Accumulation of reserves

Building Reserves - Building reserves refers to the systematic accumulation of funds for future maintenance, repair, and modernization work on real estate. In condominium associations (WEG), the maintenance reserve (formerly known as the repair reserve) is required by law and is funded through monthly maintenance fees. For individual property owners, building up reserves is an economic necessity to avoid costly surprises.

Building Up Reserves in the HOA

According to Section 19(2)(4) of the HOA Act, the creation of an adequate maintenance reserve is part of proper management. The reserve is collected through the monthly maintenance fee and deposited into a separate account. The amount is based on the age, condition, and amenities of the building.

The Peters’ formula recommends setting aside approximately 0.8-1.0% of the construction costs (excluding land) annually as a reserve. Alternatively, property management companies recommend 7-15 euros per square meter of living space per year-depending on the building’s age. If the reserve fund is insufficient to cover a necessary measure, a special assessment must be approved.

Since the 2020 WEG reform, the owners’ association may also take out a loan (§ 21 WEG) if the reserve fund is insufficient and a special assessment is not desired. This option allows for more flexible financing of major renovation projects. The WEG loan is repaid through the maintenance fees of all owners; the amount of each owner’s share is based on their co-ownership share.

Building Reserves for Individual Owners

For owners of single-family homes or multi-family buildings without a WEG structure, there is no legal obligation to build reserves-but it is strongly recommended from a financial perspective. The most significant cost-driving measures can be planned for: roof (every 40-60 years, 15,000-40,000 euros), heating system (every 20-25 years, 15,000-30,000 euros), Windows (every 30-40 years, €10,000-€25,000), Facade (every 30-50 years, €20,000-€50,000). A reserve fund plan that takes these cycles into account avoids financial bottlenecks and allows for optimal use of subsidies.

We recommend that individual homeowners create a long-term maintenance plan: For each building component, the year of construction or renovation, the expected service life, and the estimated replacement costs are recorded. This results in an annual reserve requirement, which should be saved in a separate account. Especially given the current interest rate environment (2025/2026), maintenance reserves can be invested in fixed-term deposit accounts at market-standard interest rates and no longer have as significant an impact as they did in the past.

Tax Treatment of Reserve Accumulation

Ongoing contributions to the reserve are not immediately tax-deductible as business expenses for landlords. The deduction is only made when the reserve is actually used for maintenance expenses-that is, in the year of expenditure. This means: If you set aside a reserve of €10,000 and use it the following year for a roof repair, you can claim the €10,000 as income-related expenses in the year of the roof repair.

For owners of owner-occupied properties, contractor services are tax-advantaged under Section 35a of the German Income Tax Act (EStG): 20% of labor costs (not material costs) can be directly deducted from the tax liability, up to a maximum of €1,200 per year. The prerequisite is payment by bank transfer and a proper invoice.

Reserve Fund Formation as a Purchase Decision Factor

The level of a condominium association’s reserve fund is an important quality indicator for buyers of a condominium unit. A well-funded reserve fund (at least €50-100 per square meter of total living space) indicates that the homeowners’ association manages its finances with foresight. An underfunded reserve fund, on the other hand, increases the risk of special assessments shortly after purchase-a factor that should be taken into account during purchase price negotiations.

We recommend that buyers request the HOA minutes from the past three years as well as the current budget plan before purchasing. These documents reveal approved or planned measures that may indicate special assessments. A price reduction equal to the expected special assessment is objectively justifiable and legitimate in negotiations for underfunded HOAs.

Practical Tip for Owners in Nuremberg

We recommend that owners in the Nuremberg metropolitan area critically review the maintenance reserve of their condominium association. Many older condominium complexes in Nuremberg (especially those built in the 1960s-1980s in Langwasser, Maxfeld, or Schweinau) have historically accumulated insufficient reserves-often only 3-5 euros/m²/year, which leads to high special assessments when renovation work is needed (roof, facade, heating, elevator).

Request a long-term maintenance plan with cost estimates from your property management and vote at the owners’ meeting for an appropriate increase in the reserve fund. An increase in the monthly maintenance fee of €50-100 per apartment may seem burdensome at first, but it prevents a special assessment of €10,000-30,000 per unit in the event of a major project. For individual owners, we recommend a separate money market or fixed-term deposit account as a maintenance reserve.

Frequently Asked Questions

How much should the reserve be per square meter?

As a guideline: New construction (0-10 years): 7-9 euros/m²/year. Existing buildings (10-25 years): 9-12 euros/m²/year. Older buildings (over 25 years): 12-15 euros/m²/year or more if major projects are foreseeable. Buildings with elevators, underground parking, or complex building services require higher reserves. In Nuremberg condominium complexes, the actual reserve is often only 5-8 euros/m²/year - significantly below the recommended level for older buildings.

Can the condominium association use the reserve fund for any purpose?

No. The maintenance reserve fund may only be used for maintenance measures on the common property-that is, upkeep, repairs, and, since the 2020 condominium reform, also for structural alterations if this has been decided. Ongoing administrative costs (caretaker, insurance) may not be financed from the reserve fund. This earmarking protects owners from reserves being misused for other expenses.

Is the reserve refunded when the apartment is sold?

No. The share of the maintenance reserve is transferred to the buyer along with the property upon sale-the seller has no claim for reimbursement against the homeowners’ association. However, the reserve fund is a value-adding factor: A high reserve fund makes the apartment more attractive (lower risk of special assessments), while a low reserve fund can depress the purchase price. Buyers should inquire about the amount of the reserve fund and any upcoming renovation needs before purchasing-both are recorded in the minutes of the owners’ meetings.

What happens if an owner fails to pay the maintenance fees-including the reserve fund contribution?

If an owner fails to pay the maintenance fees, the homeowners’ association can enforce the claim in court and obtain a penalty payment. Repeated non-payment can, in extreme cases, lead to the foreclosure of the unit. The remaining owners are burdened by liquidity shortages until the debt is collected, which slows down the accumulation of reserves. For this reason, when purchasing a WEG unit, we recommend also checking the payment history of the other owners-which can be seen in the annual statements and collection resolutions in the WEG minutes.

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