Repair fund

What it means

The repair fund, formally the fund for operation, maintenance and repairs, is money that owners of flats and non-residential units in a building pay monthly towards maintaining, repairing and renewing the common parts: roof, facade, lift, pipes and wiring or the staircase.

The owners set the contribution by vote at a meeting, usually in proportion to floor area. The building manager or the homeowners’ association holds the fund in a separate bank account, kept apart from payments for services and from the manager’s own money.

Contributions to the fund are neither payment for a service nor an advance settled and refunded at year end. They stay in the fund and belong to the building rather than the owner: when a flat is sold they are not refunded but pass with the flat to the new owner.

How it works in practice

The manager or association must keep records of the fund and report annually to the owners on what went in and what was spent. For an association this includes its financial statements, where the fund appears as a separate item.

For major works, such as insulation or a new lift, the fund is often not enough and the owners approve a loan. Repayments then come out of the fund, so contributions go up. Before the vote we recommend preparing a simple budget for several years ahead.

Interest on the fund’s account and other income, such as renting out common areas or advertising on the facade, has its own tax rules. Income from renting common parts is taxable, and the association files a return for it even if the money goes back into the fund.

What to watch out for

The most common problem is under-funding. A building that has skimped on contributions for years has no money when the roof fails, and owners must suddenly pay large sums or borrow on worse terms.

The second risk is mixing fund money with other payments or with the manager’s account. If the manager fails, owners can lose their savings. Checking statements from the separate account and reading the annual report therefore matter to every owner.