Condominium Reserve Fund: Requirements, Use, and Accounting

This page is a translation of the original Portuguese text, provided for convenience. It deals with Brazilian law. If there is any discrepancy, the Portuguese version prevails. Read the original in Portuguese

A condominium reserve fund is a financial cushion built up to cover unforeseen expenses, emergencies, and future repair work. How it is collected and used must follow the condominium bylaws and the decisions of the owners’ assembly.

What the reserve fund is and what it is for

The reserve fund (also called a contingency fund) is the condominium’s collective savings. It is built from monthly contributions by the unit owners and is meant to cover unforeseen extraordinary expenses, structural emergencies, and future maintenance or conservation work on the building. It is an essential financial planning tool for the condominium’s economic health.

A well-funded reserve helps the condominium avoid emergency special assessments (cotas extraordinárias), which often lead to unpaid dues and disputes among owners. With an adequate reserve, the condominium can handle serious leaks, electrical problems, replacement of equipment (elevators, pumps, gates), and structural repairs without straining the monthly budget.

Is it mandatory, and what does the law say?

The Brazilian Civil Code does not expressly require a reserve fund. However, Article 1.334 provides that the condominium bylaws (the convenção) must state how owners contribute to ordinary and extraordinary expenses. Most condominium bylaws provide for a reserve fund, usually setting a percentage between 5% and 10% of the ordinary condominium fee.

When the bylaws provide for a reserve fund, every owner must pay into it in proportion to their ideal share of the property, in the same way as the ordinary condominium fee. An owner who falls behind on payments is subject to the same penalties that apply to unpaid condominium fees (fines, interest, and formal protest of the debt).

The reserve fund must be used according to the rules in the condominium bylaws and the decisions of the assembly.

If the bylaws are silent on the reserve fund, the general assembly of owners may vote to create one, setting the percentage, how often owners contribute, limits on how much can accumulate, and rules for use. Approval requires a majority of the owners present at the assembly, unless the bylaws set a specific quorum for the matter.

Rules for using the fund

The reserve fund must be used according to the rules in the condominium bylaws and the decisions of the assembly. In general, the fund is reserved exclusively for unforeseen extraordinary expenses and emergencies. It cannot be used to cover a cash shortfall caused by owners’ unpaid dues or to pay ordinary maintenance expenses.

How the fund is spent must be transparent and should always be decided by the assembly. The exception is a documented emergency in which the síndico (the condominium manager elected by the owners) must act immediately to prevent damage to the common property, such as an emergency repair of a burst pipe or an urgent elevator repair. In those cases, the síndico must call an extraordinary assembly as soon as possible to report on how the money was used.

When the reserve fund is used, the assembly must decide how to replace the money spent, setting a deadline and a method for rebuilding the fund. Keeping the reserve at an adequate level is the síndico‘s responsibility, and the topic should be placed on the agenda of the annual ordinary assemblies.

Accounting and transparency

The síndico has a legal duty to account for the condominium’s administration, including activity in the reserve fund, under Article 1.348, item VIII, of the Civil Code. Accounts must be presented every year at the ordinary general assembly. They must itemize the reserve fund balance, money coming in (owner contributions and investment earnings), and money going out (amounts spent and what they were spent on).

Reserve fund money should be kept in a bank account separate from the condominium’s checking account, preferably in a low-risk, highly liquid investment such as a CDB (a Brazilian bank certificate of deposit) or a fixed-income fund. This separation of accounts is essential for transparency and for preventing the money from being misused for purposes other than its original one.

Any owner has the right to request information about the reserve fund’s balance and activity, and the síndico cannot deny that access. Failing to account for the fund or using it improperly can lead to the síndico‘s removal by the assembly, as well as civil and criminal liability for the manager.

The reserve fund when a unit is bought or sold

A common question concerns who is entitled to the reserve fund when a unit is sold. A seller who has paid into the fund regularly for years may feel entitled to get back a share. However, the prevailing view in Brazilian case law is that the reserve fund belongs to the condominium, not to the individual owner, and it is not refundable when the unit is sold.

In practice, the amount accumulated in the reserve fund is one factor that makes a condominium attractive to a buyer, since it signals good financial management and a lower chance of extra assessments in the future. The buyer takes the unit as it stands, including its proportional share of the reserve fund, with no obligation to compensate the seller for what the seller contributed.

This point should be spelled out in the property’s purchase and sale agreement to avoid misunderstandings between the parties. The condominium bylaws may also set specific rules on how responsibility for the reserve fund passes when a unit is transferred.

Frequently Asked Questions

Can an owner who is behind on payments be barred from voting on how the reserve fund is used?

Yes. Article 1.335, item III, of the Civil Code makes an owner’s right to vote depend on being current on condominium obligations. An owner who is behind on the condominium fee or the reserve fund contribution cannot vote or be voted for at assemblies and may only attend and speak. This restriction is meant to encourage payment and to ensure that decisions about the common property are made by those who regularly contribute to its upkeep.

What is the ideal percentage for the reserve fund?

There is no single ideal percentage, because the need varies with the age of the building, its condition, the number of units, and the equipment it has. New condominiums may start at 5% of the ordinary fee. Older buildings with elevators, pools, and other equipment that needs frequent maintenance may need 10% or more. The best way to size the reserve fund is to review the condominium’s future needs regularly through a preventive maintenance plan.

Can the reserve fund be used to cover owners’ unpaid dues?

As a rule, no. The reserve fund has a specific purpose (extraordinary and emergency expenses) and should not be used to cover a cash shortfall caused by owners’ unpaid dues. Using it that way would defeat the fund’s purpose and harm the owners who are paying on time. The condominium should take the appropriate legal steps to collect from delinquent owners (notice, formal protest of the debt, and a collection lawsuit) and keep the reserve fund intact for its original purpose.

As informações deste artigo são de caráter informativo e não substituem consulta jurídica individualizada. Cada caso possui particularidades que exigem análise específica.