The formation of a reserve account is part of the administration of homeowner associations (WEG). As part of the responsible management of a building, this account serves as financial security for future maintenance, refurbishment, and modernization measures concerning the common property.
In this blog article, you as an owner will receive answers to the most important questions about the maintenance reserve: from the formation of a preservation reserve, to the exact amount of the reserve, to the calculation and management of the reserve account.
What is a Reserve Account in a WEG?
A reserve account, often referred to as a maintenance reserve account, preservation reserve, or maintenance provision, is a special account for your homeowner association. It serves to accumulate financial resources to cover future costs for maintenance or refurbishment measures on the common property of the WEG.
Thus, the reserve is not a voluntary savings measure but is a legally required component of the proper administration of a WEG. The goal: The homeowners' association should not have to decide on a special assessment immediately for every repair or refurbishment but should have sufficient funds available beforehand.
More information about the preservation reserve can be found in this blog article: The Preservation Reserve in the WEG: Amount, Use, and Tips
Legal Basis: The Obligation to Form a Reserve According to the Condominium Act
The Condominium Act (WEG Act) regulates the rights and obligations within a homeowners' association. Since the WEG reform in 2020, § 19 paragraph 2 No. 4 of the Condominium Act clearly states that an appropriate maintenance reserve must be formed. This means the reserve is not just common practice but is legally mandatory.
The reserve must be measured so that the owners can finance necessary measures for the preservation or refurbishment of the common property even without an immediate special assessment.
Why is a Maintenance Reserve so Important?
The formation of a reserve offers security – both financial and organizational. Repairs, modernization measures, or unexpected damages to the roof, facade, or heating system often cause high costs for the WEG. Without a reserve, all owners would have to contribute money at short notice, not infrequently in the form of a special assessment.
A well-managed reserve account is also an important signal for potential buyers when selling the condominium. It shows that the homeowners' association acts proactively and manages its building sustainably.
Which Measures are Paid for from the Reserve?
The reserve may be used exclusively for the upkeep and repair of the common property. This includes, among other things:
- Roof repairs
- Facade refurbishments
- Replacement of the heating system
- Renewal of staircases
- Sealing of basements
- Modernizations for energy savings
Measures on the individual property (e.g., new kitchen or floor coverings inside an apartment) may not be financed.
Who Manages the Reserve Account or WEG Own Account?
The management of the reserve account is generally the responsibility of the WEG administrator. The maintenance of a separate reserve account is legally prescribed. It must therefore not be mixed with the current operating account – the checking account for short-term expenses such as waste, water, or insurance. This is referred to as the WEG Own Account and ensures the separation of the reserves from the rest of the WEG account and thus from other funds of the WEG.
Reserve Account: Call Money Account, Checking Account, or Fixed Deposit?
A reserve account can be managed in various account types:
- Call Money Account (Tagesgeldkonto): High flexibility, usually low to medium interest rates, daily availability
- Fixed Deposit Account (Festgeldkonto): Higher interest rates possible, but tied to a term
- Checking Account (Girokonto): Unsuitable for reserves, as there is no interest and no clear separation from operating costs
Most WEG administrators today use Call Money Accounts for the reserve account, as these offer both security and flexibility. Some homeowners' associations also use a mixture: a part of the money in a Call Money Account, a part in a longer-term Fixed Deposit Account.
How High Must the Reserve Be?
The question of the “right” amount for the reserve is important here. The exact amount of the reserve depends on factors including:
- Age and condition of the building
- Size of the condominium complex
- Planned maintenance measures
- Current balance of the reserve
In practice, people often rely on empirical values. A common rule of thumb: 1.00 to 1.50 Euros per $m^2$ of living space per month. For an 80 $m^2$ individual property, this results in a monthly reserve contribution of 80 to 120 Euros.
Some associations also prefer an annual reserve calculation based on a technical maintenance plan to arrive at realistic figures.
Reserve Formed – How is the Amount Adjusted?
The reserve is not a fixed amount. It must be regularly – ideally annually – reviewed and potentially readjusted in the homeowners' meeting. The following aspects play a role here:
- Expenditures in the last year
- Planned measures in the coming years
- Value development of the property
- Proposals from the administrator
The homeowners' association decides on the amount of the reserve and its adjustment by a majority resolution.
What Happens to the Zinsen? (What Happens to the Interest?)
Interest earned by the reserve account – e.g., in a Call Money Account – belongs to the homeowners' association and increases the reserve. It must be transparently reported in the annual financial statement. There is no individual credit to individual owners.
Use of the Reserve: Who Decides?
The homeowners' meeting generally decides on the use of the maintenance reserve by resolution. The administrator is not allowed to independently withdraw reserve funds for repairs or measures. Exceptions only apply in emergencies – such as a burst water pipe.
As a reminder: The reserve may be used exclusively for common property. Owners must bear the costs for measures on the individual property themselves.
Reserve Account: How Secure is the Reserve?
A reserve account at a German bank is subject to the statutory deposit insurance – generally up to 100,000 Euros per bank. If more capital is managed, it is recommended to distribute the money across multiple banks or to hold reserves in different accounts.
Furthermore, the maintenance of a separate account by the administrator is mandatory – which increases transparency and security for all co-owners.
Reserve Account When Selling the Property
When selling a condominium, the question often arises: "What happens to my share of the reserve?" The answer: The share of the reserve transfers to the buyer with the ownership. A seller cannot have their reserve share paid out.
However, the balance of the reserve is a relevant factor in the sale. The better the homeowners' association is financially positioned, the more attractive the property appears.
What Happens if There is No Reserve?
If an appropriate reserve is missing, significant challenges in administration can arise for impending measures:
- Financing bottlenecks for refurbishments
- Need for special assessments
- Delay of necessary repairs
- Loss of value for the property
Therefore, it must be reiterated: The reserve is not an option but a necessity – and a quality feature of professional WEG administration.
Reserve Account in Practice: What Owners Should Consider
- Demand transparency: Get regular information about the balance, amount, interest, and use of the reserve.
- Pay attention to the separation of accounts: The reserve account and the checking account (operating account) must be kept separate.
- Get involved in the homeowners' meeting: Vote on the reserve amount, measures, and account management.
- Ask if you are uncertain: The administrator must provide you with information – do not hesitate to ask questions if there are ambiguities.
- Think long-term: Reserve formation is not a short-term cost factor but a strategic measure to maintain the value of your condominium.
Frequent Questions and Misunderstandings About the Reserve Account
Is a High Reserve a Disadvantage?
No. It is a sign of good planning. However, excessively high reserves should be avoided, as the capital could be earning interest. Regular adjustment is important.
Can I Claim My Reserve for Tax Purposes?
Maintenance reserves are not directly tax-deductible. Only when funds are specifically used for measures can these possibly be proportionally considered for tax purposes.
What is the Difference to a Special Assessment?
A special assessment is decided at short notice when the reserve is insufficient. The goal is to avoid special assessments through adequate reserves.
Conclusion: The Reserve as the Foundation of the Homeowners' AssociationLink to this section
The reserve account is an indispensable instrument for the financial stability of a homeowner association. Whether it's a small repair or a major refurbishment: Anyone living in a WEG as an owner benefits from a well-managed and appropriate maintenance reserve – and contributes to securing the value of their own condominium and the entire building in the long term.
Stay informed, actively participate, and pay attention to a proper and transparent administration of the reserves. Because a strong reserve is more than just a financial cushion – it is the backbone of every well-managed homeowners' association.
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