Management fees and trust account compliance in AppFolio: the 25-day rule and how to stay clean
Management fees and trust account compliance in AppFolio: the 25-day rule and how to stay clean
Every state has a rule about how long earned management fees can sit in the trust account before they become commingling. In California it's 25 days under Regulation 2835. Other states set their own windows or defer to the management agreement. The principle is the same everywhere: once a fee is earned, it needs to come out of the trust account within whatever your state allows. Letting it sit longer means your company's money is commingled with client funds, which is a violation regardless of intent.
AppFolio handles this through the Pay Management Fees function. It calculates and posts the fee bills automatically based on your fee structure, either flat fee, percentage of income, or a minimum flat. You run it as of end of last month or current month. The system posts the bill to the management fees GL and creates the corresponding payable.
Where companies get into trouble is timing. If fees are run infrequently, say quarterly or only when someone remembers, the earned fees accumulate in the trust account past the state-required window. AppFolio allows this. The system doesn't flag it or block it. It's entirely up to whoever is managing the books to run fees on schedule.
The other timing issue is fee collection before income arrives. If you run Pay Management Fees at the start of the month before rents have been collected, the bills post but there may not be sufficient owner ledger balances to cover them. This creates negative ledger balances and a trust account that looks correct in total but is incorrect at the property level.
The recommended default overcollection strategy in AppFolio is Credits then Receipts. This handles situations where fees were over or under collected in a prior period by applying credits first before pulling new receipts, which keeps the ledgers clean.
Set Pay Management Fees to run on a fixed schedule, either daily, weekly, or on a specific day of the month. AppFolio supports automation for this. The Management Fee History section generates PDFs of each run automatically. Those are your documentation that fees were disbursed on time, which matters if you're ever audited.
Management fees and trust account compliance in AppFolio: the 25-day rule and how to stay clean
Every state has a rule about how long earned management fees can sit in the trust account before they become commingling. In California it's 25 days under Regulation 2835. Other states set their own windows or defer to the management agreement. The principle is the same everywhere: once a fee is earned, it needs to come out of the trust account within whatever your state allows. Letting it sit longer means your company's money is commingled with client funds, which is a violation regardless of intent.
AppFolio handles this through the Pay Management Fees function. It calculates and posts the fee bills automatically based on your fee structure, either flat fee, percentage of income, or a minimum flat. You run it as of end of last month or current month. The system posts the bill to the management fees GL and creates the corresponding payable.
Where companies get into trouble is timing. If fees are run infrequently, say quarterly or only when someone remembers, the earned fees accumulate in the trust account past the state-required window. AppFolio allows this. The system doesn't flag it or block it. It's entirely up to whoever is managing the books to run fees on schedule.
The other timing issue is fee collection before income arrives. If you run Pay Management Fees at the start of the month before rents have been collected, the bills post but there may not be sufficient owner ledger balances to cover them. This creates negative ledger balances and a trust account that looks correct in total but is incorrect at the property level.
The recommended default overcollection strategy in AppFolio is Credits then Receipts. This handles situations where fees were over or under collected in a prior period by applying credits first before pulling new receipts, which keeps the ledgers clean.
Set Pay Management Fees to run on a fixed schedule, either daily, weekly, or on a specific day of the month. AppFolio supports automation for this. The Management Fee History section generates PDFs of each run automatically. Those are your documentation that fees were disbursed on time, which matters if you're ever audited.
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