What role does the maintenance reserve play when selling an apartment?

The amount of the maintenance reserve is crucial not only for the seller, but also for the buyer. The maintenance reserve—also known as the preservation reserve or renovation fund—is often the focal point at owners' meetings. It is a comprehensive and important topic in every condominium complex that raises questions, especially for new owners. Here, we answer your questions. What purpose does the maintenance reserve serve? How is the reserve calculated? What is the money used for? In addition, many sellers want to know what happens to the maintenance reserve when an apartment is sold. We provide you with comprehensive and competent information.

What is meant by the term maintenance reserve?

Every building is subject to an aging process. Therefore, it is necessary to prevent decay and ensure long-term economic use. This is achieved through cosmetic repairs, maintenance, repair work, modernization, energy conservation, and renovation. This is where the reserve fund comes into play.

The maintenance reserve fund is a statutory provision of an appropriate amount of money. The sum of money is saved by each individual apartment owner monthly so that future maintenance, servicing, and repairs on the Common property can be carried out. The maintenance reserve is therefore not for repairs or maintenance on Exclusive property or commercial unit provided for. Every owner must ensure and pay for this themselves. Thus, the community's maintenance reserve is a financial buffer. During the owners' meeting, the owners decide together how the maintenance reserve is used.

In the updated Condominium Act dated December 1, 2020, the term maintenance reserve (Erhaltungsrücklage) is used (§ 19 para. 2 no. 4 WEG) instead of maintenance provision (Instandhaltungsrückstellung), as was the case in earlier versions of the act.

The amount of the maintenance reserve should be appropriate

The legislature obliges the homeowners' association to provide an adequate to establish a maintenance reserve, also known as a maintenance provision (German Condominium Act § 21 para. 5 no. 4). The amount of the saved Maintenance costs has an impact on the value of the condominium. In this regard, the condition of the common property as well as upcoming renovations should be taken into consideration.

The legislator provides guidelines for the amount of maintenance costs. only for social housing. When calculating, the age of the property is crucial, because the older the property, the higher the maintenance expense.

For properties that are a maximum of 21 years old, 7.10 EUR per square meter (without elevator) and 8.10 EUR per square meter (with elevator) are applied. If the apartment building is between 22 and 31 years old, then 9 EUR per square meter (without elevator) and 10 EUR per square meter (with elevator) are calculated. For houses that are older than 32 years, a maintenance reserve of 11.50 EUR per square meter (without elevator) and 12.50 EUR per square meter (with elevator) is charged.

For condominiums that are not part of social housing, the condominium owners' association decides by majority vote on the amount of the reserve fund. It is advantageous to build up a sufficient maintenance reserve. The flat-rate maintenance allowances specified in § 28 para. 2 II of the Calculation Ordinance (now indexed) are considered a benchmark for the minimum amount of the provision.

The amount of the maintenance reserve can be determined, for example, by the so-called Peters formula. This is as follows:
(Production costs / pure construction costs per square meter of living space x 1.5) : 80 years

Example:
With production costs of EUR 1,000/m², this results in an annual provision of EUR 18.75/m² of living space per year.

The formula is very well suited for orientation, because the amounts usually turn out to be too high and the monthly maintenance reserve payments would become too heavy a burden for the owners. The establishment of an appropriate maintenance reserve is resolved by a majority of the owners as a measure of proper management.

The property manager should be able to anticipate maintenance costs and submit appropriate proposals to the owners for building up reserves in order to cover any Special assessments to avoid later. With the help of a Annual Economic Report Can the upcoming measures be recorded, since the annual economic plan lists all expenses and income of the homeowners' association?.

If the apartment owners reject the property management's proposals, the manager can demand that a corresponding note be included in the meeting minutes. This can read, for example, as follows: „The manager pointed out that the maintenance reserve is inadequately low and, in their opinion, should amount to ... euros for proper administration.“

As a rule, the co-ownership share influences the amount of the maintenance reserve and the other condominium fee payments.

For which measures may the maintenance reserve be used?

The maintenance reserve fund must always used for its intended purpose will be. It is for the Preservation and modernization of common property planned. These include, among other things, roof repairs, painting work in the stairwell, repair of damage to the facade, window replacement, modernization of the elevator, or replacement of the heating system. In case of uncertainties, the Deed of partition be consulted. It defines what constitutes Exclusive property and what belongs to the common property. Misappropriation of the reserve fund for the payment of building insurance or other expenses is not possible.

During the owners' meeting, decisions are made together regarding the exact use of the maintenance reserve.

Development of the maintenance reserve

The maintenance reserve is created by owners transferred monthly along with the remaining maintenance fee. The property management provides information on the development of the maintenance reserve in the Annual financial statement Information. At Sale For a condominium, the maintenance reserve fund is not paid out to the seller because it is part of the Assets of the homeowners association as an entity. It is transferred to the buyer as long as they retain ownership of the acquired apartment.

Quantify maintenance reserve in the purchase contract

It is recommended that the amount of the maintenance reserve to specify in the purchase agreement and thus the share of administrative assets tax-relevant to make. This is advantageous for the buyer when paying the Real estate transfer tax. Because the real estate transfer tax refers to the acquired real estate and the Specification of the maintenance reserve in the purchase agreement leads to a reduction in real estate transfer tax. Because when calculating the real estate transfer tax, the maintenance reserve is deducted from the purchase price. No buyer should miss out on this advantage.

Deducting the maintenance reserve as income-related expenses

Landlords can deduct contributions to the renewal fund from their taxes. However, the Federal Fiscal Court (BFH) has tied this deduction to the following condition: First, the money must be spent on a maintenance measure, so that the amount counts as work-related expenses.