Mandatory Insurance

Mandatory insurance is insurance that is required by law, regulatory authorities, or contract-meaning that the decision to purchase it is not at the owner’s discretion. In the real estate sector, this includes, in particular, homeowners insurance for mortgaged properties (as a condition of the bank), commercial liability insurance for landlords of commercial spaces, and certain types of technical insurance for elevator systems. Failure to obtain mandatory insurance can result in the loss of insurance coverage, breaches of contractual obligations, or fines.

Mandatory Insurance for Real Estate Financing

When granting loans for real estate, banks and building societies generally require proof of homeowners insurance as collateral. This insurance covers damage caused by fire, water damage, storms, and hail, and safeguards the property’s mortgage value for the bank.

If the insurance coverage expires or the premium is not paid, the financing bank may call the loan due or take out insurance itself at the borrower’s expense. The sum insured must be adjusted for value (floating replacement cost); otherwise, there is a risk of underinsurance in the event of a claim-the insurance will then only pay a proportionate amount.

Upon a change of ownership, the home insurance automatically transfers to the buyer. However, the buyer has a one-time special right of termination after the transfer of ownership to take out a new insurance policy. We recommend that buyers exercise this right and review the existing policy for up-to-date coverage and scope.

Mandatory Insurance for Landlords and Homeowners’ Associations

Homeowners’ associations are legally required under Section 19(2)(5) of the WEG to take out adequate building insurance-this is a legal obligation, not a matter of discretion. The association’s manager takes out the insurance on behalf of the association and allocates the premium to all owners via the maintenance fees.

For commercial landlords, certain liability insurance policies are mandatory depending on the type of use and regulatory requirements. Landlords of restaurant spaces, production facilities, or publicly accessible areas often face specific regulatory requirements.

Technical insurance that is mandatory or effectively unavoidable in practice:

• Elevators: The Industrial Safety Regulation requires regular TÜV inspections; many insurance policies make coverage contingent on ongoing technical inspections.
• Heating oil tanks: Above a certain storage volume, liability insurance is required under the Water Resources Act (WHG) or is effectively indispensable.
• Photovoltaic systems: In the event of damage caused by the PV system (e.g., fire damage due to a short circuit), standard building insurance often does not cover it-separate PV insurance or an extension of the building insurance is mandatory from an economic standpoint.

Difference: Mandatory vs. Recommended Insurance

In addition to mandatory insurance, there are a number of strongly recommended but not legally required insurance policies for property owners:

• Natural disaster insurance: A supplement to residential building insurance covering damage caused by flooding, heavy rain, and landslides. Particularly relevant in the Nuremberg region, which includes the Pegnitz River and various low-lying areas.
• Legal protection insurance for landlords: Covers costs for rental disputes, eviction proceedings, and WEG (Condominium Act) proceedings.
• Rent loss insurance: Covers loss of income if the property becomes uninhabitable (often included as an optional clause in building insurance).
• Financial Liability Insurance (for WEG property managers): Protects the property manager against claims for damages from the homeowners’ association.

Practical Tip for Property Owners in Nuremberg and Franconia

Anyone purchasing a property in Nuremberg should check immediately after signing the contract which insurance policies are transferred to them and whether these are sufficient. Homeowners insurance automatically transfers to the buyer-but they have a one-time special right to cancel the policy after the transfer of ownership. Use this right to check whether the existing policy is still up to date, or take out a new, tailor-made insurance policy.

We also recommend checking the natural disaster coverage whenever you purchase a property. In recent years, heavy rainfall events in the Nuremberg metropolitan region have affected areas that were previously considered low-risk. A lack of natural disaster coverage can have consequences that threaten your livelihood in the event of damage.

Frequently Asked Questions

What happens if I, as the owner, don’t have homeowners insurance?

Without homeowners insurance, you’ll be responsible for all repair costs in the event of a fire, water damage, or storm damage-with no limit. If the property is financed, you also risk breaching your contract with the bank, which could lead to the loan being terminated. In the worst-case scenario-a total loss-you’ll be left without a roof over your head and with a remaining loan debt on a worthless piece of land.

Is natural disaster insurance mandatory in Bavaria?

No, there is no legal requirement for natural disaster insurance in Bavaria. However, it is strongly recommended, as standard home insurance does not cover damage caused by flooding, heavy rain, or landslides. In some high-risk areas, natural disaster insurance may be difficult to obtain or available only at high premiums-a key consideration before purchasing in potentially vulnerable locations.

Who is responsible for taking out mandatory insurance in a condominium association (WEG)?

The WEG administrator takes out the building insurance on behalf of the association and allocates the premium to all owners via the monthly maintenance fees. Owners should regularly review whether the insurance coverage is still adequate during WEG meetings-especially after modernization measures that have increased the building’s value.

Can the building insurance be canceled if the buyer files a complaint regarding defects?

After the transfer of ownership, the buyer has a one-time extraordinary right of termination under § 96 VVG. They may exercise this right within one month of the transfer of ownership. Termination for other reasons is only possible under the general terms of the contract-e.g., following a claim or on the regular expiration date.

Which insurance policies must be transferred when purchasing real estate?

Upon transfer of ownership, the home insurance policy automatically transfers to the buyer (Section 95 VVG). All other insurance policies-such as the seller’s contents insurance or separate rent loss insurance-do not transfer automatically but instead end upon transfer of ownership or must be transferred separately or newly purchased. We recommend that buyers in Nuremberg and the metropolitan region create a complete insurance overview for the property immediately after the notary appointment: Which policies remain in effect, which need to be canceled, and which new insurance policies need to be taken out? Seamless insurance continuity is particularly crucial for multi-unit buildings with tenant relationships.

Mandatory Insurance in Condominium Management: Overview

In a condominium association, the property manager and the owners’ meeting are jointly responsible for taking out and maintaining the mandatory insurance policies. In addition to building insurance (Section 19(2)(5) of the German Condominium Act), this also includes in practice: liability insurance for common property (covers damages to third parties resulting from the manager’s decisions and defects in the common property), financial loss liability insurance for the manager (protects the HOA from damages resulting from mismanagement), as well as technical inspection requirements and the associated insurance for elevators and heating systems. In the Nuremberg metropolitan region, numerous professional WEG administrators manage these obligations-a review of the annual statement shows which policies exist and at what premiums, and serves as a useful quality control measure.

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