Replacement Reserve Fund

A replacement reserve fund is an account set aside from net operating income to provide funds for any anticipated repairs or eventual replacements necessary to maintain a building. The replacement reserve fund is used primarily in a condominium, cooperative project, retirement home or planned unit development for replacement of common property. Some of the most common items to be replaced are roofing, carpet and heating equipment. Some reserves are set aside to provide specific replacement intervals, such as installing new furniture in a day room every six years. For example, a rental home owner may have $5000 worth of carpet in his or her homes, which he or she plans to replace every 10 years. This owner would deposit $500 annually in his or her replacement reserve fund to offset the cost of the eventual carpet replacement.