Insurance and prior damage in an apartment building: policies, claims history and guarantees

Insurance and prior damage only surface late in an apartment building sale. They come to the fore once a policy is meant to move to the buyer or a water damage from before closing triggers a recovery. Because the Austrian Insurance Contract Act (VersVG) has its own deadlines and forms and prior damage regularly develops its own contractual effect, the room to manoeuvre is narrow at that point.

This article sets out the review axes. It covers the typical policy landscape in an apartment building, the entry into the seller's policy under section 69(1) VersVG with joint premium liability under section 69(2), the termination rights under section 70, the notification duty under section 71 and the framework for service charge pass-through in section 21 MRG.

Typical policy landscape in an apartment building

Insurance cover for an apartment building is usually distributed across several policies. The core is a buildings policy with fire, storm, water damage and owner's liability. Depending on the stock, a glass policy, a lift cover, a heating oil or plant liability and a legal expenses insurance are added. For commercial areas, further cover may be agreed with the tenant.

For the review, a complete overview with sum insured, deductible, premium cycle, side agreements and the assignment of the individual units in the building is needed. Where policies are missing or the sum insured is significantly below the reconstruction value, regulation gaps emerge that can hit either seller or buyer in the event of a loss.

For the sale preparation the policies should be reconciled through the data room completeness check. Without a structured filing, mistakes creep in on addresses, unit assignments and premium status.

Transfer under sections 69, 70 and 71 VersVG

On a sale of an insured object the buyer succeeds under section 69(1) VersVG into the seller's rights and duties under the existing buildings policy. Section 69(2) VersVG creates joint and several liability of seller and buyer for the premium of the insurance period current at the transfer. For the internal allocation after the transfer date the sale contract should provide an express rule with an indemnity.

Section 70 VersVG governs the termination rights. Under section 70(1) the insurer may terminate with one month's notice; the right expires if it is not exercised within one month of the insurer becoming aware of the transfer. Under section 70(2) the buyer may terminate the policy either with immediate effect or at the end of the current insurance period; the buyer's termination right expires if it is not exercised within one month of the acquisition or, where the buyer did not know of the insurance, within one month of gaining knowledge.

Section 71 VersVG obliges the parties to notify the insurer of the sale without delay; failing to give notice can trigger consequences for cover in the event of a claim. Truly seamless cover from the transfer date cannot therefore be assured unconditionally; it depends on timely notification and on the parties' use of the termination rights. The sale contract should expressly name notification, delivery of the policies and premium allocation.

Prior damage in the data room: systematic and review focus

Prior damage covers closed, partly settled and still open matters. Three categories are useful for the sale preparation. First, closed matters with full remediation and written settlement confirmation. Second, partly settled matters with remaining remediation or evidence preservation proceedings. Third, reported but unsettled matters with a running deadline. Each category calls for its own contractual treatment.

The data room should contain per claim the date of loss, the type of damage, the affected unit, the settlement amount, the works undertaken and the residual risks. Without that basis the buyer cannot judge which position may hit the buyer after transfer. Building file and claim file should be reviewed together: a water damage without a documented drying process can return later as a moisture damage; a fire damage with only partial clearance by the authority can carry mandatory upgrades.

For the sequence in a sale process the topic page apartment building sale covers data room, transfer clauses and assurances in the larger marketing context.

Service charge frame under section 21 MRG

Section 21(1) Z 4 MRG allows the pass-through of premiums for an appropriate fire insurance as service charges. Section 21(1) Z 5 MRG covers premiums for an appropriate owner liability policy and a water damage policy including corrosion damage. Section 21(1) Z 6 MRG allows premiums of further insurance only with the consent of the majority of principal tenants under the conditions set out there. Section 21(1) Z 3 MRG concerns lighting costs, section 21(2) public charges and section 22 the cost of administration.

Two consequences for the buyer follow. First, the buyer inherits a service charge structure that cannot be changed on the spot. Higher cover or switching to additional policies can affect the pass-through in the detail. Second, the seller should communicate transparently on an imminent premium increase and disclose whether the pass-through has already been discussed with the tenants and whether a recovery track exists.

For remediation works a case-by-case classification is needed. Three cases should be kept apart: first, repair of a damage covered by insurance; second, maintenance works under section 3 MRG for which rent reserves are available to the landlord; third, ongoing upkeep that does not qualify either for insurance cover or for maintenance status. A blanket statement does not replace this review.

Sale contract clauses on policies and prior damage

The sale contract should map three layers precisely. First, assurances on the existence of the policies with a list as annex, on premium payment until the transfer date and on the presence or absence of open claims. Second, the premium allocation after the transfer date with an internal indemnity given the joint liability under section 69(2) VersVG. Third, the treatment of open settlements with a clear allocation of claim and cost.

For partly settled or contested claims, an indemnity is a better fit than a blanket assurance of claims-free status. The indemnity should identify a beneficiary, a time frame and a notification procedure. Blanket guarantees against future claims should be avoided because they can trigger litigation risk.

For special risks such as fire, water or structural issues, a separate rule following the claim file is advisable. In addition, the timeline for delivery of the policies and communication with the insurers should be agreed concretely.

Handover: the interface between contract and daily operation

At the transfer date all policies, side agreements and open claim files should be handed over physically or digitally. The handover appointment is also the right moment to clarify running deadlines with the insurers. The notification of the sale under section 71 VersVG must be sent without delay; it is not an automatic consequence of the land register recording.

For the period after handover, the buyer and the property manager should establish a short review routine. That covers coordination with the insurer, a cover declaration for ongoing remediation and a check on the first premium notice after the transfer. Without that routine, positions end up in a later service charge review without a traceable basis. The topic page handover and effective date sets out the broader flow.

Practical process and next steps

The practical process starts with a policy list per property, complemented by a structured record of the claims history. Contract clauses on assurance, premium allocation and open claims follow. For the handover a step-by-step plan with deadlines and responsibilities is prepared.

Anyone with a contract draft or a bidding timeline should have the insurance situation reviewed in structured form before the next binding step. BRANDAUER Rechtsanwälte orders policies and claim files and links the insurance law review with the sale contract and the tenancy law limits. The apartment building risk check gives an initial framing but does not replace a case-specific review.