Retained earnings

Annual reserve (under the German Condominium Act (WEG): maintenance reserve; officially known as the “preservation reserve” since the 2020 WEG reform) refers to the annual contributions paid by condominium owners into a common reserve fund, which is used to finance future maintenance and repair work on the common property. It ensures the liquidity of the condominium association for unforeseen repairs and major renovation measures and must be established by every properly managed condominium association pursuant to Section 19(2)(4) of the WEG.

Legal Basis and Formation of the Annual Reserve

The obligation to establish an adequate maintenance reserve arises directly from the WEG. The amount of the annual contributions is determined by a resolution of the owners’ meeting as part of the budget plan. No statutory minimum amounts are prescribed-the reserve must be “adequate,” which courts assess based on the age, condition, and amenities of the building.

The Peters formula serves as a guideline for an appropriate annual reserve: The annual reserve should amount to approximately 0.8-1.5% of the replacement value of the building (excluding the land). A lower rate may be chosen for newer buildings; a higher rate is appropriate for older buildings with increased maintenance needs.

Practical guidelines (depending on year of construction and condition):

• New construction up to 10 years old: €5-7/m² of living space per year
• Existing buildings 10-30 years old: €7-10/m² of living space per year
• Older existing buildings (built before 1990): €10-15/m² of living space per year

Use and Management of the Annual Reserve

The maintenance reserve is earmarked and may only be used for measures to maintain the common property, but not for ongoing operating costs. It must be managed separately from other funds by the condominium management, invested securely, and reported in the annual financial statement.

The owners’ meeting decides on its use. For urgent repairs (e.g., roof repairs following storm damage), the property manager may access the reserve with immediate effect if an owners’ meeting cannot be convened in time (emergency authority of the property manager pursuant to Section 27(1)(1) of the WEG).

The reserve fund is not a debt owed by the owner to the WEG, but rather the joint property of the community. Upon the sale of a residential unit, the reserve fund remains with the WEG-it does not transfer to the seller and cannot be deducted from the purchase price (Federal Court of Justice ruling, established case law).

Annual Reserve Fund and Real Estate Purchase: Implications for Buyers

When purchasing a condominium, the status of the maintenance reserve fund is an important due diligence consideration:

• A well-funded reserve fund indicates forward-thinking WEG management and reduces the risk of short-term special assessments.
• A low or depleted reserve means that upcoming renovations must be financed through special assessments-a direct burden on the new owner.
• Upcoming Measures: Minutes from homeowners’ association meetings show which renovation projects have already been discussed or approved. Anyone who buys a unit shortly after an expensive roof renovation has been approved is liable for their share, even if they were not yet an owner when the decision was made.

Annual Reserve Fund and Energy-Efficiency Renovations

In the current debate on the energy transition, the annual reserve fund is gaining additional significance: Many condominium associations will need to make substantial investments in heating system modernization (GEG requirements), insulation, and facade upgrades in the coming years. An underfunded maintenance reserve fund can become a financial burden for all owners if high special assessments suddenly become due. We recommend estimating the renovation needs for the next 5-10 years as part of the annual forecast and adjusting the annual reserve fund accordingly.

Practical Tip for Owners in Nuremberg and Franconia

When purchasing condominiums in older buildings in Nuremberg-particularly in the Südstadt, the Josephsviertel, or in Erlangen’s Gründerzeit buildings-we recommend carefully reviewing the last three annual statements and the current reserve fund balances. We regularly find that reserve funds in older condominium associations are significantly underfunded.

As a seller, you should ensure that all current housing allowance and reserve fund payments are fully paid up by the time of closing. We’d be happy to show you how to assess a homeowners’ association’s reserve fund balance and financial health before purchasing.

Frequently Asked Questions

As a seller, do I get the reserve fund contributions back upon sale?

No. The maintenance reserve remains with the association and is transferred to the buyer. The seller and buyer can agree in the purchase contract that the reserve share will be factored into the purchase price-but legally, the reserve remains with the condominium association.

How much should the annual reserve be for a typical older apartment in Nuremberg?

For an 80 m² apartment in a building from the 1960s, we recommend an annual reserve of at least €800-1,200 per residential unit (€10-15/m² × 80 m²). If the actual annual reserve is significantly lower, special assessments should be expected in the medium term.

Can the annual reserve fund be claimed for tax purposes?

No, contributions to the maintenance reserve fund are not tax-deductible as income-related expenses-only when the reserve is spent on specific repair measures are these costs (pro-rata) deductible as income-related expenses. The tax office relies on the statement of use reported in the WEG annual statement.

What happens if the annual reserve is insufficient?

If the maintenance reserve is insufficient for a decided-upon measure, the owners’ meeting may resolve to impose a special assessment. This must be paid once by each owner on a pro-rata basis according to co-ownership shares (or another agreed-upon formula). In the event of refusal to pay, the WEG may enforce the claim in court.

How does the amount of the annual reserve affect the purchase price of a condominium?

A well-funded maintenance reserve is a real value advantage when purchasing a condominium and should be taken into account when determining the purchase price. Although the Federal Court of Justice (BGH) has confirmed that the reserve fund remains with the condominium association upon sale and is not legally transferred to the buyer-in practice, however, the buyer gains access to this reserve and benefits from it if expensive repairs are due in the foreseeable future. Conversely, an empty or severely underfunded reserve fund in an older building poses a risk of special assessments, which buyers should factor into their price negotiations. In older Nuremberg buildings constructed between 1950 and 1975-such as those in the Südstadt, Josephsviertel, or Langwasser neighborhoods-we regularly see that the annual reserve fund is insufficient for necessary facade or roof renovations, and short-term special assessments of 5,000 to 20,000 euros per unit must be approved. Reviewing the last three annual financial statements and the minutes of meetings gives prospective buyers a realistic view of the financial situation of the homeowners’ association before a purchase contract is signed.

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