Sinking Funds for Apartments in Kenya: An Owner’s Guide

A sinking fund for apartments in Kenya is a pool of money that owners build up slowly, month by month, to pay for big repairs that only come around every several years. Think of the lift that will need a full overhaul, the roof that will one day leak, or the repaint the whole block needs after a decade in the Nairobi sun. Instead of hitting owners with a sudden lump-sum demand when that day arrives, a healthy reserve fund spreads the cost across the years, so the money is already sitting in the bank when the contractor turns up.

At Real Management Services we have spent 30 years watching what separates a well run block from a stressed one. More often than not, it comes down to whether the building put money aside before it was needed. This guide explains how the sinking fund works, what Kenyan law expects, how much to save, and how to keep the account honest.

What is a sinking fund for apartments in Kenya?

A sinking fund, often called a reserve fund for apartments, is a long term savings account owned collectively by every unit holder in a development. Each owner pays a small amount into it as part of the monthly service charge. The money is not for day to day running costs like the guard’s salary or the garbage collection. It is ring fenced for major capital works, the kind that arrive once every 5, 10 or 20 years and carry a heavy price tag.

People sometimes use “sinking fund” and “reserve fund” to mean the same thing, and in everyday Nairobi conversation they usually do. Both describe money set aside for the future rather than for this month. What matters is the boundary: a service charge reserve stays separate from the operating budget, so it cannot quietly get spent on routine bills.

Sinking fund versus service charge: the difference in one table

Feature
Administrative fund (service charge)
Sinking fund (reserve fund)

Purpose
Day to day running of the building
Major repairs and replacements years ahead

Typical items
Security, cleaning, water, generator fuel, lift servicing
Lift overhaul, roof replacement, repainting, borehole, electrical rewiring

Timing
Spent within the same month or year
Saved for 5 to 20 years

Balance goal
Roughly break even each year
Grows steadily over time

Risk if underfunded
Services get cut off
Owners hit with a sudden special levy

What does Kenyan law say about reserves?

The main law is the Sectional Properties Act, No. 21 of 2020, which governs apartments, maisonettes and other subdivided buildings that share common areas. When a sectional plan is registered, a corporation of all the unit owners comes into being automatically. That corporation has perpetual succession and a common seal, and it is not run under the Companies Act, so its rules come from the Act itself and the Sectional Properties Regulations, 2021.

The Act places clear duties on that corporation. It must establish and maintain a fund for administrative expenses that is large enough to control, manage and insure the common property and to meet the corporation’s other obligations. It raises this money by levying contributions on owners in proportion to the unit entitlement of each unit, so a larger apartment carries a larger share. The corporation must also keep proper books of account, and owners are entitled to request audited accounts. The Act further requires the corporation to insure the common property against fire and other risks.

The law is strong on the principle of setting money aside, but it does not fix a single figure for how much a sinking fund must hold. That judgement is left to the corporation and its managing agent, which is exactly where good advice earns its keep. You can read the statute in full on Kenya Law.

How much should a Nairobi block set aside?

A common rule of thumb in Nairobi is to route about 10 to 15 percent of the total monthly service charge into the sinking fund. On a mid range building where the monthly charge sits between KSh 12,000 and KSh 25,000 per unit, that means roughly KSh 1,500 to KSh 3,500 a month per apartment flowing into reserves. Entry level blocks tend to charge KSh 5,000 to KSh 10,000 a month, while premium developments with pools, gyms and multiple lifts can run from KSh 25,000 to KSh 60,000.

The percentage is only a starting point. A serious reserve plan looks at the actual building. It lists the expensive assets, estimates how many years are left in each, and works backward to the monthly saving needed. Here is why the numbers get large:

• A single lift overhaul or replacement can cost far more than a year of ordinary maintenance, and routine lift servicing alone runs about KSh 100,000 to KSh 250,000 per lift each year.
• A full external repaint of a tall block, done with proper scaffolding, is a six figure job.
• Borehole and pump failure, generator replacement, and rewiring all land in the same heavy bracket.

When the reserve is too thin to cover one of these, the corporation has no choice but to call a special levy. In Nairobi these emergency demands have ranged from about KSh 50,000 to KSh 500,000 per unit. A steady monthly contribution over the years is far gentler on owners than a bill of that size arriving without warning.

Where should the money be kept, and is it taxed?

Reserve money should sit in its own bank account in the name of the corporation, not mixed with the operating float and never in a personal account belonging to a committee member or agent. Keeping it separate is the single clearest sign that a building is being run properly, and it makes the audited accounts easy to follow.

On tax, the position is simple to explain. The contributions themselves are savings by the owners, not income, so paying into the fund does not create a tax bill on its own. The interest the account earns in the bank is treated differently. Interest paid by a Kenyan bank is subject to withholding tax at 15 percent, which the bank deducts before crediting the account. Because every building’s setup differs, confirm the treatment for your corporation with a qualified accountant or with the Kenya Revenue Authority. We give owners plain guidance and then point them to a professional for the formal filing.

How to keep a sinking fund healthy

An apartment maintenance fund only protects owners if it is managed with discipline. A few habits make the difference:

1. Commission a reserve study. Once every few years, have the major assets assessed and the target balance recalculated so contributions track real costs, not guesswork.
2. Report the balance openly. Owners should see the sinking fund figure at every general meeting and in the annual audited accounts.
3. Protect the ring fence. Never borrow from reserves to plug an operating shortfall without a recorded resolution and a repayment plan.
4. Review contributions yearly. Building materials and labour costs in Kenya keep rising, so a figure fixed five years ago is almost always too low today.
5. Use a professional managing agent. An experienced agent knows what a lift overhaul or a repaint actually costs in Nairobi and budgets for it before the crisis.

If you want a candid look at whether your block is saving enough, our team can review your service charge structure and reserves. Our approach to property management in Nairobi builds the sinking fund into the budget from day one, and you can see the wider range of what we handle on our services page. For a direct conversation about your building, reach us through our contact page, call 0735 281 111, or email sales@real.co.ke.

Frequently asked questions

Is a sinking fund a legal requirement for apartments in Kenya?
The Sectional Properties Act, 2020 requires the corporation of owners to keep a fund large enough to manage, maintain and insure the common property, and to raise it by levying owners in proportion to unit entitlement. The law does not set a fixed sinking fund figure, but keeping a reserve for major repairs is the accepted way to meet these duties responsibly.

What is the difference between a service charge and a sinking fund?
The service charge, or administrative fund, pays for day to day running like security, cleaning, water and generator fuel, and it is largely spent within the year. The sinking fund is a separate reserve saved over many years for big one off works such as a lift overhaul, repainting or a new borehole.

How much should we save into the reserve fund each month?
A common Nairobi guide is 10 to 15 percent of the monthly service charge, but the sound method is a reserve study that lists your major assets, estimates their remaining life, and calculates the monthly saving needed to fund them when the time comes.

Who controls the sinking fund money?
The corporation of unit owners controls it, usually through an elected committee and a managing agent. The money should sit in a separate bank account in the corporation’s name, and owners are entitled to request audited accounts showing the balance and movements.

What happens if the reserve fund runs short?
The corporation has to raise a special levy, a one off demand on every owner to cover the shortfall. In Nairobi these have ranged from about KSh 50,000 to KSh 500,000 per unit, which is exactly the shock a well funded reserve is designed to prevent.