Renovation Funds in Condominium Ownership: All You Need to Know

4.2.2021
  1. Renovation funds for common parts
  2. Reasons for having a renovation fund
  3. What is the ideal contribution to the renovation fund?
  4. How high should an ideal fund be?
  5. What happens in the absence of a renovation fund?
  6. Who decides on the use of a renovation fund?
  7. Who manages the renovation fund?
  8. What happens if the coverage of the fund is insufficient?
  9. What happens if the coverage of the fund is excessive?
  10. What happens if there is no renovation fund?

The condominium owners are co-owners. The land and the building belong to all the owners. The individual condominium owner has only a special right to his flat, balcony, garden or terrace, cellar, parking space in the underground garage and laundry room. Each condominium owner is responsible for the upkeep of his own rooms. The condominium assembly as a whole is responsible for the maintenance of the common parts. The community must pay the common costs and divide them among all the owners.

Renovation funds for common parts

The law does not peremptorily regulate which parts are common and which belong exclusively to the individual. The assembly of condominium owners has a relatively wide margin of decision. According to Article 712b(2) of the Swiss Civil Code, these parts are considered common:

  • Everything that belongs to the land of the property and is not a building. For example, the common garden, playground, driveways and paths, outdoor parking spaces, walls and fences, retaining walls.
  • Elementary components for the construction and strength of the whole building such as the external façade, including external balconies, loggias and verandas, external antennae, roof terraces, window facades replacing a façade, common house entrances or chimneys.
  • Common facilities and equipment such as storerooms, pipes, lifts and vents, the staircase, the laundry and central heating. Regardless of whether individual owners use the parts, such as the common laundry.

Houzy Hint

Tip

Money from the renovation fund is used exclusively for the repair and renovation of common parts. Expenses for private property are to be borne independently. A wise choice in this respect is to open a separate account for this purpose and transfer an amount every month by standing order.

Reasons for having a renovation fund

Condominium owners have to pay jointly for the maintenance of common parts. Four out of five condominium associations have therefore set up a renovation fund or at least provide for it in their regulations, even though the law does not provide for it. Here are four good reasons why it is worth setting aside money early rather than too late and creating a renovation fund from the start:

  1. About 25 years after construction, the first major and costly renovations are visible. For example, the complete renovation of the roof, the façade, the building services or the building envelope.
  2. The longer you save for these renovations, the lower the financial burden per year. The contribution to the renovation fund is part of the maintenance costs and therefore part of the housing costs.
  3. If you properly preserve not only the private property but also the whole house, you will maintain its value in the long term, reduce additional costs in the long run and help to sustain the price if one day you plan to sell.
  4. Contributions to the renovation fund can be deducted as maintenance costs from the rental value and thus from the taxable income in your tax return.

Renovation funds - roof renovation
After more or less 25 years, major renovations and refurbishments are necessary, e.g. renovation of the roof.

What is the ideal contribution to the renovation fund?

The renovation fund is a voluntary fund. Regular contributions are a good choice because the financial burden of expensive renovations can be deferred over several years. Most condominium owners' associations set aside 0.2-0.5% of the insurance value of their property's building each year. The Swiss Condominium Owners Association recommends 0.3%. The sum is distributed among the condominium owners according to value share and is usually invoiced monthly or quarterly. The value share is determined when the condominium property is established, is entered in the land register and is stated in "per thousand". It depends on the area included and is weighted according to various factors. For example, the height of the floor, the view, the sunlight, the position in the building, the number of open and closed rooms, especially wet rooms, the layout of the rooms and the accesses.

Calculate renovation funds in condominium ownership

Is your renovation fund high enough?

The renovation calculator calculates your annual contribution to the fund as well as the renovation costs for your flat and the common components of the condo community.
Calculate Renovation for Free Now

How high should an ideal fund be?

Opinions differ on the reasonable amount of the renovation fund. If your condominium association pays 0.3% of the insurance value of the building each year from the beginning, it will have 6% after 20 years and 9% after 30 years. The latter is the time when the first extensive renovations are encountered. This is in line with the Swiss condominium association's suggestion of keeping 6-8% in the long run. This should be enough to keep the house in good condition and to compensate for depreciation over the years. If necessary, it makes sense to set an upper limit in the condominium association's regulations. The conventional limit ranges from 5% to 10%.

Houzy Hint

Tip for buyers

It is better to find out the amount of the renovation fund right away and have an architect estimate the renovation requirements. Especially if the property is not particularly new. If the coverage of the fund is insufficient, you may face high costs later on.

Houzy Hint

Tip for sellers

It is not possible to withdraw one's contributions from the fund. But it is possible to add one's own share to the sale price, because the buyer also gets his share of the renovation fund together with the property he buys.

What happens in the absence of a renovation fund?

The roof, the building services or the building envelope have an average lifespan of 25 years. Without a renovation fund, you have to save up the money for renovation costs yourself or pay your own share of the costs, which can be high, in one fell swoop. There is a danger that necessary renovations will be put on the back burner or carried out in stages if the apartment blocks have not set aside enough money or cannot finance their share of the costs. This clearly increases the overall renovation costs, not least because it is usually much cheaper to carry out all the work in a coordinated manner.

Who decides on the use of a renovation fund?

The owners' assembly decides how the contributions to the renovation fund are to be used and which components are to be renewed and when. It also decides whether the costs are to be financed entirely, only partly or not at all by the renovation fund:

  • Necessary and valuable measures such as repairing a damaged roof or replacing a broken window pane only require a simple majority. For example, if the condominium association consists of 10 owners and 5 participate in the vote or are represented, 3 votes are sufficient.
  • Useful and valuable measures such as the installation of a modern laundry or an energy-saving heating system require a qualified majority. If, for example, the condominium association consists of 10 owners and 5 participate in the meeting or are represented, 3 votes and a majority of all condominium shares according to value shares, at least 501/1000, are needed to obtain a qualified majority.
  • Accessory or luxury building measures for convenience or embellishment must be approved unanimously. This means that all tenants must be present or represented and vote in favour of the measures.

Who manages the renovation fund?

The administrator of the property. This is often a trustee, especially in the first years. Although the condominium assembly decides how much money is to be paid into the renovation fund, it is the trustee who proposes the amount. To do this, he or she draws up an annual business plan with income and expenditure and plans the long-term financial needs. He also checks that all tenants pay their contributions on time and that the resolutions of the assembly are implemented. In addition, he deposits money on behalf of the condominium owners' association in an account that he can access at short notice. The manager pays the invoices for repairs and renovations, keeps the accounts and issues certificates of assets and interest, because the condominiums have to pay taxes on their share of the renewal fund and interest.

What happens if the coverage of the fund is insufficient?

The joy of relatively small contributions to the renovation fund often does not last long. Sooner or later, major repairs or renovations are needed, which can be costly. If the community has not accumulated sufficient reserves, the individual tenants must pay a special allocation in proportion to their share of the value to pay the bills. This means that owners are asked to pay extra, which happens especially in the case of large and/or unforeseen renovations.

Renovation funds in condominium ownership: man and woman do the maths for the work
If there is not enough money in the renovation fund, the tenants are asked to pay extra.

What happens if the coverage of the fund is excessive?

If tenants have paid too much for years, the assembly can decide to reduce the annual contributions. This makes sense if there is enough money in the renovation fund to finance all repairs and renovations in the long term. However, the owners of the condominium have no legal right to a refund of the overpaid contributions. The condominium assembly can also decide to dissolve the renovation fund and divide the balance in proportion to the contributions paid.

What happens if there is no renovation fund?

A renovation fund can also be set up retroactively. A simple majority of the condominium assembly is sufficient for this. It decides, among other things, the amount of the contributions, the expiry date of the contributions and the maximum limit of the fund. It also decides when and by what majority the contributions can be changed, how the money is to be used and who administers the renovation fund. If the fund is to be included in the condominium regulations, a qualified majority of the condominium owners is usually required.

Houzy Hint

Tip

If the other co-owners do not want to set up a renovation fund, it is better to set aside money each month for the most important expenses. The easiest way is to have your own account with a standing order. Major and expensive repairs and renovations are inevitable over the years.

Related articles

Back to Houzy Magazine