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Maintenance reserves for apartments: Here's what you should know

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Definition of a maintenance and upkeep reserve

The maintenance reserve is a fixed monthly amount that must be paid by all owners. According to the new WEG law (homeowners' association in Germany), this maintenance reserve is financial savings that must be used for all construction measures on the common property. The reserve is earmarked for a specific purpose, i.e. it may only actually be used for such expenses. The formation of such a reserve prevents higher financial burdens for the individual apartment owners. The administrator of the HOA posts the reserve to a separate account. This account is in the name of the HOA, not in the name of the administrator. The owners' association therefore acts as the owner of the reserve.

The ideal amount of the maintenance reserve

The best amount for the maintenance reserve depends on various criteria, including the condition of the property, its age, and the equipment. There are no legal requirements in this regard; the HOA merely states that the amount must be appropriate. The specifications of the social housing construction can represent guideline values. They contain information about the amount of the maintenance reserve, which is staggered according to the age of a property. The older the property, the higher the maintenance reserve per square meter. If the reserve is too low or too high, the owners can decide to increase or decrease the amount.

The older a property is, usually the higher the maintenance reserve will be.

Calculating maintenance reserve for apartments

Nowadays, the so-called Peters formula is used in most cases to calculate the appropriate maintenance reserve. Here, the pure production costs are multiplied by 1.5 and then divided by 80 (years). This usually results in a reserve of 65 to 70 percent of all maintenance costs. The result includes the estimated cost of maintenance expected to be incurred per square foot over the next 80 years. Thus, Peters' formula does not take into account the age of the property, but rather the cost of construction. Often, reserves turn out to be high when calculated using this formula, so a larger amount accumulates as a maintenance reserve. In some cases, therefore, a different basis for calculation can be useful, which, for example, takes into account the year of construction and age of a building.

Intended use and possible applications

Financial resources from the maintenance reserve may only be used for measures that serve the maintenance of the common property. This includes all manual work carried out on the common property, structural repairs, as well as other repairs and renewals, for example of elevators, windows and the like. As a general rule, expenses for management costs that are incurred on a regular basis constitute an improper use of the maintenance reserve. Use for the payment of insurance, taxes, running costs, janitor or gardener activities, as well as for taxes and general maintenance work is therefore not permitted.

Tax peculiarities

There are some special tax circumstances for maintenance reserves. For example, if it is formed in the form of an interest-bearing investment, any interest earned on it that goes to the owners must be taxed. On the other hand, the real estate transfer tax that a buyer must pay when purchasing real estate is not payable on the amount of the maintenance reserve, provided that it was shown separately on the purchase contract. This means that the reserve may be deducted before taxation. Furthermore, the reserves can only be claimed as income-related expenses if they were also used for maintenance work. In this case, the amount used for repairs and maintenance is deductible on a pro rata basis according to the respective co-ownership shares.

Frequently Asked Questions

Written by:

Stefanie Aust, Guest Writer

Stefanie loves to put complex topics from the real estate world into understandable and inspiring words. Whether it's about the right financing, choosing the right type of flat, or a successful property search: Stefanie is happy to inform you.

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