Every Homeowners' Association (HOA) is legally required to save for major maintenance. This is done through the reserve fund. However, many board members and residents do not know exactly how this works—or why it is so important.
The Act on Improving the Functioning of Owners' Associations has been in force since January 1, 2018. It stipulates that every owners' association must set aside a minimum amount each year for maintenance and repairs.
1. Why a reserve fund is mandatory
The reserve fund ensures that there is always money available for necessary major maintenance, such as:
- Roof and facade maintenance
- Painting
- Replacement of elevators or technical installations
Without a reserve fund, you run the risk of necessary work having to be postponed or owners suddenly having to pay high additional contributions.
2. How much should you reserve?
You can determine this in two ways:
-
-
- 1. Based on a MJOP (Multi-Year Maintenance Plan)
-
- Plan is no more than 5 years old
- Covers at least 10 years of maintenance
- 2. Adopted by the general meeting
- 0.5% of the building's reconstruction value (according to the building insurance policy)
3. Exceptions
You may deviate from the reservation requirement if:
- There is a bank guarantee for the required amount.
- 80% of owners agree to pay for maintenance on a per-service basis (not recommended due to higher risks)
4. Consequences of not having a reserve fund
- You are not complying with the law.
- Possible liability of the board
- Some insurers will not issue a policy without a reserve fund or long-term maintenance plan.
Read also: Director liability for homeowners' associations – to prevent you from running personal risks as a director.
5. Checklist for drivers
- Is there a current long-term maintenance plan or a reserve of 0.5% of the reconstruction value?
- Is the annual contribution collected on time and deposited into a separate account?
- Are all agreements recorded in the minutes?
- Is the subject on the agenda of the members' meeting at least once a year?
Want to read more about relevant topics?
MJOP and maintenance → How to determine the correct insured value
Director liability → Protect yourself against claims from members
Help from our HOA experts
Our specialists will help you set up, review, or update your reserve fund and draw up a long-term maintenance plan.
Call our HOA experts at 010 – 288 44 73 or send an email to vve@schoutenzekehreid.nl
