What is a building renovation fund?

I am looking into buying a holiday apartment in Switzerland and noticed that if I buy into this apartment building I will be expected to make a fairly large regular contribution towards a building renovation fund. Obviously this has something to do with renovating the building, but what exactly is a building renovation fund and how does it work?

A building renovation fund (German: Erneuerungsfonds) is a vehicle for holding money towards the cost of renovating the collectively owned portions of a jointly-owned building. Generally, all co-owners are expected to contributed towards this fund based on their co-ownership share of a building.

Based on the standard rule, a building renovation fund should grow at a rate which enables it to reach 5% of a building’s notarized value every 20 years. In other words the fund needs to grow by 0.25% per annum, so combined annual contributions paid by co-owners must total 0.25% of a building’s value.

Example: A building has an insured value of 2 million Swiss francs and is divided into 4 apartments with equal co-ownership shares. Annual contributions towards the building renovation fund should equal 5000 francs per year (0.25% of 2 million francs). Divided between the 4 co-owners, annual contributions would come to 1250 francs per co-owner per year. In 20 years, the fund would hold 100,000 francs, or 5% of the building’s 2 million franc value.

According to recent studies, the cost of renovating many buildings in Switzerland is higher than the standard 0.25% per annum rule provides for. Realistically, contributions equal to 0.5% of a building’s value should be paid into building renovation funds every year in order to ensure sufficient funds for renovation.