The MCS Foundation funded research by Under One Roof to explore how building reserve funds could support the transition to clean heating for flats in Scotland.

Scotland has over 900,000 flats, yet almost half show disrepair to critical building elements. Complex decision-making, limited financial capacity and a lack of long-term planning continue to slow down essential maintenance. These challenges also pose a major barrier to Scotland’s commitment to reach net zero by 2045, which will require these homes to move away from fossil fuel heating.

The MCS Foundation’s funding enabled analysis of mandatory reserve fund systems in other European countries and engagement with stakeholders across housing, finance and property management. The research concludes that reserve funds must be compulsory and embedded within a wider system of owners’ associations, regular inspections and accessible finance, supported by phased implementation and targeted grants to protect vulnerable households.

This project is ongoing – Under One Roof is producing a toolkit offering guidance for those living in flats looking to raise capital for retrofit and repairs ahead of the introduction of Building Reserve Funds.

Learning from international experience

The research reviewed mandatory building reserve fund systems in Germany, the Netherlands, Ireland, Spain and France, where reserve funds are a core part of managing multi-occupancy buildings.

Across all five countries, participation is mandatory, which evidences that voluntary approaches lead to long-term underfunding. Funds remain with the property when it is sold, ensuring continuity and fairness. However, international experience also shows that without clear guidance on contribution levels, funds can still fall short, leading several countries to strengthen regulations in recent years.

The findings underline the importance of linking reserve funds to long-term maintenance planning, regular building inspections and professional property management.

An integrated system, not a standalone policy

The research examines how building reserve funds – a key recommendation of the Scottish Parliament’s Tenement Maintenance Working Group – could be implemented in practice.

A central conclusion of the research is that building reserve funds cannot work in isolation. To be effective, they must sit within a wider system that includes:

• Compulsory owners’ associations with legal personality
• Five-yearly building inspections
• Appropriate banking products and financial infrastructure
• Accessible financing mechanisms
• Clear enforcement routes
• Improved awareness of the responsibilities of flat ownership

The research proposes that owners’ associations should agree annual, “reasonable” contributions at their AGM, informed by building inspection reports. Funds should be held separately from operational accounts and used only for specified purposes, including major repairs, energy efficiency upgrades and clean heating installation.

Phased implementation and financial support

Recognising Scotland’s starting point – including limited property management capacity outside major cities and a lack of suitable banking products – the research recommends phased implementation.

Mandatory participation should be introduced from the outset, learning from European experience, but with enforcement following a period of awareness-raising, market development and capacity building. The research recommends legislation establishing compulsory owners’ associations in 2026, with building reserve funds as a core duty.

The report also highlights the challenge of Scotland’s significant backlog of repairs. Addressing this will require multiple financing mechanisms, including collective access to credit for owners’ associations, support from credit unions and community finance providers, exploration of property-linked finance, and grant funding as a backstop to protect vulnerable households.

A cornerstone of Scotland’s net zero transition

The research concludes that Scotland’s current approach to tenement maintenance is failing – and that without reform, many flat owners will be unable to participate in the transition to clean heating.

Building reserve funds, implemented as part of an integrated system, represent a sustainable, long-term solution. With the right legislative framework, financial infrastructure and phased support, they can become a cornerstone of effective tenement management – protecting homes, supporting net zero goals, and ensuring Scotland’s flatted housing stock is fit for future generations.