In the acquisition of a hotel or ryokan, how many days pass between the letter of intent and the day you welcome guests under your own name? The answer is determined not by price or by the depth of due diligence, but almost entirely by which deal structure you use. There are three broad ways to buy: purchase the shares of the operating company, take over the business as a going concern, or buy only the real estate and have yourself or another operator run it. Across these three, the treatment of the hotel business license changes — and with it the closing date, the number of days the property cannot operate, and first-year NOI.

On December 13, 2023, the amended Hotel Business Act (旅館業法) came into force, allowing the status of the license holder to be succeeded even in a business transfer. Before that, the transferor had to file a notice of business closure and the transferee had to obtain a new license, which structurally created a period in which the property could not operate. This article confirms that regulatory change against primary sources, converts the cost of each day of suspended operation into yen using a 40-room model, and then sets out — article by article — the practical pitfall that even when the hotel business license can be succeeded, some ancillary permits cannot.

Three ways to buy, three different treatments of the operating license

Operating a hotel business in Japan requires a license from the prefectural governor (or, in cities with their own public health centers and in Tokyo’s special wards, from the mayor or ward head) (Hotel Business Act, Article 3, Paragraph 1). This license is granted not to the property but to the operator. The procedure therefore branches depending on whether the operator changes.

In a share transfer, the corporation that is the operator does not change. Only the shareholders are replaced, so the license does not move. In a business transfer, the operator changes from the transferor to the transferee, so a succession procedure is needed. When only the real estate is bought and the buyer or an operator it appoints runs the business, a new operator appears, so in principle a new license is required.

Reading the table across reveals the structure of the trade-off. A share transfer does not stop operations for a single day, but takes on off-balance-sheet liabilities wholesale. A real estate acquisition is the furthest removed from off-balance-sheet liabilities, but because the license must be obtained again, a period without operation arises. A business transfer sits in between, and the December 2023 amendment made “keep operating while limiting the scope of succession” a realistic option. That is the starting point of this article.

December 13, 2023: an “approval” route opens for business transfers

Before the amendment, the party taking over a property through a business transfer had to obtain a new license. The transferor filed a notice of closure and the transferee obtained a new license. Between those two procedures there was a period in which nobody was the operator. If the transfer date could not be moved, those days became days of suspended operation.

The order of the wording is the practical point. Because the Act says “where approval has been obtained, the transferee succeeds”, approval must be in hand before the transfer takes effect. Kagoshima City also states explicitly that “an application for succession approval must be filed and approval obtained before the business transfer takes effect.” In other words, the closing date is subordinate not to the parties’ convenience but to the date the public health center finishes its review. A deal that has not worked backward from this is left with two choices: push the settlement date back, or execute the transfer before approval and fall back to a new license.

The items to be stated in the application and the documents to be attached are set out in the Enforcement Regulations: the addresses and names of the transferee and transferor (for a corporation, its name, office location and representative’s name), the scheduled date of transfer, the name and location of the facility, and whether any disqualification ground applies, together with a document evidencing the transfer of the hotel business and, if the transferee is a corporation, a copy of its articles of incorporation or act of endowment (Enforcement Regulations of the Hotel Business Act, Article 1-3). The fact that the form asks for the “scheduled date of transfer” also shows that prior application is assumed.

After succession, the authorities follow up. The supplementary provisions of the amending act require that, for the time being, the governor (or equivalent) inspect business conditions at least once before six months have passed from the date the status was succeeded. Buyers are safest launching operations on the assumption that an on-site inspection will take place within six months of closing.

Three types of succession — transfer, merger/split, and inheritance

The succession provisions of the Hotel Business Act fall into three types. The one created in December 2023 is business transfer (Art. 3-2); merger/company split (Art. 3-3) and inheritance (Art. 3-4) existed before. Note that all three are “approvals”, not “notifications”. MHLW likewise explains that for business transfers, “it has become possible to succeed to the status of the operator through an approval procedure, as in the case of mergers, company splits and inheritance.”

Only inheritance is applied for after the fact, and it comes with a deemed-license provision during the application, because it is designed so that a sudden inheritance does not halt operations. Put the other way, business transfers and mergers/splits have no deemed-license safety net. If the transaction is executed before approval, the succession route closes at that moment.

Succession approval does not re-examine structure and equipment — reading the text

The scope of what applies under Article 3-2, Paragraph 2 matters a great deal in practice. What applies is Article 3, Paragraph 2 “limited to the part concerning the applicant” — that is, the transferee’s own disqualification grounds (mental or physical impairment, commencement of bankruptcy proceedings, certain criminal sentences, years elapsed since revocation of a license, membership of organized crime groups, disqualification of officers, and so on) — plus Paragraphs 3 to 6 (environmental requirements within roughly 100 meters of school grounds and similar sites, consultation with relevant agencies, notice of refusal with reasons, and attachment of conditions).

The part of Article 3, Paragraph 2 that reads “when it is found that the structure and equipment of the facility do not conform to the standards specified by Cabinet Order” is not a part concerning the applicant, so on the wording of the Act it can be read as outside the scope of the succession approval review. This is decisive for a buyer taking over an older ryokan. A new license requires fresh proof of compliance with the current Cabinet Order standards and fire codes, and if any part is non-conforming, capital expenditure comes first. With succession, the existing license simply continues, so that investment drops out of the conditions precedent to closing and the buyer can choose its timing.

The hot spring use permit has no provision for succession through a business transfer

Now that the hotel business license can be succeeded in a business transfer, the practical bottleneck has moved to other permits. The one with the greatest impact is the hot spring use permit.

Offering hot spring water for public bathing or drinking requires a permit from the prefectural governor (Hot Springs Act, Article 15, Paragraph 1). There are only two succession provisions for this permit: corporate merger/split (Art. 16) and inheritance (Art. 17). The Hot Springs Act contains no provision for succession through a business transfer. This means that when an onsen ryokan is taken over by business transfer, the hotel business license can be succeeded, but the transferee can be read as needing to obtain a new hot spring use permit.

Consider the scale. According to the Ministry of the Environment’s “Hot Spring Use Status, FY2024” (as of end-March 2025), Japan has 13,425 lodging facilities using hot springs, with a total capacity of 1,324,805 guests. There are 2,839 hot spring areas and 27,899 hot spring sources in total. Given that 52,946 facilities hold hotel/ryokan business licenses (MHLW “Report on Public Health Administration and Services, FY2024”), properties with hot springs form the core of the lodging market. Since many succession deals fall into this group, building a schedule around the hotel business license alone is risky.

By contrast, the restaurant business license is the most lenient. Article 56 of the Food Sanitation Act provides that when a licensed business operator transfers its business, or in the case of inheritance, merger or split, the transferee or successor succeeds to the status of the licensed operator, and the successor need only notify the governor without delay, attaching a document evidencing the fact. It is a notification after the fact, not prior approval, so there is no approval to wait for. Even under the same heading of “succession of a business license”, the design philosophy differs completely from one statute to the next.

The adult entertainment business license is close to the Hot Springs Act. The succession provisions of the Act on Control and Improvement of Amusement Business, etc. (風営法) cover inheritance (Art. 7), corporate merger (Art. 7-2) and corporate split (Art. 7-3), all requiring approval from the Public Safety Commission. There is no provision for succession through a business transfer. For properties that run an in-house bar or snack bar and operate a late-night alcohol-serving restaurant business or a specified entertainment restaurant business, this becomes a separate issue.

Checklist: can ancillary permits be succeeded?

Using this table is simple. If a deal lines up “succeedable” in every row, a business transfer lets you control the closing date. If even one “no provision” is mixed in, the date on which that permit is newly obtained becomes the critical path. For an onsen ryokan with a snack bar, the overall rate-limiting step is not the hotel business license (approval in 20–23 days) but the timetable for obtaining the hot spring use permit and the adult entertainment business license.

What does a day of shutdown cost? A 40-room model at an estimated settled ADR of ¥15,000

Here we translate the procedural differences into yen. The assumptions are kept simple: 40 rooms, an estimated settled ADR of ¥15,000, 70% occupancy (an assumed full-year average), a variable cost ratio of 30%, and annual fixed costs of ¥70 million. Variable costs are those incurred only when a room is sold — cleaning, linen, amenities, booking commissions, variable utilities and the like. Fixed costs are those that continue even when operations stop — core payroll, maintenance, insurance, taxes and public charges.

What is lost on a day of shutdown is not revenue but contribution margin, because fixed costs do not stop. Daily room revenue is 40 rooms × 70% × ¥15,000 = ¥420,000, of which the contribution margin after variable costs is ¥294,000. That is the loss per day of shutdown.

A 30-day shutdown cuts first-year NOI by 23.6%, and a 60-day shutdown by 47.3%. If the acquisition price is set at 10 times first-year NOI (a 10% yield), a 60-day shutdown is equivalent to 4.7% of the price. An amount of the same order as the brokerage commission moves on nothing more than the order of procedures. For the level of other costs that pile up at acquisition, Hotel Acquisition Costs 7.1%: A 6.5% Gross Yield Becomes 4.65% Net breaks down the components. This estimate excludes ancillary revenue such as meals, banquets and shop sales, so for a ryokan where half-board (dinner and breakfast) is standard, the actual loss will be higher.

Varying the occupancy assumption

70% occupancy assumes a property in good condition of the kind that comes to market as a succession deal. In the Japan Tourism Agency’s “Overnight Travel Statistics Survey”, the 2025 full-year figures (preliminary) put ryokan room occupancy at 38.4% (all types 61.8%, business hotels 75.3%, city hotels 74.2%, resort hotels 56.9%), so the average for the category is considerably lower. The sensitivity to the assumption is as follows.

The same 60 days can cost 1.4 times more depending on when they fall

So far the year has been averaged out. In reality, losses swing widely depending on whether the shutdown falls in peak or off-peak season. Below is the monthly trend in estimated settled ADR for the ryokan category in Nagano Prefecture, a major concentration of ryokan.

Over the most recent 24 months, the high was ¥15,900 in December 2025 and the low ¥11,500 in March 2025 — a ratio of 1.39 times. Seasonal differences in occupancy amplify this further, so if a shutdown overlaps with the year-end holidays or the autumn foliage season, losses should be expected to exceed the average-based estimate by a wide margin. Conversely, in deals where a delay in obtaining approval cannot be avoided, there is a hard-money case for negotiating to move the transfer date into the off-season.

ADR level at the time of shutdown × days of shutdown: losses range from ¥13.49M to ¥18.71M

Holding occupancy at 70% and replacing the ADR level during the shutdown with measured monthly figures for the Nagano Prefecture ryokan category, the lost contribution margin for the same 60 days ranges from ¥13.49 million to ¥18.71 million. Negotiating the number of shutdown days and negotiating the timing of the shutdown have economic effects of almost the same size.

Fees run to thousands of yen; a shutdown runs to millions

License flows versus the properties that come to market

Let us connect the regulatory discussion to the scale of the market. According to MHLW’s “Report on Public Health Administration and Services, FY2024” (as of end-March 2025), 98,338 facilities hold hotel business licenses: 52,946 hotel/ryokan operations (1,782,232 guest rooms), 44,901 simple lodging operations and 491 boarding house operations. During the same fiscal year there were 7,720 new business licenses and 2,817 business closures, and 26 license revocations.

By prefecture, Tokyo has the most licenses at 1,589, followed by Hokkaido (525), Okinawa (524) and Nagano (452). In closures, Nagano (244) and Hokkaido (209) stand out. The ratio of licenses to closures varies widely by region; Nagano, with 452 licenses against 244 closures, has a fast rate of turnover. In reading where the supply of succession deals is deepest, closure counts are as important an indicator as license counts. For the background to closures — the lack of successors and the capital structure of long-established ryokan — Ryokan Succession Crisis: 89 Bankruptcies & 30% Without Heirs in 2025 digs deeper.

Placing these flows on a map shows that the areas supplying succession deals and the areas where new licenses concentrate are different. Circle size shows the number of business licenses, and color shows the number of closures.

Meanwhile, new openings on the basis of listings we could confirm on major booking sites were 1,723 in 2022, 2,012 in 2023, 1,979 in 2024 and 1,745 in 2025. For 2026 we observed 1,425 in January–August, 15.9% above the 1,230 for the same period of the previous year. The average number of rooms per property has ranged between 20 and 30.

Side by side for 2024, there were 7,720 business licenses on the administrative basis versus 1,979 new openings on the listing basis. The gap does not indicate untracked inventory; it reflects different observation criteria. Business license counts may include not only new facilities but also cases where a license was obtained again because the operator changed. In addition, simple lodging operations, which account for the majority of licenses, include many small facilities not listed on major booking sites. Conversely, the listing basis does not capture facilities that are licensed but have not started selling. Subtracting one population from a different one is meaningless; the two should be read side by side as indicators answering different questions.

Working backward from closing: buyer and seller timelines

Finally, let us put this on a practical timeline. To close a business transfer without stopping operations for a single day, succession approval must be written into the contract as a condition precedent to settlement. Standard processing periods are 20 days in Chiba Prefecture (excluding weekends and holidays) and 23 days in Kyoto City (excluding days the office is closed and time needed to correct documents); if corrections are requested, the actual number of days can easily exceed a month.

It is also worth adding that the seller’s preparation affects price. A property with its license certificate, drawings, certificate of inspection and hot spring analysis report in order allows the buyer to choose the succession structure. If documents are missing, the buyer has no choice but to assume real estate acquisition plus a new license, and the risk of suspended operation in that case is priced in. Putting documents in order translates directly into upside in the sale price.

Summary

In acquiring a hotel or ryokan, the treatment of the operating license splits three ways depending on the structure. In a share transfer the license does not move and operations do not stop, but off-balance-sheet liabilities are succeeded wholesale. In a business transfer, since the amendment of December 13, 2023, the status of the operator can be succeeded with the approval of the governor (or equivalent), and if approval is obtained first, the deal can close without stopping operations. Real estate acquisition plus new operation keeps the buyer furthest from off-balance-sheet liabilities, but the suspension of operations until the license is obtained must be priced in.

However, what can be succeeded is the hotel business license, not every permit. The hot spring use permit and the adult entertainment business license have no provision for succession through a business transfer, while the restaurant business license needs only a notification after the fact. A deal’s critical path is set by the permit that is hardest to succeed. Since Japan’s 13,425 lodging facilities using hot springs form the core of succession deals, this should be confirmed at an early stage.

And the economics are decided not by fees but by days. In the model with 40 rooms, an estimated settled ADR of ¥15,000 and 70% occupancy (an assumed full-year average), the loss per day of shutdown is ¥294,000: ¥8.82 million for 30 days and ¥17.64 million for 60 days, reducing first-year NOI by 23.6% and 47.3% respectively. Whether you can work backward from a D−90 consultation with the public health center is what creates this difference. In December 2023 the rules opened a route to take over a property without stopping operations. The rest is a matter of capturing it through schedule design.

Related Reading

• Who Owns the Hot Spring? Water Rights and Ryokan Valuation
• Hotel Acquisition Costs 7.1%: A 6.5% Gross Yield Becomes 4.65% Net
• Ryokan Succession Crisis: 89 Bankruptcies & 30% Without Heirs in 2025