In short. Tenant's legal liability responds to the damage a tenant company causes to the premises it occupies, towards the owner of those premises. It is not third-party liability: the injured party is the landlord. Its importance stems from article 1563 of the Spanish Civil Code, which presumes the tenant to be at fault for deterioration or loss of the leased property unless it proves otherwise. In corporate policies it usually carries its own sub-limit, far below the main limit and often confined to fire, explosion and water.
The average cost of an industrial fire stands at €39,852, according to UNESPA data on claims affecting insured buildings for 2024. The same source records 453,086 claims in insured retail premises and identifies fire as the cause with the highest average cost across every type of building.
Now add article 1563 of the Spanish Civil Code. If that fire breaks out in leased premises, the law presumes the deterioration is the tenant's fault. And it is the tenant who has to prove otherwise.
What is tenant's legal liability cover?
It is the section that responds to damage caused to leased premises which the tenant must make good to the landlord.
The definition matters for what it leaves out. Article 73, first paragraph, of the Spanish Insurance Contract Act (Law 50/1980) describes liability insurance as insurance under which the insurer covers the obligation to indemnify a third party for damage for whose consequences the insured is civilly liable. In tenant's legal liability, that third party has a name and a contract: it is the landlord. Not an anonymous claimant thrown up by the company's activity, but the counterparty to a live lease.
Hence the sector's most widespread error: assuming that the company liability policy already deals with the problem because it includes public liability. It does not. Public liability responds to damage to unrelated third parties arising from the business activity, and many wordings expressly exclude property the insured occupies as a tenant. These are two sections, with two sub-limits and two different wordings.
The presumption in article 1563 of the Spanish Civil Code
This is the provision almost nobody cites and the one that decides the outcome of the claim. Its text is brief: 'The tenant is liable for any deterioration or loss of the leased property, unless it proves that this occurred without fault on its part.'
What matters is not the liability itself but who has to prove what. Under the general regime of article 1902, the claimant must establish the fault of the party causing the damage. Here the rule is reversed: the landlord establishes the damage, and it is the tenant who must prove that it occurred without fault in order to be released.
It is worth being precise about the scope. This is a rebuttable presumption (iuris tantum), not strict liability: evidence to the contrary is admissible, and a tenant that establishes an external cause — a structural defect in the building, the act of a third party, an act of God — is released. It is never true that the tenant is always liable. What is true is that the tenant starts from behind, and that an absence of evidence about the origin of the loss works against it.
Article 1563 does not travel alone. Three further rules operate alongside it and are worth bearing in mind:
- Article 1564 extends the tenant's liability to deterioration caused by 'the persons of its household', an expression that in a commercial lease reaches its staff and those for whom it is answerable. It is a separate rule from article 1563, with its own set of facts.
- Article 1555(2) requires the tenant to use the leased property with the diligence of a prudent person and to put it to the agreed use. A use other than the one contracted for — storing flammable goods in premises leased as offices, for example — weakens any subsequent defence.
- Article 1561 requires the property to be returned as received, save for what has perished or deteriorated through time or through an unavoidable cause.
Completing the picture, article 1183 presumes that loss of property in the debtor's possession occurred through its fault, and article 1101 requires anyone who is negligent in performing their obligations to pay damages. The tenant's liability for a fire in leased premises is built on these provisions: the Spanish Civil Code contains no specific article on fire affecting leased property.
Do you know whether your policy includes tenant's legal liability, and at what sub-limit? Request a review of your wording.
Why does the claim arrive months after the fire?
Because it is almost never brought by the landlord. It is brought by the landlord's insurer.
The real sequence runs as follows. A loss occurs in the leased premises. The landlord has the building insured and is paid under their own fire policy, routinely and on time. Their insurer pays and, under article 43 of the Spanish Insurance Contract Act, is subrogated to the rights and actions the landlord held against the party responsible for the damage. Months later, with the adjustment closed and the amount already fixed, that claim lands on the tenant company.
The same article 43 contains a nuance worth reading carefully, because it is often explained badly. Where the liability is covered by a contract of insurance, 'subrogation shall be limited in its scope in accordance with the terms of that contract'. The practical effect is that the matter is settled between insurers, within the terms of the tenant's liability policy. Tenant's legal liability does not make the action disappear: it absorbs it and gives it a solvent counterparty. Without it, the counterparty is the company's treasury.
Limitation periods complete the picture and explain why this exposure survives several accounting years. The landlord's action against its tenant is contractual and is time-barred after five years (article 1964.2 of the Civil Code). That of an unrelated third party — a neighbour, an adjoining occupier — is non-contractual and is time-barred after one year (article 1968(2)). A company can receive a claim for an incident it already regards as closed and provisioned.
Buildings, contents and the fit-out works you paid for
The most expensive confusion in practice is not in the legislation but in how risk is split between policies. Risk by risk, the map for leased premises looks like this.
| Risk | Whose risk is it? | Which cover responds? |
|---|---|---|
| Leased building: structure, envelope, fixed installations | The landlord's, but the tenant answers for deterioration under art. 1563 of the Civil Code | Tenant's legal liability, within its sub-limit |
| The tenant's own contents: stock, machinery, equipment | The tenant's | No liability cover at all: this is the subject of a material damage policy |
| The tenant's improvements and fit-out works | Disputed; depends on what the lease provides | Grey area: they must be expressly declared under one policy or the other |
| Damage to unrelated third parties: neighbours, adjoining occupiers, passers-by | The party causing it | Public liability, not tenant's legal liability |
| Landlord's loss of rent | The landlord's | Only where the wording expressly provides for it |
Two points about this table, both with a direct effect on the profit and loss account.
First: your own contents are not a matter of liability insurance. Your stock, your machinery and your equipment are your own property, and their loss is covered by a material damage policy, not by tenant's legal liability. That is different from the position of property in care, custody or control and property being worked upon, which does belong to third parties and is indeed resolved in liability terms, under its own specific sections.
Second: the tenant's improvements and fit-out works are no man's land. A company that invests a meaningful sum in fitting out a warehouse or a floor of offices often finds that the investment sits neither in the landlord's policy — it did not exist when that policy was placed — nor in its own, because it forms part of the building. This is best resolved in writing before a loss occurs, both in the lease and in the declaration of sums insured. The cover actually granted is, in every case, governed by the particular conditions of each policy.
We review how risk is split between your lease and your insurance programme. Talk to our team.
The sub-limit: the number that actually protects you
In a corporate policy, tenant's legal liability rarely operates at the main limit. It carries its own sub-limit, almost always much lower, and is frequently confined to damage by fire, explosion and water. Outside those causes, the cover may simply not respond.
Article 27 of the Spanish Insurance Contract Act provides that the sum insured represents the maximum indemnity payable for each claim. Applied here, that means the figure defining your real exposure to a fire in the premises is not the policy's main limit but that tenant's sub-limit. Anything above it is borne by the company. On how these tiers work together, limits, sub-limits and deductibles in a liability policy sets out the full mechanics.
Correct sizing starts neither from the rent nor from market value, but from the reinstatement cost of the building the company occupies. And in large accounts a further difficulty appears: multi-site structures. A company with several logistics platforms and leased branches needs to know whether the tenant's sub-limit applies per claim and per location, or in the aggregate for the whole policy year and the entire property portfolio. The difference between those two readings can be an order of magnitude.
What you agree in the lease prevails
Commercial leases are not governed by the protective regime that applies to residential tenancies. Article 4.3 of the Spanish Urban Leases Act (Law 29/1994) subjects leases for purposes other than housing to the will of the parties, and only in the alternative to title III of that Act and to the Civil Code.
The consequence is direct: the lease can worsen the tenant's position relative to the default regime. Clauses making the tenant liable for any damage whatsoever to the building, requiring it to buy and maintain tenant's legal liability cover at a stated sum insured, or requiring annual evidence that the cover remains in force, are commonplace and perfectly valid. That agreement prevails over article 1563, not the other way round. Reviewing the lease terms before renewing the policy — rather than afterwards — avoids discovering the obligation at the worst possible moment.
There is a second area of contractual freedom, this one on the insurance side. Article 44, second paragraph, of the Spanish Insurance Contract Act removes large risks policies from the mandatory character of the Act itself. In a large account exceeding the thresholds in article 11 of Law 20/2015, the legislation will not correct a badly negotiated wording. Only negotiation beforehand will.
The role of an independent broker
Two programmes with the same premium and the same main limit can leave radically different tenant's liability exposures, depending on where the sub-limit sits, which perils it covers and whether fit-out works have been declared. As an independent brokerage registered with the Spanish DGSFP under reference J0140, we act on the client's mandate: we read the lease and the policy wording side by side, and we negotiate the wording and the sub-limit with the market, not only the price.
When a claim arises, that independence changes the conversation. The subrogated claim from the landlord's insurer arrives months later, quantified and with the loss adjustment already complete. Our job at that point is to represent the tenant company before the insurers involved and to argue for the cover to respond, not to explain why it should not.
Frequently asked questions
What is tenant's legal liability cover? The section that responds to damage caused to leased premises which the tenant must make good to the landlord. The injured party is not an unrelated third party but the landlord. It is bought within the company's liability policy, with its own sub-limit.
Isn't the landlord's own property insurance enough? The landlord is paid under their own policy, but their insurer may be subrogated under article 43 of the Spanish Insurance Contract Act and then claim against the tenant. The landlord's insurance does not protect the tenant: it moves the claim to that insurer.
Is the tenant liable for a fire of undetermined origin? It may well be. Article 1563 of the Spanish Civil Code presumes the tenant to be at fault unless it proves the damage occurred without fault on its part. The presumption is rebuttable, but the burden rests on the tenant, so an undetermined origin counts against it.
How does tenant's legal liability differ from public liability? Public liability responds to damage to unrelated third parties arising from the activity; tenant's legal liability, to damage to the premises the company occupies, towards its landlord. Many wordings exclude leased property from public liability.
What sub-limit should we buy? One matching the reinstatement cost of the building occupied, including fixed installations and fit-out works. On multi-site programmes, also check whether the sub-limit applies per claim or in the aggregate.
Sources and legislation
- Spanish Civil Code, articles 1101, 1183, 1555(2), 1561, 1563, 1564, 1902, 1964.2 and 1968(2).
- Law 50/1980, the Spanish Insurance Contract Act, articles 27 (sum insured), 43 (subrogation), 44 second paragraph (large risks) and 73 (liability insurance).
- Law 29/1994, the Spanish Urban Leases Act, article 4.3 (regime for leases for purposes other than housing).
- Law 20/2015 on the organisation, supervision and solvency of insurance and reinsurance undertakings, article 11 (definition of large risks).
- UNESPA, claims affecting insured buildings, 2024 data.
This information is for guidance only and does not constitute binding advice. Cover, limits and exclusions are governed in all cases by the particular conditions of each policy. New Brokers Correduría de Seguros, S.L., registered with the Spanish DGSFP under reference J0140.
