16. Commonhold reserve fund

A commonhold reserve fund, also known as a sinking fund or contingency fund, is a financial reserve set aside by the commonhold association to cover anticipated or unexpected expenses related to the maintenance, repair, and replacement of common areas and facilities within a commonhold development. The reserve fund serves as a financial cushion to ensure that the commonhold property can be adequately maintained and managed over time, without the need for sudden or significant increases in service charges or special assessments on unit owners. 

Purpose of a commonhold reserve fund 

• Long-term maintenance: The primary purpose of a commonhold reserve fund is to fund long-term maintenance, repair, and replacement projects for common areas and amenities within the commonhold development. This may include items such as roofing, exterior painting, elevator maintenance, landscaping, and other ongoing upkeep expenses. 
• Unforeseen expenses: The reserve fund also serves to cover unforeseen or emergency expenses that may arise, such as repairs due to unexpected damage or deterioration of common areas or infrastructure. Having a reserve fund in place helps ensure that the commonhold association can address such expenses promptly without resorting to short-term borrowing or special assessments on unit owners. 
• Financial stability: By maintaining a healthy reserve fund, the commonhold association can enhance the financial stability and sustainability of the commonhold property over the long term. A well-funded reserve fund reduces the risk of financial strain or budgetary shortfalls and provides peace of mind to unit owners regarding the ongoing maintenance and management of the property. 

Contributions to the reserve fund 

• Regular Contributions: Unit owners typically contribute to the reserve fund through regular service charges or commonhold contributions, which are collected by the commonhold association to fund ongoing maintenance and replenish the reserve fund. 
• Initial contributions: In some cases, unit owners may be required to make an initial contribution to the reserve fund when purchasing their unit or as part of the commonhold association's establishment process. This initial contribution helps establish the reserve fund and ensure that sufficient funds are available from the outset. 
• Special assessments: In addition to regular contributions, the commonhold association may levy special assessments on unit owners for specific purposes, such as replenishing the reserve fund following a significant expenditure or funding a major capital improvement project. 

Management and oversight 

• Administration: The commonhold association is responsible for managing and overseeing the reserve fund, including determining the appropriate level of funding, establishing reserve fund policies and procedures, and ensuring compliance with legal and regulatory requirements. 
• Investment: Reserve funds are typically held in interest-bearing accounts or invested in low-risk financial instruments to generate returns and preserve capital while ensuring liquidity to meet anticipated expenses. 
• Transparency: The commonhold association should maintain transparency regarding the reserve fund, providing regular updates to unit owners on the fund's balance, expenditures, and planned uses. Unit owners may have the right to review the reserve fund's financial statements and participate in decisions regarding its management and utilisation.