Maintenance reserve fund

Maintenance Reserve - The maintenance reserve is the financial reserve of a condominium owners’ association (WEG) that is set aside specifically for the maintenance, repair, and renovation of the common property. Since the 2020 WEG reform, the law has used the term “maintenance reserve”; in practice, both terms are used interchangeably.

Legal Basis and Calculation of the Reserve

According to Section 19(2)(4) of the WEG, the establishment of an adequate maintenance reserve is part of proper management and is therefore a mandatory obligation of every homeowners’ association. The owners’ meeting decides on the amount of the annual allocation as part of the budget plan. The contributions are collected monthly from each owner along with the building maintenance fee and distributed according to the respective co-ownership share.

In practice, the Peters formula has become established for determining an appropriate reserve amount. It calculates the necessary reserve based on the building’s construction costs, an assumed useful life of 80 years, and a maintenance factor that varies according to the building’s age and condition. As a rough guide, this amounts to approximately 7.10 euros per square meter of living space per year for newer buildings, and up to 11.50 euros or more for older properties. However, these are only guidelines-the actual reserve required depends on the specific condition of the building, upcoming measures, and the maintenance history to date.

The reserve fund is held in a separate account allocated to the condominium association’s administrative assets. It is earmarked for a specific purpose and may not be used for ongoing operating costs. In the event of a change in ownership, the selling owner’s proportionate share of the reserve fund is transferred to the purchaser-the seller has no claim to reimbursement. This circumstance should be taken into account in the purchase price, as a well-funded reserve supports the value of the property.

The distinction from a special assessment is also crucial. If the accumulated reserve is insufficient for a necessary measure, the owners’ meeting may decide on a special assessment. A reserve that is consistently set too low significantly increases the risk of such unplanned special payments.

Pass-through Eligibility and Tax Treatment

The maintenance reserve cannot be passed on to tenants. It does not constitute operating costs within the meaning of the Operating Costs Ordinance, but rather serves to maintain the building’s structure. Landlords are therefore not permitted to include it in the utility bill. This is relevant for investors because contributions to the reserve fund are only tax-deductible as business expenses once the money is actually spent on a maintenance measure-not at the time of deposit.

When purchasing a condominium as an investment, one should therefore carefully examine the size of the existing reserve fund and whether major maintenance measures are expected in the foreseeable future. An insufficient reserve fund can significantly reduce the return on investment due to subsequent special assessments.

Practical Tip for Owners in Nuremberg and Franconia

The housing stock in the Nuremberg metropolitan region includes numerous apartment buildings from the 1950s to the 1970s, where major projects such as roof renovation, facade insulation, or the replacement of risers and heating systems are due in the coming years or are already overdue. We regularly observe that the reserves in such buildings are significantly below the recommended level.

We recommend that buyers review the last three annual statements, the current reserve balance, and the collection of resolutions from the condominium association before purchasing a condominium in Nuremberg. This allows them to assess whether sufficient reserves are available for upcoming projects or whether special assessments are to be expected. Our network of experts assists with the analysis of the homeowners’ association documents and the assessment of actual maintenance needs.

Frequently Asked Questions

What should the minimum amount of the maintenance reserve be?

There is no legally prescribed minimum amount. The Peters formula recommends between 7.10 and 11.50 euros per square meter of living space per year, depending on the age of the building. In practice, the allocation in many WEGs is lower than this, which can lead to a maintenance backlog in the long term. The key factor is whether the reserve fund covers the foreseeable maintenance needs for the next ten to fifteen years.

Can an owner reclaim their share of the reserve fund upon sale?

No. The accumulated share of the reserve fund is transferred to the buyer along with ownership of the unit. The seller has no claim for reimbursement against the condominium association. In practice, the size of the reserve fund is taken into account during purchase price negotiations-a large reserve fund reduces the risk for the buyer and can positively influence the achievable sale price.

What happens if the WEG does not establish a reserve fund?

Failure to establish an adequate reserve fund violates the principles of proper management. Any owner can enforce the establishment of a reserve fund through the courts. If the reserve is lacking, necessary repairs must be financed through special assessments, which can place an excessive financial burden on individual owners. In practice, a lack of a reserve fund often leads to urgently needed measures being delayed and the building’s condition continuing to deteriorate.

How is the maintenance reserve fund factored into real estate appraisals?

A well-funded reserve fund indirectly increases the value of a condominium: It reduces the risk of future special assessments and signals professional management of the condominium association. Buyers and their financing banks are increasingly asking about the current level of the reserve fund as part of the due diligence process. We recommend that sellers have the latest annual statements and the current account balance of the reserve fund ready as sales documents-this speeds up the decision-making process for prospective buyers and supports the pricing argument.

Special Assessment: When the Reserve Fund Is Insufficient

If the accumulated maintenance reserve fund is insufficient for a necessary measure, the owners’ meeting may approve a special assessment. A special assessment is a one-time, earmarked payment by all condominium owners proportional to their co-ownership shares. It represents a short-term financial burden, particularly for owners with limited cash reserves. In Nuremberg condominium associations with older buildings-such as those from the 1960s and 1970s-special assessments for roof renovations, heating system replacements, or energy-efficient facade renovations are not uncommon. Typical amounts range from 3,000 to 25,000 euros per unit, depending on the scope of the project and the number of residential units. A solid reserve fund can minimize this risk and is therefore a true hallmark of a well-managed condominium association.

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