Who pays for home insurance on a property under usufruct?

Difference in roles between bare owner and usufructuary

To understand who should bear the costs of the policy, it is essential to distinguish between the two legal figures that coexist in a property under this arrangement. The bare owner is the legal titleholder of the property, possessing ownership but not the right of use and enjoyment. For their part, the usufructuary holds the right to reside in the property or receive its fruits, such as rental income, even though they are not the ultimate owner.

This division of rights determines how property expenses are shared. While structural costs belong to the owner, charges arising from ordinary use fall upon the person enjoying the property.

The property structure: bare owner responsibility

Building cover encompasses the physical structure of the home, including walls, ceilings, floors, facade, and fixed water, gas, and electrical installations. When managing home insurance for usufruct properties, the bare owner is the one with a direct insurable interest in the property asset.

The Civil Code establishes that extraordinary repairs and works intended to preserve the upkeep of the property are the responsibility of the owner. Therefore, taking out a policy covering severe incidents such as fires, explosions, structural damage from leaks, or adverse weather events is both an obligation and a right that protects their assets in the long term.

Contents and civil liability: usufructuary obligation

Contents include all furniture, household appliances, personal belongings, and decorative items inside the property. Since these items usually belong to the person residing in the home, taking out contents cover falls to the usufructuary.

Likewise, occupier's or usage civil liability must be assumed by the usufructuary. If an everyday oversight occurs, such as a tap left running that causes dampness in a neighbour's home, the damage arises from the daily use of the premises. In this scenario, the usufructuary is the person responsible for rectifying the damage caused to third parties.

Options for structuring home insurance for usufruct properties

When taking out a policy with an insurer, there are different contractual options to prevent gaps in cover:

• Single shared policy: A single contract where the usufructuary acts as the policyholder, setting the bare owner as the insured party and beneficiary for building cover, and the usufructuary for contents and civil liability.
• Independent policies: The bare owner takes out a specific insurance policy to protect the building structure against construction risks, while the usufructuary subscribes to an independent insurance policy for contents and civil liability arising from use.
• Proportional split of the premium: The parties agree to take out a comprehensive policy and break down the total receipt amount, each paying the proportional share corresponding to building and contents cover respectively.

What happens if the property under usufruct is mortgaged?

When the property under usufruct is subject to a mortgage loan, credit regulations require having property damage insurance covering the building structure, with the financial institution designated as the beneficiary of the compensation up to the limit of the outstanding debt. In this scenario, the responsibility for payment usually falls on the mortgage borrower, a figure that typically coincides with the bare owner.

If you are considering taking out a mortgage on a property with encumbrances of this kind or need specialised financial advice, the team of mortgage credit intermediaries will guide you in structuring the transaction and defining the clauses regarding compulsory insurance required by banks.

Home insurance for usufruct on VPO properties in the Comunidad de Madrid

In the specific case of Subsidised Housing (VPO) located in the Comunidad de Madrid, regional legislation requires keeping protected properties in a perfect state of repair and designating them for main residence use. The existence of a usufruct over a VPO property in the Madrid region requires adjusting policies to the specifications of the official module and verifying that building cover meets the legal conservation requirements demanded by the regional administration.

Both the usufructuary and the bare owner must review that the rebuilding value set out in the policy does not lead to underinsurance, strictly complying with the regulatory requirements in force in the Comunidad de Madrid for publicly protected housing.

Key advice to avoid conflicts between the parties

To guarantee a peaceful coexistence and protect the property investment, drawing up prior agreements before executing the usufruct deed or insurance policy is recommended. Considering the following aspects prevents legal discrepancies:

1. Notify the insurer of the usufruct: Provide full details to the insurance company regarding the existence of the usufruct so the policy can be drafted while respecting the interests of each party.
2. Review civil liability clauses: Verify that the policy includes cross civil liability or third-party civil liability to avoid disputes between the bare owner and usufructuary.
3. Formalise agreements in writing: Document clearly who assumes the recurring insurance payments and the excess in the event of a claim.