceeding Principal Due to Improper Acts by the Trustee (Breach of Trust)
If the Trustee disposes of the trust real estate in violation of the trust agreement, or incurs debt using the trust real estate as collateral, the Beneficiary may suffer unexpected damages.