A Reserve Fund in a community of owners is a deposit of money that has been accumulated, i.e., as a savings for unforeseen events that is kept to cover investments or extra expenses for maintenance, repairs or renovation of elements within the community. 

These causes are the most common ones in which the money is invested, although the Law of Horizontal Property (Law 49/1960 of 21 July) allows them to be used for other expenditures, e.g. for accessibility works, replacement of dilapidated facilities.

It can also be used to pay for community insurance or an ongoing maintenance contract for the community or specific community facilities.

The Reserve Fund within the budget

More generally, the reserve fund is a part of the budget of a homeowners' association.

This fund is established with the periodic contributions of the owners, according to their participation quota, and is kept in a bank account separate from the ordinary account of the community.

The purpose of being an essential part of the budget is to cover those unexpected or extraordinary expenses, as we have already indicated. 

This is a security fund that allows the community to meet surprise expenses, such as the repair of a major breakdown or the replacement of a common element.

Is there a mandatory minimum for the reserve fund?

By law, it is compulsory to have a reserve fund in all communities of owners, according to article 9.1.f) of the Horizontal Property Law (LPH).

A minimum amount is also established, which must correspond to at least 10% of the last ordinary budget that the community has approved, unless the board determines a higher amount.

In order to set an appropriate budget or percentage for the community, regardless of the legal minimum, but provided that it will exceed 10%, it is crucial to take into account the expenses that the reserve fund may need to cover immediately, or if it is known that major works are to be undertaken. 

For this reason, it is recommended to use the fund for those expenses that arise unexpectedly or for those that may become extraordinary expenses.

This deposit is not an option, but an obligation. As stated in article 9.1-f of the Horizontal Property Law, it is compulsory for all members of the community to contribute to the maintenance of this reserve fund, according to the participation quotas of each owner.

What expenses can the reserve fund cover?

As mentioned above, the reserve fund is intended for unexpected and extraordinary expenses of the residents' association.

The most common ones we can include are:

• Breakdown repairs
• Replenishment of common objects
• Possible improvements to common areas or the need to provide for them 
• Legal, fiscal and administrative costs

These funds not only ensure that we can meet expenses such as urgent works or services without the need for external financing, but can also benefit us when applying for subsidies (payment capacity, liquidity) to improve some aspect of the community such as accessibility or renewable energies.

Recommended process for using the reserve fund:

To make good use of the reserve fund, steps and an orderly process must be followed:

1. Identify the priority

Works or services necessary for the maintenance and upkeep of the building or its common facilities should be identified. 

This involves carrying out a regular technical inspection of the state of the building, and detecting any deficiencies or improvements that require urgent or priority intervention.

2. Request several quotations

Quotes should be requested from several suppliers. It is advisable to obtain at least three detailed and comparative quotations from different suppliers who offer guarantees, quality and professionalism in carrying out the works or services.

At Meridional we are convinced that this is the best way to ensure the best possible budget for the community and to provide a transparent and loyal service to the community.

3. Convene an Extraordinary General Meeting

An extraordinary meeting must be called to approve the use of the reserve fund. It is essential to inform all owners of the need, cost and timing of the works or services before voting on them. 

According to the LPH, the law of horizontal property, a simple majority vote of the total number of owners is required for the use of the reserve fund.

4. Supplier selection, contract signature and works supervision

The extraordinary board makes the decision to contract the supplier, and the administrator must facilitate the drafting of the contract with his legal team and supervise the works. 

It is necessary to formalise the contract with the supplier that has obtained the greatest support from the board, and require it to comply with the agreed conditions and guarantees. It is the administrator's job to supervise the development, verify each deadline and its correct completion.

5. Make payment according to contract

Payment should be made from the reserve fund account, and the invoice should be requested with as much detail as possible, and all movements should be recorded in detail in the annual accounts.

Even so, we know that it is not easy to finance works in a community of neighbours. In this respect, we have an interesting article on how to finance works in a homeowners' associationwhich covers a number of aspects and rules to be taken into account.

Simplified guide for chairpersons on the reserve fund

1. Open a specific bank accountSelect a bank that offers the best conditions for the community, such as security, profitability and low fees. Ask for a bank certificate proving the existence and balance of the reserve fund.
2. Establishing owner's feesCalculate the minimum amount of the reserve fund, which must be 10% of the last ordinary budget approved by the community. Divide this total among the owners according to their share. Decide on the frequency and method of payment of the instalments, which can be monthly, quarterly, half-yearly or annual.
3. Deposit the dues into the fund's bank accountKeep a strict control of the income and expenses of the reserve fund, and issue the corresponding receipts to each owner. Make sure that all owners comply with the payment of fees, and if necessary, take legal action in case of non-payment.
4. Regularly inform owners about the status of the reserve fund.Prepare an annual report on the balance and movements of the fund, and present it to the ordinary meeting for approval. Allow all owners to have access to the report, and answer any questions or queries they may have about it.

Ownership of the reserve fund

This is a very common doubt that we would like to clarify in the article, the ownership of the Reserve Fund corresponds to the Community of Owners, this lacks legal personality, but it can be holder of credits and funds since this is approved in the Meeting of Owners. 

That is to say, although the community does not have legal personality as such, it can count as holder of this account as a whole of all the owners, so that the community of owners (all the owners) would be the holders, but jointly, always needing the majority of votes for the use of this money.

Can I get back my share of the reserve fund if I sell my property?

In this situation, the already disbursed reserve fund is the property of the community and therefore the contribution belonging to the neighbour who wishes to sell his property is not returned. The only thing left is to meet in a private context between the two parties with the aim of reaching some kind of agreement.

The obligation to contribute to the reserve fund must be fulfilled in due time and form, as established by the Owners' Meeting. 

Article 21.1 of the LPH establishes that the president or administrator can claim compliance by judicial means through the payment order procedure by decision of the Owners' Meeting.

Legal information

At Meridional, we recommend that in case of legal doubts, you read and review in more depth the Horizontal Property Law directly from the BOE (Official State Gazette)In this way, you will not miss any aspect and when it comes to informing you about it in different entities such as the bank, you will be able to handle the subject and know what you are talking about at all times. This is also very important when it comes to communicating it at the meeting with the owners.