Reserve Fund Law and Legal Definition

A reserve fund is a fund of money created to take care of maintenance, repairs or unexpected expenses of a business or a multi-unit housing development, such as condominiums or a housing cooperative. It consists of funds taken out of earnings to provide for anticipated future payments and it is managed by a homeowners association or other governing body. A reserve fund may be required to be maintained by homeowners associations under the laws of most states.

A reserve fund is usually collected out of a portion of rents or fees that are paid by property owners on a regular (usually monthly) basis. The reserve fund monies are often invested in an interest-bearing account. Any fund balance which is not appropriated in the following year's budget for specific expenditures and which is not designated or reserved for specific purposes serves as a general operating reserve for the entity. This is sometimes referred to as a contingency fund, but a contingency fund is generally one whose spending is conditioned upon an occurence, usually an emergency or times of financial difficulty.