Decennial insurance for buyers and owners

Liability under the LOE: 1, 3 and 10 years

Law 38/1999 on Building Regulation (LOE) establishes a protection scheme for home buyers. Its Article 17 sets out how long the agents involved in construction are liable for damage that appears in the building:

• One year: the contractor is liable for damage caused by workmanship defects in finishes.
• Three years: the building agents are liable for material damage caused by flaws or defects in building elements or services that affect habitability.
• Ten years: they are liable for material damage caused by flaws or defects that affect the structural elements and directly compromise the mechanical resistance and stability of the building.

In all cases, the developer is jointly and severally liable with the other agents towards the buyers.

Which insurance is mandatory? Only decennial insurance

Having three liability periods does not mean there are three mandatory insurance policies. The LOE provides for guarantees for all three periods, but only the ten-year insurance is mandatory: the second additional provision requires it for buildings whose main use is residential.

The one-year and three-year policies cannot be required, because the law itself left their mandatory status to a royal decree that has never been approved. The one-year and three-year liabilities still exist, but they are not backed by mandatory insurance. The text of the law can be consulted in the BOE, and the specific cases in which it is mandatory are explained in the guide to which buildings require decennial insurance.

The insurance is transferred with the home

Until the building has been delivered, the insured is the developer. From delivery onwards, the insured are the buyers: the first buyer and everyone who buys the home afterwards.

Cover is not lost on sale. It is transferred with the home on each sale, always for the time remaining until ten years have passed since the handover of the works. Anyone buying a second-hand home that is, for example, six years old remains protected for the remaining four years.

A requirement for executing the deed and registering the new building

Decennial insurance is a requirement for executing the deed of the new building and registering it in the Land Registry. The developer must prove to the land registrar that it holds decennial insurance in force, and the guarantee is recorded in the title deed of the home.

For the buyer, this provides documentary assurance: they can check in the deed that the building has the insurance and since when it has been in force.

The only exception is the individual self-promoter of a single-family home for their own use. But if they sell it before ten years have passed since handover, they must take out the insurance for the remaining period, unless the buyer expressly releases them from this obligation. This case is explained in the guide to decennial insurance for self-promoters.

How do you make a claim?

If structural damage appears that affects the stability or mechanical resistance of the building, the owner can report the claim directly to the insurer. The process follows these steps:

1. Notification of the claim to the insurer. The damage must have become apparent within the period of cover.
2. Expert assessment of the damage and its cause.
3. Valuation of the damage.
4. Settlement and closure of the claim, with the corresponding repair or compensation.

The great advantage is that the owner does not have to go through lengthy court proceedings to establish which of the agents involved in the works is liable: the insurer pays for the covered damage and can then seek recourse against those liable. At Seguróx we support our clients in handling decennial insurance claims.

Who pays for decennial insurance and how far does it protect you?

Decennial insurance is taken out and paid for by the developer of the building, who is the policyholder. The buyer does not have to pay any premium to be protected.

Its cost is low compared with the total cost of the works, and it makes it possible to deal with damage as serious as structural damage up to the limit of the sum insured, which at a minimum equals the final material execution cost of the works plus professional fees.

It is worth remembering its limits: decennial insurance covers structural damage, not defects in finishes or habitability, nor damage caused by misuse or lack of maintenance. The usual exclusions are set out in the guide to what decennial insurance does not cover.