Provisional Balance
Synonyms: Reserve Balance، Provisional Reserve، Contingency Reserve
Last updated: 2026-05-07
Short Definition
Temporary accounting balance before final settlement, used for review and changes with updates, settled at account closing.
Overview
Legal Basis
Provisional balance is based on REGA trust account rules requiring separation of client funds from office funds, and property management contract specifying provisional balance items by agreement between parties. Also subject to SOCPA accounting standards for recording provisions. Standards mandate full transparency in owner statement about every movement in provisional balance. For tax purposes, provisional balance is not owner revenue until used or released, so no tax calculated on it at retention time.
Practical Example
Property management contract between Distinguished office and owner Khalid stipulates provisional balance 8% of monthly revenues. Khalid's building generates SAR 50,000 monthly revenues. Application: monthly, office withholds SAR 4,000 (8% × 50,000) in provisional balance, transfers SAR 46,000 - expenses to owner. After 12 months (January-December 2026), provisional balance = 12 × 4,000 = SAR 48,000. During year: in March, building elevator breakdown occurred, repair cost SAR 9,500, withdrawn from provisional balance. In September, planned exterior paint renovation at SAR 18,000, withdrawn from balance. In November, emergency water leak maintenance SAR 6,000. Total withdrawn SAR 33,500. Remaining balance on December 31 = 48,000 - 33,500 = SAR 14,500. Per contract, surplus fully transferred to owner (SAR 14,500) or carried to next year. Khalid receives detailed report, chooses carry-forward to cover 2027 renovations.
Common Mistakes
- ✗Failing to specify provisional balance percentage in property management contract — causes later disputes about what office is entitled to withhold.
- ✗Withholding provisional balance without using or returning it to owner in reasonable time — may be considered mismanagement.
- ✗Mixing provisional balance with office's operating account — serious violation of trust account rules.
- ✗Using provisional balance for unagreed expenses — requires prior owner approval.
- ✗Not transparently disclosing provisional balance movements in monthly statement — loses owner trust.
International Differences
Provisional balances are global practice in property management. In the UAE, Reserve Fund mandatory in Mollak for all collective properties. In Turkey, Yedek Akçe common practice in property management. In Egypt, practice exists but not officially regulated. In the UK, Sinking Fund mandatory in Leasehold contracts for major renovations, with RICS regulations. In the US, Reserve Fund mandatory in HOAs and Condominium Associations, with periodic Reserve Studies requirements. The Saudi advantage in provisional balance is application flexibility (agreed between parties, not legally mandated), electronic documentation via Ejar and trust account, transparency in reports, and financial system integration. These factors make provisional balance management in Saudi professional and flexible at once, meeting needs of various owners and properties.