Deposits and Retention Money in Condominium Works

In works and supply contracts, a condominium may have to handle two kinds of sums tied to guarantees: the security deposit, that is money paid or requested as a guarantee of proper performance, and retention money, that is a percentage of the amount owed to the contractor that the client withholds until testing or the end of the guarantee period. These are restricted items, distinct from ordinary expenses, that must be recorded carefully because they do not represent a final cost but a temporary set-aside.

What a security deposit is

A security deposit is a sum lodged to guarantee an obligation. In a condominium it appears in two directions. The condominium may require a deposit, for example from someone temporarily using common areas or from a contractor, to protect itself against possible damage. Or it may be the condominium that pays a deposit, for example to connect a shared utility. In both cases the sum is neither income nor cost: it is money that, under certain conditions, will have to be returned.

For this reason the deposit must be kept separate from management items: whoever receives it records it among sums to be returned, whoever pays it records it among receivables to be recovered at the end of the relationship.

Retention money in works

In extraordinary maintenance works it is common practice for the contract to provide for retention money: at each progress stage the condominium pays the contractor while withholding a small percentage, which will be settled only after successful testing or at the end of the guarantee period on the works. The retention protects the condominium from defects emerging after payment and encourages the contractor to complete the work properly.

In accounting terms, retention money does not reduce the cost of the work: the full amount remains due and charged to owners according to their thousandths (millesimi), but part of it is not yet disbursed. It must therefore be represented as a debt to the contractor not yet paid, distinct from the part already settled.

How to record these sums

The guiding principle is to separate what is a final cost from what is a temporary restriction.

• A deposit received by the condominium is recorded as restricted income to be returned, not as management revenue.
• A deposit paid by the condominium is recorded as a receivable, pending return.
• Retention money is shown as a residual debt to the contractor until settlement.
• Returning the deposit or paying the retention closes the item without generating a new cost.
• All these sums still pass through the condominium bank account, as required by Article 1129 of the Italian Civil Code.

The link with the special works fund

When extraordinary works are approved, Article 1135, paragraph 1, number 4, of the Italian Civil Code requires setting up a special fund equal to the total amount of the work. If the contract provides for gradual payments based on the progress of the work, the fund may be set up in relation to the individual payments due. The share withheld as retention money is part of the total amount of the works: the fund must also cover the part that will be settled at the end, so that when the return is due the provision is already available and no new allocation is needed.

Transparency towards owners

Deposits and retentions can confuse readers of the annual report, because they generate movements of money that do not correspond to actual costs of the year. The brief explanatory note required by Article 1130-bis is the right place to explain that a certain sum is withheld as a guarantee and will be paid on testing, or that a deposit received is restricted to being returned. Clarifying these ongoing relationships avoids disputes and questions at the owners' meeting.

Handling these items correctly by hand is complex. Management software makes it possible to track deposits and retentions as restricted sums linked to a specific site or supplier, keeping them separate from the expenses of the year. AmministraPro follows extraordinary works with their fund and retention money in a single view, as described on /funzioni, with the plans set out on /prezzi.