Terminology
If a tenancy agreement requires the tenant to undertake an obligation that is not directly related to the rental property itself, this is referred to as a tied transaction (Koppelungsgeschäft). This is a separate contract, distinct from the tenancy agreement. Its subject matter does not concern the use of the rented property but is imposed on the tenant in addition. Typical examples include purchase contracts, exchange agreements, insurance contracts, and similar arrangements.
Conditions for Invalidity
To prevent tenants from being forced into disadvantageous agreements, the law generally deems tied transactions to be invalid if all of the following three conditions are met:
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The tied transaction must be a necessary condition for entering into or continuing the tenancy agreement. In other words, the tenant is faced with a choice: either accept both agreements together (the tenancy agreement and the tied transaction) or forgo the tenancy altogether.
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Next, the additional, tied transaction must oblige the tenant to do something that has no direct connection with the use of the rented property. In the present case, however, there is a direct connection, as personal liability insurance also serves to protect the rented property itself.
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Even if the additional transaction is in some way connected to the use of the dwelling, it still constitutes an impermissible tied transaction if the price demanded is disproportionate to the actual benefit provided by the landlord.
Conclusion
In light of the above, it can be concluded that a landlord may require a tenant to take out personal liability insurance, since the conditions for invalidity are not fulfilled in this case, meaning that such a requirement constitutes a permissible tied transaction.
However, agreements that go beyond this are not allowed—for example, requiring the tenant to take out insurance with a specific company, to cover the landlord’s own risks, or to take out life, accident, or health insurance. Such obligations are not directly related to the rental property and are therefore invalid.
If you have questions regarding tenancy law, our attorneys-at-law are happy to provide expert advice.