A new client has set up a company to manage vacant/derelict commercial properties on behalf of landlords by way of "live-in guardians". The tenants are given licence to occupy converted units in the properties at a discounted rate (vs normal rents for the areas), and the client company is responsible for collecting the income from the tenants and meeting all costs for upkeep/maintenance/utilities etc. Any residue is then split on an equitable basis with the landlord.
Activity in the first period of accounts looks to be fairly nominal as the property was not in a safe condition, but it is now almost fully tenanted and monthly income is approaching £6K. The client is also looking to expand the portfolio of properties under management rapidly which would mean monthly collections could be over £10K in the near future.
There is currently no formal agreement between the client company and the landlord, just some emails indicating the client company is responsible for meeting all costs relating to the upkeep of the property, and that any surplus after costs is to be split 50/50 (a legal agreement is now in the process of being drawn up which will essentially state this to be the arrangement).
I'm trying to establish what to recognise as the company's turnover in the accounts as it seems to be a different scenario from a conventional property management company working on a commission basis. In this case, the client company seems to be acting as principal in setting/collecting income from the tenants, especially as the licence agreements are directly between the client company and the individual tenants (ie. the landlord is not party to these).
I'm leaning towards showing the gross amounts receivable as being the turnover of the company, and then treating the maintenance/upkeep, and residual payments to the landlord as direct costs. I would welcome input on the proposed treatment. The scenario has changed from how it was originally described by the client during the initial discussions, and having now gone through the entries/paperwork (and lack, thereof), I've confused myself in how best to approach it. As a corollary, can I assume the income is exempt from VAT under the provisions of VAT Act 1994, Schedule 9, Group 1?