Leopalace21 had little respect for law, ignored safety in name of profit

The Yomiuri ShimbunImproving business performance was given priority over the safety of tenants. The company’s lack of respect for the law is just mind-boggling.

An outside investigative committee has made public its final report in connection with the shoddy workmanship in the construction of apartment buildings by major rental accommodation operator Leopalace21 Corp.

The report deemed problematic the autocratic management system run by Yusuke Miyama, the founder and former president of the company. It was at the instruction of the founder, the report said, that the company started using, in external walls and internal partitions, parts and components that failed to meet standards for sound insulation and fire resistance required by the law.

The founder overcame the company’s financial difficulties in the period following the burst of the economic bubble through “sublease” agreements in which Leopalace takes on the construction of apartment buildings from landowners, and then leases out all the apartments. The defective properties were constructed in this period, which overlapped with a period of rapid growth by the company.

It is undeniable that there was a corporate climate to increase the number of properties Leopalace manages, even if that meant overlooking quality.

When it filed applications for confirmation of construction with local governments and other entities, Leopalace made false entries indicating the installation of partitions in ceiling cavities even though the company had no plans to do so. It is quite reasonable for the report to harshly criticize Leopalace, saying, “In a way, the company defrauded local entities out of notices of verification of building construction.”

Help tenants swiftly

Even after complaints were brought against the company by some apartment owners, Leopalace failed to respond promptly, for example by implementing such measures as involving the whole company in inspections. “The lack of respect for the law and the low level of risk sensitivity,” as the report has pointed out, apply to the current management of the company, too.

Leopalace President Eisei Miyama, a nephew of the founder, has resigned to take responsibility. Most of the inside directors will be replaced. The number of outside directors will be increased by two, while the company will establish a division for regulatory compliance. Yet it is no easy task for the company to drastically alter its corporate mindset of belittling safety.

An increasing number of tasks must also be performed to deal with the defective properties.

Of the about 39,000 apartment buildings the company manages across the country, the number confirmed to have defects exceeded 15,600 as of the end of April, and inspections are yet to be completed at many other properties. The Land, Infrastructure, Transport and Tourism Ministry instructed Leopalace to finish repairing defects by October, but it remains uncertain whether the company can do so.

The company has also lagged behind in its dealing with those tenants who need to move out for repairs, about 14,000 people in all. As of the end of April, the schedule for changing residences had not been fixed for about 9,000 tenants. Measures should be implemented expeditiously, first ensuring the safety of tenants.

Concerns have also spread among apartment owners. Sufficient explanation and repairs will be required.

As it added up the repair expenses, Leopalace posted a ¥68.6 billion deficit in its consolidated net profit for the account settlement term ending in March. The occupancy rate of its apartments has also declined.

To recover the tarnished image of its brand, there is no other way but for the company to make efforts steadfastly to prevent similar things from occurring again.

(From The Yomiuri Shimbun, June 4, 2019)Speech


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