Buildings insurance: When the policyholder and owner are not the same – minimising risks, creating clarity
05/04/25
10
Minutes
Katrin Straub
Managing Director at nextsure
Is the policyholder of your building insurance not the owner of the property? This arrangement often harbours unexpected pitfalls and can lead to significant financial disadvantages in the event of a claim. Find out how to avoid pitfalls and ensure comprehensive cover.
The topic in brief and concise terms
If the policyholder of the buildings insurance is not the owner, responsibilities and rights must be clearly regulated by contract to avoid gaps in cover.
The "insurance for the account of another" under sections 43 et seq. of the VVG allows one person (policyholder) to take out insurance for the interest of another person (owner/insured party).
A BGH ruling (case no. IV ZR 201/06) emphasises that the person who submits the application in their own name becomes the policyholder, even if, for example, they are acting for others as a property manager.
Understanding the basics: policyholder versus owner
As a rule, the owner of a building is also the policyholder of the buildings insurance. German law, in particular Section 90 of the German Civil Code (BGB), generally regards the property owner as responsible for their property and any damage arising from it. Buildings insurance is intended to protect the owner against the often existential financial consequences of damage caused by fire, storm or escape of water. However, there are situations in which the building owner is not the policyholder. This can be the case, for example, if responsibility is transferred to a tenant by tenancy agreement or if the manager of a homeowners' association (WEG) takes out the insurance. Such deviations require a close examination of the contractual and legal details to ensure that, in the event of a claim, insurance cover exists for at least one party.
Risk analysis: Possible pitfalls with separate roles
If the building owner is not the policyholder, various problems can arise. A major risk is that, where agreements are unclear or another party fails to take over the insurance obligation, uninsured losses may occur. The owner could then be left to cover repair costs despite apparent insurance cover, and these can quickly run into six-figure sums. In addition, third-party liability claims can financially burden the owner if no effective insurance cover applies. Not infrequently, such ambiguities lead to lengthy and costly legal disputes between owner, tenant, leaseholder or manager. A well-known example is the case in which a property manager took out the insurance in his own name and was classified by the Federal Court of Justice (BGH) as the actual policyholder, with all the obligations to pay the premium. This illustrates how important precise contractual drafting is in order to ensure the appropriate buildings insurance.
Quick Facts: Key messages at a glance
The key points when, in buildings insurance, the policyholder is not the owner can be summarised as follows:
Owner’s responsibility: As a general rule, the owner is responsible for insuring their building (§ 90 BGB).
Deviation possible: The role of the policyholder can be transferred to a tenant, lessee or the managing agent of a condominium owners’ association.
Risk of a coverage gap: Without clear arrangements and effective insurance cover, the owner bears the full financial risk for damage and liability claims.
Contractual clarity: Clear contractual agreements are essential in order to define responsibilities and cost allocation.
Insurance for another’s account: The Insurance Contract Act (VVG) makes it possible to take out insurance for the interest of a third party (§§ 43 ff. VVG).
Obligations to provide information: All parties should be informed about the existing insurance cover and its details; often this is not the case.
Special case of change of ownership: On sale, the insurance usually passes to the new owner, who then becomes the policyholder and has a special right of cancellation.
This overview shows the complexity and the need for careful handling of this arrangement.
Practical examples: Typical scenarios and their solutions
The theory becomes tangible through concrete cases. Let us look at two common situations in which the policyholder of the buildings insurance is not the owner.
Case 1: The tenant as policyholder
An owner lets out his commercial property and agrees in the tenancy agreement that the tenant is responsible for the buildings insurance and pays the premiums. Here, it is crucial that the tenancy agreement clearly and legally securely regulates this transfer of the insurance obligation. The owner should regularly request evidence of the existence and scope of the insurance. Otherwise, he risks the tenant taking out no insurance or insufficient cover and, in the event of a loss, for example after a fire with costs of EUR 250,000, there being no cover. A clear provision would have needed to set out the tenant’s duty to provide information and the owner’s right of inspection.
Case 2: Usufruct – The usufructuary insures the building
In the case of usufruct, a person (the usufructuary) uses a property that belongs to another person (the owner). Pursuant to section 1045 of the German Civil Code (BGB), the usufructuary is obliged to take out at least buildings fire insurance. However, it is often more sensible for the owner to remain the policyholder of comprehensive residential buildings insurance, in order to protect his property optimally. If the usufructuary is the policyholder, an assignment of the insurance claims to the owner in the event of a loss should be considered, to ensure that the compensation benefits the preservation of the property’s value. An unclear arrangement can lead to disputes over the use of the insurance payout after storm damage of EUR 50,000.
These examples underscore the need to act proactively and not wait until a claim event to discuss responsibilities.
Expert knowledge: legal foundations and current rulings
For a deeper understanding of the topic “buildings insurance policyholder not owner”, it is essential to look at the law and current case law. The Insurance Contract Act (VVG) provides a key foundation here. Particularly relevant are the provisions on “insurance for another’s account” (§§ 43-48 VVG). Under § 43 VVG, the policyholder may conclude a contract in their own name for the interest of another person (the insured, e.g. the owner). The rights under the contract then belong to the insured, even if the policyholder may dispose of them. Important is § 47 VVG, according to which the insured person's knowledge and conduct are also taken into account.
Another important provision is § 80 VVG, which regulates the “absence of an insurable interest”. If there is no insurable interest (e.g. because the policyholder is neither the owner nor has any other recognised interest), they are not obliged to pay the premium. This underlines that the policyholder must insure their own interest or the interest of another person, provided it is legitimate. In a judgment (case no. IV ZR 201/06), the Federal Court of Justice (BGH) made clear that a property manager who takes out buildings insurance in their own name becomes the policyholder themselves and is liable for the premiums. The insurer has an increased interest in the person of the policyholder. This shows that the mere management function does not automatically mean that the owners’ association becomes the policyholder if the manager concludes the contract in their own name. For clear attribution, it is therefore important who is named as the policyholder in the insurance application and whether it is made clear that, where applicable, action is taken for another’s account. Tenants or leaseholders may also have an insurable interest. Knowledge of these provisions helps to structure the allocation of costs for buildings insurance correctly.
Our expert tip: Always have contracts, especially tenancy or management agreements that contain provisions on buildings insurance, reviewed by a lawyer. Make sure it is clearly defined who the policyholder is, who bears the premiums, and who is entitled to benefits in the event of a claim. Document all agreements in writing.
Recommendations for action: How to protect yourself optimally
In order to be optimally covered in a situation where the policyholder of the buildings insurance is not the owner, you should observe the following steps:
Clear contractual arrangements: Ensure clear written agreements (e.g. in the tenancy, lease or management agreement) on who is the policyholder, who pays the premiums and who receives compensation in the event of a claim.
Regular review: As the owner, regularly request proof of the existence and extent of cover when a third party is the policyholder. Annual submission of the policy is recommended.
Define insurable interest: Make sure that the policyholder has a legitimate interest in insuring the building, whether their own interest or that of another party (e.g. as a tenant with investments or as a manager for the owners' association (WEG)).
Use insurance for the account of others: If a third party (e.g. manager) takes out the insurance, it should be clearly designated as "insurance for the account of others" (for the benefit of the owner/the owners' association). This ensures that the insurance benefit is due to the owner.
Communication with the insurer: Inform the insurer about the exact ownership structure and the role of the policyholder to avoid misunderstandings. This is particularly important if you are considering changing the policyholder.
Special case WEG: In homeowners' associations, the WEG manager is usually the policyholder for the association. The exact duties should be set out in the management agreement.
Seek advice: If in doubt, consult an insurance expert or a specialist solicitor in insurance law. Professional advice can help avoid costly mistakes.
These measures can significantly reduce the risk of gaps in cover and disputes.
A common case in which the question of policyholder and owner becomes relevant is the change of ownership of a property. Under Section 95 of the German Insurance Contract Act (VVG), the existing buildings insurance passes to the buyer upon acquisition of ownership (entry in the land register). The buyer therefore automatically becomes the new policyholder. This serves to ensure uninterrupted protection for the property. The seller and the buyer are jointly and severally liable for the premium for the current insurance period. However, the buyer has a special right of cancellation under Section 96 VVG. They may terminate the contract within one month of the entry in the land register, either with immediate effect or at the end of the current insurance period. If the buyer is not aware of the existing insurance, the period does not begin until they become aware of it. It is therefore advisable for the seller to inform the buyer about the existing insurance and hand over the documents. Cancellation of the residential buildings insurance after the purchase should only take place once a new policy has been concluded, in order to avoid gaps in insurance cover.
Conclusion: Proactive action protects against unpleasant surprises
The situation in which, in building insurance, the policyholder is not the owner involves various risks, but can work with careful drafting and clear agreements. Transparent contracts are crucial, open communication between all parties involved and an understanding of the legal framework, in particular the provisions of the German Civil Code (BGB) and the Insurance Contract Act (VVG). Whether tenant, lessee, usufructuary or condominium administrator – the role of the policyholder must be clearly defined and the owner's interests safeguarded. Regular review of cover and adjustment to changed circumstances, such as a change of owner, are essential. This is the only way to ensure that, in the event of a claim, which can quickly lead to costs of several tens of thousands of euros, comprehensive cover is in place and financial disadvantages are avoided. The complexity of this issue underlines the value of expert advice.
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More useful links
Wikipedia provides a comprehensive overview of buildings insurance, its fundamentals and relevant aspects.
FAQ
Does the owner always have to be the policyholder of the building insurance?
No, not necessarily. Although the owner is primarily responsible, the role of the policyholder can, under certain circumstances (e.g. renting out, condominium management, usufruct), be transferred to another person. Clear contractual arrangements are important.
What risks are there if the policyholder is not the owner?
The main risks are uncovered damage claims in the event of a claim, liability claims against the owner and legal disputes due to unclear responsibilities. Careful contract drafting is therefore essential.
What happens to building insurance when a house is sold?
When a house is sold, the buildings insurance transfers to the purchaser in accordance with § 95 VVG, making them the new policyholder. The purchaser has a special right of termination for one month after entry in the land register (§ 96 VVG).
What is the difference between the policyholder and the insured person?
The policyholder is the contractual partner of the insurer and owes the premium. The insured person is the person whose interest is insured (e.g. the owner of the building). In “insurance on behalf of another”, these roles can differ. For more information, see Policyholder and insured person.
How can I make sure that my property is properly insured if I am not the policyholder myself?
As the owner, insist on clear contractual agreements and regular proof of insurance cover (copy of the policy, premium payment receipts). If in doubt, you should seek legal or insurance advice.
What role does Section 80 of the VVG (Lack of Insured Interest) play?
Section 80 VVG states that the policyholder is not obliged to pay the premium if no insurable interest exists at the start of the insurance. If it later ceases to exist, the insurer is entitled to the premium only up to the point at which it becomes aware of this. This is relevant, for example, when a non-owner without a legitimate interest takes out insurance.
