Property glossary
Reserve fund
Also known as: reserve, maintenance reserve fund
The body corporate fund set aside for future major repairs and the planned maintenance of common property.
Definition
The reserve fund is the savings pool a body corporate builds up to pay for the future repair and replacement of common property — roofs, lifts, painting, tarmac and similar long-life items. It is kept separate from the administrative fund so that money earmarked for capital maintenance is not absorbed by day-to-day running costs. Contributions to it are guided by a maintenance, repair and replacement (MR&R) plan that the trustees prepare and the body corporate adopts.
In the South African context
The Sectional Titles Schemes Management Act 8 of 2011 (STSMA) requires a body corporate to establish and maintain a separate reserve fund, with prescribed minimum contributions linked to the size of the reserve relative to the administrative fund budget. The trustees must prepare a written maintenance, repair and replacement plan covering common property expected to need attention over the next ten years. Reserve fund money may only be applied to items in that plan or to other repair and maintenance of common property.
Example
If a scheme's reserve fund balance is less than 25% of its annual administrative budget, the STSMA rules require it to contribute at least 15% of that budget to the reserve fund for the year — for a R600 000 budget that is R90 000.
Why it matters
A healthy reserve fund lets a scheme replace a lift or repaint without an emergency special levy, and it is a key indicator buyers, banks and managing agents look at when assessing a scheme's financial health.
Informational only — not legal advice. Confirm specifics against the current Act and your scheme’s rules.
Sources
- STSMA — Sectional Titles Schemes Management Act 8 of 2011 and its regulations — separate reserve fund, prescribed minimum contributions, and a 10-year maintenance, repair and replacement plan