Special Works Fund: Payment and Work Progress Stages

For extraordinary maintenance works and improvements, Article 1135, paragraph 1, number 4, of the Italian Civil Code requires the owners' meeting to set up a special fund equal to the total amount of the work. The fund must be prepared before the works begin. The law, however, provides for a staging option: if the works are entrusted under a contract providing for gradual payments based on work progress, the fund may be set up in relation to the individual payments due.

Why the fund is mandatory

The special fund exists to ensure that the condominium actually has the funds needed to pay the contractor. Without a fund, there is a risk that works are approved and started while the sums have not yet been collected, exposing the condominium to insolvency towards the supplier and individual owners to claims for the full amount. Setting up the fund in advance protects both the contractor, who is assured of coverage, and the owners, who take on the burden in an orderly way.

Case law has clarified that setting up the fund, and where applicable its progressive constitution based on work progress, is a condition for the validity of the resolution approving the works. In the absence of the fund, the resolution may be defective.

Fund in a single payment or staged

The basic rule is to set up the fund for the entire amount of the work. Staging is an exception allowed under one precise condition: that the works contract provides for gradual payments by progress stages. In this case the fund can grow in step with the works, covering each time the single tranche due to the contractor.

• If the contract provides for payment at completion, the fund must be set up immediately for the full amount.
• If the contract provides for payments by progress stages, the fund may be set up in relation to each payment.
• Merely splitting owners' shares into instalments does not amount to payment by progress stage.
• Each tranche of the fund must be collected before the corresponding payment to the contractor.

The difference between instalments and progress stages

This is an often misunderstood point. Instalments mean dividing each owner's share into several payments to ease the outlay. Payment by progress stage instead means paying the contractor sums as they complete phases of the work. The progressive constitution of the fund is tied to this second logic, not to the mere convenience of owners' payments. The funds must in any case precede the obligation towards the contractor, so that at each progress stage the condominium already has the money ready.

How to manage the fund in the accounts

The works fund is restricted funding, distinct from ordinary management. The sums paid by owners as a special fund are not expenses but set-asides intended for the work. They should be kept on an account or at least on an identifiable accounting position, and payments to the contractor draw on them over time. All sums, as with any management, must pass through the account held in the condominium's name under Article 1129 of the Italian Civil Code, remaining traceable and reconcilable.

If the contract provides for retention money, the fund must also account for that share, which will be settled only on testing: the provision must be calculated on the full amount, not net of the withholding.

Transparency and reporting of the fund

A well-managed works fund is clearly documented: how much was approved, how much each owner has paid, how much was paid to the contractor at each progress stage and how much remains available. The brief explanatory note of the annual report, required by Article 1130-bis, is the place to represent the state of the fund and the ongoing relationships with the contractor. This clarity prevents the disputes typical of building sites, where money flows are large and prolonged.

Following a site with its fund, progress stages and retention money is demanding to do by hand. Management software makes it possible to link what was approved, owners' payments and payments to the contractor in a single, always up-to-date view. AmministraPro manages the extraordinary works fund and payments by progress stage in a traceable and transparent way, as described on /funzioni, with the available plans on /prezzi.