Reserve fund and working capital in a co-ownership: where your money goes, and what happens to it on a sale

Two lines keep coming back on your call for funds: an advance payment for the working capital fund and a contribution to the reserve fund of your co-ownership. Or you are preparing to sell your apartment, the buyer asks how much these funds hold, and you wonder what you will get back. Either way, the same question arises: where does this money go, and who does it belong to?

In a Belgian co-ownership, the co-owners' money does not form a single pot. The Civil Code distinguishes the working capital fundGlossaryTotal of the advances paid by the co-owners, as provision, to cover recurring expenditure such as heating and lighting of the common parts or management fees. It is held in a separate account in the association's name. See the glossary, which pays for the day-to-day life of the building, and the reserve fundGlossaryTotal of the periodic contributions intended for non-recurring expenditure, such as replacing the heating system or the lift. It becomes mandatory no later than five years after provisional acceptance, with an annual contribution of at least 5% of the previous financial year's ordinary service charges, unless the general meeting decides otherwise by a four-fifths majority. See the glossary, which prepares for major expenses (Art. 3.86, § 3). Confusing them distorts how the accounts are read and creates misunderstandings when a unit is sold. These rules apply in the same way in Flanders, Brussels and Wallonia.

Reserve fund or working capital: what is the difference?

The difference lies in the nature of the expenses. The working capital fund covers periodic expenses, the ones that come back every year. The reserve fund is fed by periodic contributions, but it is used for expenses that do not come back regularly.

Both funds belong to the owners' association (VME/ACP)GlossaryLegal entity that brings the co-owners together and whose sole purpose is the preservation and management of the building. It acquires legal personality as soon as a first unit is transferred, provided the deed of division and the co-ownership regulations have been transcribed. See the glossary, not to the property manager (syndic) or to the individual co-owners. Each must be held in a separate account opened in the association's name.

How do you set the amount of the working capital fund?

The law gives no figure. The general meeting decides, and buildings organise themselves in two ways.

In the first model, the working capital fund is a permanent advance: each unit pays a sum once, when it joins the co-ownership, and this sum stays in place for as long as the co-owner remains an owner. Expenses are then covered by advance payments called according to the budget. The advance acts as a cash cushion when an invoice arrives before the advance payments have been collected.

In the second model, the term “working capital” refers directly to the periodic advance payments called on the basis of the annual budget, then adjusted by the annual service charge statement.

To size a permanent advance, think in terms of cash flow. Look at the months when the large invoices fall due (insurance premium, annual gas bill, lift contract) and at the gap between those invoices and the dates when advance payments are called. The advance must cover this dip without the syndic having to chase everyone. A fund that is too thin often leads to late payments to suppliers as soon as one co-owner pays late; the page on a co-owner not paying deals with that case.

Is the reserve fund really compulsory?

Yes, unless the general meeting decides otherwise. Article 3.86, § 3, sets three rules.

A five-year deadline after provisional acceptance

The association must set up the reserve fund at the latest at the end of a period of five years following the date of provisional acceptance of the common parts of the building. In a new building, the first years can therefore go by without a reserve; after that, it becomes compulsory.

A minimum contribution of 5%

The annual contribution may not be less than 5% of the total ordinary common chargesGlossaryRecurring costs of the co-ownership, as opposed to non-recurring costs covered by the reserve fund. Their total for the previous financial year is the basis for calculating the minimum 5% contribution to the mandatory reserve fund. See the glossary of the previous financial year. If those charges came to 40,000 euros, the building must pay at least 2,000 euros into the reserve the following year. Each unit bears its share according to the allocation criteria in the by-laws.

A possible exemption by four-fifths

The association can decide, by a four-fifths majority of the votes, not to set up this compulsory reserve fund. There is no automatic exception linked to the number of units.

An exemption is not without consequences. Without a reserve, unexpected works are financed by an exceptional call for funds, sometimes heavy for co-owners on modest incomes. It can also weigh on a sale: the buyer and their notary look at the state of the reserve fund to estimate the calls still to come.

Our reading: an exemption can be defended in a building that already has a clear plan for financing its major works. Without that plan, we advise against voting for it. If an exemption is proposed in your building, ask at the meeting how the co-ownership will pay for the next replacement of the boiler or the roof.

Who decides to use the money in the funds?

The funds are used to carry out the decisions of the general meeting. The syndic pays the day-to-day expenses provided for in the budget with the advance payments and the working capital fund. For the reserve fund, the expense is in principle linked to works or purchases decided by the general meeting by the required majority; the page on building works sets out those majorities.

An example helps to measure what is at stake. The general meeting decides to replace the collective boiler for 60,000 euros. The reserve fund holds 25,000 euros. If the general meeting decides to use all of it, 35,000 euros remain to be financed by a call for funds, split according to the criteria in the by-laws. A unit holding 80/1,000 of the shares then receives a call for 2,800 euros. Without a reserve, the same unit would have had to pay 4,800 euros in one go.

So before voting, ask the syndic for three figures: the balance of the reserve fund account on the date of the meeting, the amounts already committed from this fund by earlier decisions, and the annual contribution planned for the following financial years.

On the accounting side, each fund has its own bank account and its own accounts in the chart of accounts. This separate tracking allows the accounts auditor to check that the reserve has not been dipped into to pay day-to-day expenses.

What happens to the funds when a unit is sold?

This is often where the surprises come, at the time of the preliminary sale agreement. Article 3.94 of the Civil Code governs the transfer of a unit, and for the funds, two rules apply.

1. For the working capital fund, the outgoing co-owner is a creditor of the association for the part of their share corresponding to the period during which they no longer actually enjoy the common parts. The syndic draws up the statement. The buyer is asked to build up their own share.
2. For the reserve fund, the seller's share remains the property of the association. The seller does not get it back from the syndic.

Nothing prevents the seller and the buyer from providing, in the preliminary agreement, that the buyer reimburses the seller's share of the reserve fund. Notaris.be points this out: without a clause to that effect, the seller loses this sum. This arrangement is settled between the parties to the sale and does not concern the association.

Even before the preliminary agreement, the seller or their intermediary must give the buyer a set of information about the co-ownership, including the amount of the working capital fund and of the reserve fund (Art. 3.94, § 1). The documents to gather are listed on the page on documents required for a sale. For the place of these funds in the building's finances as a whole, go back to the page on co-ownership service charges.