Common fund vs reserve fund: is there a difference?

In Portugal, there are not two separate funds. There is a single one: the common reserve fund, defined by Article 4 of Decree-Law 268/94. The usual confusion between the two names comes from imported literature and from regimes in other countries where the separation does make sense. This text explains what Portuguese law says, what the fund is for, the mandatory 10% regime, and where to check in your condominium's accounts whether it is being well managed.

One fund, two names that get confused

In Portuguese law, the mandatory financial reserve instrument is called, precisely, the common reserve fund (fundo comum de reserva). That is the literal term used by Article 4 of DL 268/94, and it is also how it appears in the minutes, the notices of meeting and the budget-vs-actual statements of administrators who follow the legal terminology. The expressions "common fund" and "reserve fund", used separately, refer to the same fund — there are not two self-standing pieces.

The confusion has recognisable origins. In some neighbouring legal systems, and in much translated or imported literature, a "common fund" (for the current expenses of the year) is set apart from a "reserve fund" (savings for the unexpected and for extraordinary works). In Portugal the regime is simpler and stricter: current expenses are paid out of the monthly fees and the annual budget; the common reserve fund is the legal cushion, separate and protected, for the building's extraordinary conservation.

What Article 4 of DL 268/94 says

Article 4 of Decree-Law 268/94 establishes three structuring rules. The first is that it is mandatory: every condominium constituted in horizontal property must set up and maintain a common reserve fund. It is not optional, it does not depend on a resolution of the assembly, and it cannot be waived by a decision of the owners.

The second rule is the minimum contribution: each owner contributes to the fund every year with at least 10% of their share of the condominium's expenses. This is a floor, not a ceiling. The assembly may resolve on a higher percentage, may approve an extraordinary reinforcement of the fund through an extra levy, may set the reinforcement as an absolute amount instead of a percentage.

The third rule is the purpose: the fund is intended to meet the expenses relating to the conservation of the building. That is the wording of the law. In operational practice it translates into extraordinary maintenance works — repairs to the roof, façades, lifts at the end of their life, common infrastructure — and not into the day-to-day current expense, which comes out of the annual budget.

What it can be used for — and what not

The scope of the fund is narrow by legal design. The cushion exists so that the condominium does not have to approve an urgent extraordinary levy every time a tile falls or a lift motor breaks down. When the reserve fund is confused with a general piggy bank to "spend down", the legal purpose is hollowed out and the condominium is left with no safety net for what really counts.

It can be used for:

• Structural repairs to the roof, façades, stairs, common terraces.
• Replacement or major maintenance of lifts at the end of their useful life.
• Urgent works on common infrastructure — main plumbing, general electrical boards, the building's central heating plant.
• Conservation works whose need only becomes apparent during the year and which exceed what the current budget can bear.

It cannot be used for:

• The current expense of the year: cleaning, electricity for the common parts, water, gas, insurance, gardening, contractual maintenance of lifts. These live off the annual budget and the monthly fees.
• The administrator's fees, or current accounting or legal services.
• Balancing the accounts at year-end when the budget was badly calculated — the right route is a budget correction, not consuming the fund.
• Works of innovation or improvement that are not conservation — installing new equipment, decorative changes, alterations to the original design.

The dividing line is the distinction between conserving (keeping what exists in good condition) and spending currently (running the building day to day). When a borderline work comes up — a major façade repaint that looks like maintenance but may be embellishment — the practical test is to ask whether the building is deteriorating without it. If so, it is conservation and the fund covers it; if not, it is current expense or innovation, and it has to be resolved separately.

How to check in your condominium's accounts

The common reserve fund is the one item that must appear separately in the annual presentation of accounts. In settled professional management it appears as a self-standing piece — usually a "Statement of the common reserve fund" with opening balance, movements of the year and closing balance. In simpler management it may be diluted into the current accounts, but it has to be identifiable. For the full method, see our guide on how to read your condominium's annual accounts.

The three points to look for before the annual general meeting:

When it makes sense to reinforce the fund above 10%

The 10% is the legal floor, not the level right for every building. Older buildings, with components identified as nearing the end of their life (lift, roof, façade), benefit from a more robust fund. The logic is simple: the closer a major intervention is, the larger the cushion that avoids the shock of an urgent extraordinary levy.

The decision to reinforce rests with the assembly, by a simple majority of the owners present or represented. A one-off extraordinary levy may be approved (to top up the fund), the annual percentage in the fees may be changed (rising to 15% instead of 10%), or a ring-fenced sub-account may be set up for a specific planned work.

What changes when the administrator is an established professional

In settled professional management, three things are clear: the fund is in a separate, identified bank account, the annual statement of the fund appears as a self-standing piece in the presentation of accounts (with balances and movements), and every movement has the minutes of an assembly anchoring it. The owner can read the state of the fund in seconds, what has moved, and why.

At Condoarade, the common reserve fund comes in as a separate piece in the annual Management Report and Accounts — one of the seven self-standing pieces we send out with the notice of meeting. The opening note includes the balance of the fund at the close of the year, and the Financial Summary piece shows the accumulated amount separately from the current account. Movements of the fund during the year appear identified in the Budget Analysis, always with a reference to the minutes that authorised them.