Excluding Account Codes from Management Fee Calculations

In Cirrus8, management fees can be charged to a property, calculated as a percentage of income received. This is typically configured at the property level using a percentage-based management fee method. However, not all income should necessarily contribute to this calculation. To provide flexibility, Cirrus8 allows users to exclude specific income account codes from triggering management fee charges. This can be configured per account code by ticking "Exclude from Management Fee Calculation" as required.

How Percentage Management Fees Are Calculated

When a property is set up with a percentage-based management fee, Cirrus8 calculates the fee based on the income receipted to account codes that are included in the management fee calculation.

• If funds are receipted to an included income account code, the system will automatically calculate and charge a management fee based on the configured percentage.
• If funds are receipted to an excluded income account code, no management fee will be triggered for that transaction.

Configuring Account Codes

To manage which income account codes are included or excluded:

1. Navigate to Configuration > Manage Chart of Accounts as a Trust Accountant user
2. Select an Income Account Code from the drop-down menu
3. For each account code, you can select whether it should be included in or excluded from the management fee calculation.
   
4. Click Update Account Details to save any changes made to the account code
5. Ensure that the property’s management fee setup aligns with the intended account code configuration on Property Summary > Management > Management Fees. See Article:
   • Set Up Owner Expense Management Fee
   • Set Up Variable Outgoings Expense Management Fee
   • Set Up Directly Recoverable Expense Management Fee 

Example Scenario: Rent-Free Period with Management Fee Still Charged

Scenario:

A tenant is granted a rent-free period as part of their lease agreement. The property management agency still wants to collect a percentage-based management fee on the rent that is abated (i.e. rent not actually paid by the tenant).

Solution:

1. Create a Rent Abatement Account Code:

• Set up a specific income account code for rent abatements. See article: Manage Chart of Accounts
• Mark this account code as “Exclude from Management Fee Calculation”

2. Configure the Property’s Management Fee Setup:

• Ensure the property’s management fee setup includes a percentage of all rent-related account codes, including the rent abatement account code.  

3. Apply the Rent-Free Credit:

• When applying the rent-free credit to the tenant’s account, use the rent abatement account code.
• This ensures the rent is recorded correctly but does not trigger an additional management fee unless explicitly intended.

Why This Matters:

This setup allows the agency to manually control whether a management fee should be charged on rent abatements, avoiding unintended fee calculations while maintaining accurate financial records.

Example Scenario: Rent Relief Credit - No Management Fee Charged

Scenario:

During the COVID-19 pandemic, many tenants were granted rent relief or rent-free credits as part of government or landlord support initiatives. In some cases, agencies may choose not to charge a management fee on these rent relief amounts, even though they are technically recorded as income.

Solution:

1. Create a Rent Relief Account Code:

• Set up a dedicated income account code for rent assistance or rent-free credits. See article: Manage Chart of Accounts
• Unmark this account code as “Exclude from Management Fee Calculation” so when the credit is applied to the rent, this does not charge a management fee

2. Apply the Rent Relief Credit:

• When applying the rent-free credit to the tenant’s account, use the rent relief account code. See article: Create an Accounts Receivable Invoice and Credit
• This ensures the rent relief is recorded for reporting and audit purposes but does not trigger a management fee.

3. Maintain Accurate Reporting:

This approach allows agencies to maintain transparency in financial records while honoring agreements not to charge fees on rent relief.

Why This Matters:

This setup ensures that management fees are only charged on actual rent collected from tenants, not on relief credits or subsidies. It supports ethical fee practices during exceptional circumstances like a pandemic, while still maintaining accurate trust accounting.

Example Scenario: Owner Contributions - No Management Fee Charged

Scenario:

An owner transfers funds into the trust account to cover upcoming expenses on a property, such as capital repairs or maintenance. These funds are not income generated by the property and may not be subject to a management fee.

Common examples of these balance sheet asset account codes include:

• Funds Received from Owner
• Owner Contribution to Repairs
  
  

Solution:

1. Use Asset Account Codes for Owner Contributions:

• Ensure that any funds received from the owner are receipted to a designated balance sheet asset account code (e.g., “Owner Contribution” or “Funds Received from Owner”).

2. Exclude These Account Codes from Management Fee Calculations:

• In the account code configuration settings mark these balance sheet account codes as “Exclude from Management Fee Calculation” 

3. Apply Funds to Expenses as Needed:

These funds can then be used to pay for property-related expenses without triggering a management fee, since they are not considered income.

Why This Matters:

This setup ensures that management fees are only calculated on actual income earned by the property, not on owner-funded contributions, depending on the management agreement terms. It can maintain transparency and fairness in fee calculations and, prevents overcharging owners for funds they voluntarily provide to support their property.