What is the reserve fund actually for?
A reserve fund — also called the sinking fund; fonds de travaux, Instandhaltungsrücklage or ταμείο αποθεματικού in other markets — exists to pay for the things that wear out on a timescale longer than a budget year: the lift, the roof membrane, the façade, the water tanks and pumps, the fire alarm panel, the external paint. None of these are surprises. A lift typically runs 20–30 years before major modernisation; a flat roof membrane perhaps 15–25; external render and paint 8–12 in a coastal climate. The dates are uncertain, the fact is not.
Without a reserve, the building funds these works with a special levy — a one-off call on owners for thousands of euro each, at short notice, at exactly the moment some of them cannot pay. The works get delayed, the lift is out of service for months, and the owner who bought last year pays for twenty years of wear they did not cause. The reserve fund exists to spread that cost across the owners who actually benefit from the component while it lasts.
Percentage of budget or component plan — which works?
Two approaches dominate, and the difference is whether the number comes from the past or from the future.
The percentage method sets the reserve contribution as a share of the annual operating budget — commonly 5–10 %, sometimes more. It is easy to explain and easy to vote on. Some jurisdictions make a minimum mandatory: France, for example, requires a works fund for most co-owned buildings, funded at a statutory minimum percentage of the budget — confirm the current figure with a French syndic or notary. The weakness is that the operating budget has nothing to do with the lift. A frugal building with low running costs gets a small reserve for the same €60,000 lift replacement as a lavish one.
The component-lifecycle method — sometimes called a reserve fund study or a maintenance plan — starts from the building instead: list the major components, estimate each one's replacement cost today, its expected remaining life, and what the fund already holds. The contribution is whatever closes the gap in time. It takes an afternoon with a contractor or surveyor and a spreadsheet — or the building's compliance record, which already lists the components and their last inspection — and it produces a number owners can argue with on the merits.
Our view: use the percentage method as a floor if your regulations set one, and the lifecycle plan as the actual target. Revisit it every three to five years, or whenever a component is replaced.
How does a lifecycle plan turn into a monthly contribution?
Take a 16-unit building with a lift installed in 2011. A modernisation is quoted today at roughly €60,000 and the contractor expects it to be needed in about 12 years. The reserve currently holds €9,000.00. The shortfall is €51,000.00 over 144 months — €354.17 a month for the building, or about €22.14 per unit if the reserve key is an equal share.
Add the roof: a new membrane at around €30,000 in 20 years, nothing set aside yet. That is €125.00 a month, another €7.81 per unit. Together the building needs to contribute roughly €479 a month — just under €30 per unit — to have both jobs funded when they fall due, before inflation and before any interest the account earns.
Three things follow. First, the per-unit figure should be split by the same key as the main budget — usually ownership share, not equal — so larger units carry more. Second, index the cost estimates annually; a €60,000 lift quoted in 2026 will not be €60,000 in 2038. Third, a plan is not a promise: when the lift engineer's annual report shows the doors failing early, the plan moves forward and the contribution rises. That is the plan working, not failing.
Why must the reserve sit apart from the operating account?
Operating money and reserve money have different owners in time. Operating money belongs to this year's budget and is spent this year. Reserve money belongs to a future project and to whoever owns the units when that project happens. Mixing them in one account makes it trivially easy to spend the reserve on a cash-flow gap in March and intend to put it back by October.
The minimum standard is a separate ledger: every contribution, every withdrawal and every interest payment to the reserve recorded apart from the operating account, with a running balance owners can see. Many jurisdictions and most auditors expect a separate bank account as well — and in some countries it is required. Either way, a reserve withdrawal should need a documented decision (a general meeting resolution or a committee decision under delegated authority), an invoice, and a line in the minutes.
Domera's reserve fund management keeps the two funds as separate ledgers with their own balances, so a common-expense payment can never be booked against the reserve by accident, and a reserve movement always carries its own reference.
How does the reserve appear on an owner's statement?
An owner should be able to read, on one page, three things about the reserve: what they contributed this period, what their unit has contributed in total, and what the building's reserve balance is now. The first is a line in the period's charges. The second and third are the lines that build trust — they are the evidence that the money exists.
Show the building balance, not just the owner's contribution. Owners pay reserve contributions for years without seeing the benefit; the running balance is the only thing that makes the contribution feel like saving rather than a fee. On the statement, keep the reserve contribution as its own charge line, labelled as such, so it is never confused with an operating charge that has gone up.
What happens to the reserve when a unit is sold?
In most jurisdictions the reserve belongs to the community, not to the individual owner: contributions are not refunded on sale, and the buyer takes over the unit's accrued interest in the fund along with the unit. The practical consequence is that the reserve balance — and any planned works — should be disclosed to the buyer before completion, and the price should reflect it. A building with €95,000 in the reserve and a fresh lift is worth more, unit by unit, than an identical one with €4,000 and a levy pending.
For the committee, a sale is also the moment to confirm there are no unpaid reserve contributions. A clearance or settlement statement issued at transfer should list the operating balance and the reserve balance separately, so the seller settles both and the buyer starts at zero. Some buildings also charge a reserve fund top-up at transfer; whether that is allowed depends on the regulations and local law — check before adding it.
Checklist
- List the building's major components with a replacement cost estimate and remaining life; the compliance record is a good starting list.
- Set the reserve contribution from the plan, and treat any statutory percentage as a floor.
- Keep the reserve on its own ledger — and its own bank account where required — with a running balance owners can see.
- Require a documented decision and an invoice for every reserve withdrawal.
- Show the building's reserve balance on every owner statement, not just the contribution.
- Disclose the reserve balance and planned works to buyers at transfer, and settle both balances separately.
Frequently asked questions
- Is a reserve fund mandatory?
- It depends on the country. France requires a works fund for most co-owned buildings; several other jurisdictions require or strongly expect one; in Cyprus the building's registered regulations commonly provide for it. Confirm the position with a lawyer or the competent authority — and remember that even where it is optional, a building without one will fund major works by special levy.
- Can the reserve be used for an emergency operating shortfall?
- Only if the regulations allow it and a documented decision is made — and then it should be treated as a loan repaid on a fixed schedule. Treating the reserve as an overdraft is the fastest way to arrive at a failed lift with no money.
- How often should the plan be reviewed?
- Every three to five years, or whenever a major component is replaced, an inspection reveals early wear, or construction costs move significantly.
- Does a seller get their reserve contributions back?
- In most jurisdictions, no. The reserve belongs to the community and the buyer inherits the unit's share. The seller's compensation is a higher sale price for a well-funded building.