A guide to co-op and condo reserves

As a board member, one of your top responsibilities is to maintain and improve the value of your property. This is not always an easy task. It can be difficult to budget for unplanned equipment replacements, repairs to building systems and facilities, or upgrades to building amenity spaces and common areas.


By partnering with an experienced property management company that knows how to put effective reserve-funding strategies in place, your board can properly plan for these expenses and minimize the risk of saddling your unit owners or shareholders with unexpected special assessments.

This article is for informational purposes only and does not constitute financial, legal, or tax advice. Condo/co-op boards should consult with their financial advisors, legal counsel, or lending professionals before making any financial decisions.
 

What are co-op and condo reserves?

Co-op and condo reserves are long-term savings set aside to cover major building expenses like roof replacements, elevator upgrades, and facade repairs. These savings are held in a “reserve fund,” typically a low-risk, interest-earning account. Unlike operating funds, which pay for routine services such as cleaning or landscaping, reserves are used for capital projects that keep the building safe, functional, and compliant over time.

The rules for creating and managing reserves can vary. Your governing documents will typically determine whether a reserve is required, how it should be funded, and whether owners or shareholders can delay or adjust contributions through a vote.

Read more from Cooperator on how condo and co-op boards are expected to fund and maintain capital reserves.
 

What are co-op and condo reserves used for?

Co-op and condo reserves are used for major capital expenditures that are not part of daily operations. Examples include:

• Roof replacement
   
• Elevator modernization
   
• Facade restoration (including the Facade Inspection Safety Program (FISP))
   
• Boiler or HVAC system upgrades
   
• Plumbing and electrical system overhauls
   
• Lobby or hallway renovations
   
• Emissions compliance projects

Are condo reserves mandatory in NYC?

For many co-ops and condos, there’s no legal requirement to maintain a reserve fund. However, under New York City’s Reserve Fund Law, newly-converted condos and co-ops must establish a reserve fund for future capital repairs and replacements. This can be done with an upfront contribution or funded gradually over five years.

Even for buildings not covered by this law, keeping a well-funded reserve is widely recognized as a core part of responsible financial planning. It’s also something lenders and underwriters often look for when financing units in the building.
 

How much should a co-op or condo have in its reserve fund?

While there isn’t a legal minimum, many lenders consider 10% of the building's annual budget to be the minimum contribution for reserves. Industry best practices suggest having enough in your reserve fund to cover at least 70% of anticipated capital costs over a 20- to 30-year period.

Currently, condos and co-ops that do not have either a 10% reserve line item in an operating budget or a reserve study with a corresponding prescribed reserve line item in an operating budget are technically not compliant with Fannie Mae and Freddie Mac lending requirements. Most lenders follow Fannie Mae and Freddie Mac’s guidelines for reserves in order to provide mortgage financing to owners and purchasers of condos and co-ops, regardless of the loan amount. Remember, every building is different, and Fannie Mae's recommendation may not fit the unique circumstances of your property.
 

What is a reserve study?

A reserve study is a detailed evaluation of your building’s major components, designed to help boards plan ahead for large repairs and replacements. It typically includes:

• An inventory of major components (roof, facade, mechanical systems, etc.)
   
• The expected lifespan of each system
   
• Estimated costs for repair or replacement
   
• A funding plan based on projected expenses
   

Who decides how condo reserves are spent?

The board of directors typically decides how condo reserves are spent, within the framework of the governing documents. Major expenses usually require formal approval, and some governing documents mandate a vote of the membership for projects above a certain price point. A professional property management company can be an important partner in that process, helping boards identify project priorities, gather bids, coordinate with engineers, and navigate local law compliance.
 

Can residents see how condo reserves are being managed?

Yes. Most boards include reserve fund balances in their financial statements and budgets. In both co-ops and condos, transparency around reserves is important for resident trust and regulatory compliance. Many lenders and underwriters also want to see this information during refinancing or resale transactions.
 

What is the difference between maintenance and reserve components?

Maintenance covers recurring tasks like window washing, while reserve components include major building elements like the roof, plumbing, or electrical systems that eventually need full replacement. Some systems, like HVAC units or laundry equipment, require both ongoing maintenance and eventual replacement, making clear categorization especially important for planning and budgeting.

Deciding whether these costs should be categorized as maintenance, replacement, or both will ultimately determine if they will be included in your annual operating budget or as part of your reserve fund. Usually, less expensive items are included in the operating budget and costlier items are assigned as reserve components so their replacement costs can be financed over a longer period.

To protect the lifespan of your building components, you must budget for maintenance costs every year. If you don’t, the board will not be prepared to pay for repair or replacement costs and may be forced to impose a special assessment or secure a loan.

At FirstService Residential, an increasing number of boards include vital infrastructure components during the budget planning process, especially for buildings that are decades old. These components are typically designed to last a very long time, are generally out-of-sight, and as a result, are often not top-of-mind when boards consider potential maintenance costs.
 

What are the benefits of maintaining a reserve fund?

As your board takes on the responsibility of budgeting for the building, be sure to consider reserve funding, which can make the budgeting process much smoother and help keep your long-term financial plan in check.

• Peace of mind.

  A well-managed reserve fund gives the board a clearer view of what’s ahead and helps reduce the stress of unexpected expenses.
   

• Market value preservation.

  Consistently funding your reserves over time is the key to protecting the fiscal health of your property. When reserves exist to support shared assets in a condo or co-op, the market value of the building is better maintained.
   

• Equitable cost participation.

  One of the main advantages of establishing and maintaining a reserve fund is that unit owners and shareholders who are using and enjoying your building’s assets are participating in their costs. Without reserves, a special assessment may be needed which can cause distress or financial hardship for owners and shareholders.

To learn how FirstService Residential can support your vision, contact a member of our team.