Usufruct and bare ownership in Luxembourg: unravelling the concepts
Before we talk about insurance, a quick reminder is in order. The Luxembourg Civil Code defines the division of ownership as the splitting of full ownership of a property into two distinct rights:
- The usufructuary: they have the right to occupy the property or to let it out and to collect the rent. They benefit from it day to day, without being the owner in the legal sense of the term.
- The bare owner: they own the building itself, the very structure of the property. However, they cannot live in it or derive income from it for as long as the divided ownership arrangement lasts.
Good news: this arrangement won’t last forever. When the usufructuary dies, the divided ownership automatically comes to an end and the bare owner recovers full ownership, without heavy formalities or additional inheritance tax.
Who should take out home insurance in the case of usufruct in Luxembourg?
In practice, it is usually the usufructuary who takes out the main home insurance policy.
This makes sense: they are the person who occupies or uses the property day to day, so they are the first to be concerned by everyday risks.
They must therefore protect themselves against fire, explosions, storms, water damage and theft, but also ensure they are covered for civil liability in the event of damage caused to third parties (neighbours, delivery drivers, passers-by).
For their part, the bare owner may require the usufructuary to provide proof of insurance and take out additional insurance known as ‘non-occupying owner’s insurance’ to cover the building or structure in the event of the usufructuary’s failure to pay or a serious incident affecting the value of the bare ownership (particularly in the case of co-ownership).
Please note: Luxembourg law does not impose any specific requirements on the usufructuary. Everything is subject to negotiation between the parties.
Is the usufructuary regarded as the owner for insurance purposes?
As far as your insurer is concerned, the usufructuary is regarded, first and foremost, as the main occupant. Their profile depends on how they actually use the property:
- They live in it personally: they take out standard comprehensive home insurance, like any owner-occupier.
- They rent out the property: their profile becomes that of a landlord. The most suitable solution is then to opt for non-occupying owner insurance, or PNO insurance, which covers their liability as a landlord and their rental income.
In all cases, one piece of advice: always clearly declare your status as usufructuary to your insurer when taking out the policy. This is the only way to ensure that you have cover that is perfectly suited to your circumstances.
What are the usufructuary’s obligations?
The status of usufructuary does not stop at insurance: Luxembourg law also requires them to ensure that the property is properly preserved throughout the divided ownership period.
In practical terms, they are responsible for routine maintenance and so-called rental repairs: boiler, paintwork, plumbing and so on. Heavier works affecting the structural shell remain the responsibility of the bare owner, unless they result from a lack of maintenance by the usufructuary.
Another point to keep in mind: running costs, such as municipal taxes, property taxes and energy contracts, are also payable by the usufructuary, as is their civil liability in the event of damage caused to third parties through their negligence.
Who pays for home insurance in practice?
Good question! In the vast majority of cases in Luxembourg, it is the usufructuary who pays the premium, as they are the one who benefits from the property on a day-to-day basis. In practice, there are three situations that arise most frequently:
- You occupy the property: you take out standard home insurance, covering the building and your furniture.
- You rent it out: you take out landlord insurance, while your tenant takes out their own cover.
- The bare owner wants to protect their property: they can opt for supplementary insurance or dedicated structural cover for the building shell, such as the walls and roof.
Our advice: put everything in writing. A clear agreement between the usufructuary and the bare owner prevents many misunderstandings should a claim arise.
Mistakes to avoid
Usufruct that is not properly anticipated or communicated can leave you without cover when you need it most. Here are the most common pitfalls to avoid:
- Failing to declare it: not informing your insurer of the division of ownership when taking out the policy.
- Assuming that the other party has taken care of it: thinking that the usufructuary or the bare owner has already taken out insurance themselves, without ever checking.
- Failing to adapt your policy: keeping an occupant’s policy when you have rented out the property.
- Neglecting civil liability: forgetting this cover, even though it is essential in the event of a neighbourhood dispute following a fire or water damage.
