Cost trap renewal funds: What to look out for when buying

All co-owners of condominiums regularly pay a certain amount into a renovation fund. This allows them to save money that is needed for improvements to the common areas of the property. Contributions must be paid either annually, monthly, or in other installments. The condominium association decides how much the contributions should be. The contribution is usually based on the building insurance sum and should be between 0.2 and 0.5% of this sum.

A renovation fund is a precautionary measure for the co-owners of condominiums. The condominium association is responsible for maintaining the property and undertaking renovation and refurbishment measures. This is enshrined in the Swiss Civil Code (ZGB) as one of the obligations of the condominium association (see Article 712h ZGB).

Of course, this costs money, which the condominium owners must raise. Among other things, the following costs should be considered:

• Administrative costs (fees for the management company)
• Maintenance of the exterior grounds and garden (footpaths, plants, etc.)
• Painting work on the house and outbuildings
• Maintenance of communal facilities (ventilation system, central heating)
• Repairs of damage caused by unexpected incidents
• Renovation or replacement of larger structures (roof, facade)

Payment for all these works is usually made from the renovation fund. If this cannot cover everything, the condominium owners must supplement the costs out of their own pockets. If there is no renovation fund, this can result in large sums having to be paid all at once.

Properly implemented, a renovation fund offers several advantages. It serves as a safety net for individual condominium owners:

It protects condominium owners from high, sudden costs. Major renovations or unexpected repairs can be expensive. With a renovation fund, condominium owners don’t have to pay for these all at once, but rather spread the costs over several years.

It ensures that the property is well maintained and the building doesn’t fall into disrepair. The budget from a renovation fund is used to pay for maintenance work on the property. This ensures value retention – it makes sense in any case, but it’s especially important if you plan to sell your condominium at some point.

On the other hand, you should always be cautious about this topic. If not handled correctly, the renovation fund can also lead to problems:

An insufficiently filled renovation fund can cause problems. This can happen, for example, if the contributions were set too low. The condominium owners then have to cover the costs themselves. For larger renovation projects, this can be expensive – sometimes, in such cases, the decision is made to carry out the work in stages, which can drive up the costs even further.

Contributions not paid by the previous owner are passed on to the new owners. Always inquire about the status of the contributions before purchasing the property. Any outstanding debts will be transferred to you, which should definitely be reflected in the purchase price.

When purchasing a condominium, you should pay attention to how the renewal fund is handled. Therefore, before buying, first inquire whether there is a renewal fund and how much the contributions are. Details about recurring costs can often be found in the regulations established by the condominium association and in the annual statements.

If such a fund exists, you should definitely check how well it is filled. A low renewal fund should also be reflected in the purchase price. The property management company is responsible for managing the renewal fund and should be able to provide you, as a prospective buyer, with information about it. In this context, you should also find out whether the current owner has paid all contributions. Otherwise, any outstanding debts will be transferred to the new owner after the purchase. This is certainly possible, but should definitely have a negative impact on the purchase price of the property.

Also, ask for information about the renovation plan. This will tell you what renovations and repairs are planned for the coming years. Also, find out what repairs and renovations have been carried out in recent years – it’s best to look at the last 10 years. Keep in mind that major renovations are due approximately every 25 years, such as a complete renovation of the facade and roof. Compare this with the budget available in the renovation fund.

While you can’t change any discrepancies immediately, you can address them at the next condominium owners’ meeting.

Neither the existence of a renewal fund nor the amount of contributions to be paid is prescribed by law. The condominium association decides jointly whether to establish such a fund or not. It also proposes the amount of contributions, which are then determined jointly with the property management company.

Exactly how much you, as a condominium owner, pay depends on the value of your condominium. This is based on the size and several qualitative factors (e.g., the apartment’s location within the building, view, and light incidence). Condominium owners with larger residential units generally pay more than those with a small one-room apartment.

Contributions paid into the fund cannot be reclaimed. This can become particularly important if you want to sell your condominium. If no large amounts were withdrawn from the renewal fund during your time as the owner, it should be well-filled. You can offset this against the selling price of your condominium and adjust it upwards.

The property management company generally handles everything related to managing the renovation fund. They monitor contributions and calculate whether the contributions are high enough to cover the renovations planned for the renovation plan. In some cases, it may also be determined that separate funds must be invested for regular maintenance costs.

In principle, the property management company assumes control of the renovation fund. However, as a condominium owner, you still have voting rights. Almost all measures must be voted on at a meeting of the condominium owners (see Article 647 of the Swiss Civil Code). Depending on the measure and the situation, a different majority may be required. For “necessary construction measures,” for example, the majority approval of all co-owners is required, while for improvements, the approval of each individual condominium owner is required.

Potential advantages for the apartment owner or the building owner

The right of residence is often used when the parents’ home is to be transferred from their ownership to their children during their lifetime. This can bring advantages under inheritance law and simplify several things in the event of an inheritance. In this case, the house changes hands, and at the same time, a lifetime right of residence is registered for the parents.

In general, a right of residence reduces the value of a property. This not only reduces the value, but also simultaneously reduces taxes (e.g., wealth tax, real estate capital gains tax, gift tax in the case of a gift). This can result in tax advantages for the homeowner.

If a spouse dies, the surviving partner has the right, at their request, to a right of residence or usufruct of the jointly owned apartment or house of the deceased (see Article 219, Paragraph 1 of the Swiss Civil Code).

In some cases, however, a right of residence can also have disadvantages. If an owner wants to sell their property, a right of residence registered in the land register reduces its value. The right of residence does not expire upon sale – this can be a deterrent for buyers and thus negatively impact the purchase price and the sales process.