There are few laws that say exactly what records a community association should keep and for how long. Some of these laws are clear and some are not. For this reason, much of this article is based on the author’s experience and opinions, with input from experts in other legal and financial disciplines. Please note, there are undoubtedly some categories of records not addressed in this article that may be as important as those addressed below.
Member Meeting, Board Meeting and Committee Meeting Minutes
An association’s minutes constitute the official record of its acts. Both incorporated and unincorporated associations must keep minutes and must allow members to inspect them (see Corp. Code § 8320 and § 8333; Civ. Code § 4950 (board meetings), § 5200 and § 5210). The original minutes should be kept forever, including minutes of membership meetings, regular board meetings and executive sessions (kept separately from regular board meeting minutes). The same applies to minutes of any committee that is empowered to exercise any board powers. If you don’t have originals, keep what you do have, signed or unsigned.
Ballots, Outer Balloting Envelopes and Proxies
The law provides direction on the retention of candidate registration lists, voter lists, ballots, proxies, sign-in sheets, signed voter envelopes and other election records. For Board elections and member votes to amend the governing documents, increase regular assessments, impose special assessments, and grant the exclusive use of common area, Civil Code sections 5105, 5125, 5200 and 5210 require that candidate registration lists, voter lists, ballots, signed voter envelopes, proxies and sign-in sheets be stored by the inspector(s) of elections or at a location designated by the inspector(s) for one year from the date the cause of action accrues. This can be a challenging date to identify. Depending on the nature of the claim, the date of the cause of action can be prior to the date the ballots are opened and counted, the day the ballots are opened and accounted, or a later date. Thereafter, these records must be held by the association until a total of three fiscal years have elapsed. (For example, if an association’s fiscal year is January through December and the election is held in June 2020, these records must be retained until January 2023.)
Remember to note the election results in the relevant meeting minutes (see Corp. Code § 8325).
Contracts
Civil Code sections 5200 and 5210, which became effective January 1, 2014, require associations to make executed contracts that are not privileged under law available to the owners (which is the same as saying they must “retain” these records) for the current and prior two fiscal years. Having said this, an association should not destroy these documents at the end of this period.
California has a 4-year statute of limitations for lawsuits arising out of contracts or other written documents (Code Civ. Proc. § 337). Therefore, even if you signed a contract more than four years ago, you should keep the document for at least 4 years after the contractual relationship ended. For example, if you have an automatically renewing management or landscape maintenance contract, you should keep that contract for at least 4 years from the date the contract was terminated.
To keep track of contracts, you should keep a file or notebook containing all active contracts and a separate file for contracts that have expired or have otherwise been terminated.
Records Related to Taxes
Civil Code sections 5200 and 5210 also require associations to make many tax related records available to owners for the current and prior two fiscal years. (The tax-related records subject to section 5200 include, without limitation, state and federal tax returns, invoices, statements, receipts, canceled checks, approved purchase orders, reimbursement requests and credit card statements.) However, an association should not destroy these records at the end of this period.
We are informed that the IRS generally has a 3-year rule and that the California Franchise Tax Board has a 4-year rule for conducting tax audits (absent fraud). However, if a claim of loss from worthless securities is made or a deduction is taken for a bad debt, the statute of limitations (i.e., the timeframe within which the IRS can challenge the claim or deduction) is 7 years. Furthermore, there is no limit on when these agencies can pursue a claim if a tax return wasn’t filed. We have had clients whose corporate status was suspended for allegedly not filing a tax return more than fifteen years before. If the IRS has no record of a tax return or the tax payments, it will be impossible to show that you filed or paid the taxes without the return and the canceled checks. Using this knowledge, it would be wise to keep all original financial documents for at least 4 years after filing the tax return (7 years if the return included a bad debt deduction or claim of loss) and to keep the tax returns and any tax payment checks forever.
If the Franchise Tax Board has no record that you filed or paid taxes and you do not have the records to prove otherwise, your corporation can be suspended. The state will not revive the corporation or allow you to terminate the existing corporation unless and until the Franchise Tax Board acknowledges that all returns have been filed and taxes paid.
A few publications from the IRS provide additional guidance on the retention of tax related records. Publication 17 (2014) “Your Federal Income Tax” and Publication 583, “Starting a Business and Keeping Records,” are both available on request or can be accessed and printed from the Internet at http://www.IRS.gov. Also, an article in Smart Money Magazine[1], citing an H&R Block tax specialist, gives suggestions for individuals. The specialist suggests keeping all tax-related items for seven years. It should be noted that the suggestions for what not to keep seem more applicable to individuals than businesses.
Since we are not tax attorneys, our best advice is that you obtain the advice of your association’s CPA or a tax attorney before discarding any tax related records.
Employee Related Records
For associations with employees, retaining payroll and employment records is more difficult to address. There are different statutes of limitations for state and federal wage claims, age and sex discrimination claims, and benefit claims, etc. Some run from the date of the first breach and others from the date of the last violation. Depending on the claim raised, you may need time cards, hourly rates and annual salary data paid to different employees, evaluations and other personnel file records, and employee manuals and amendments. You should probably retain the records on an employee for at least six years after the employee’s employment with the association ends. Certainly, you should retain all records for current employees for at least six years and you should retain all personnel file information including benefit information for at least six years after the employer/employee relationship is terminated.
Unfortunately, it is far more difficult to say how long you should keep these records to defend against claims that current employees might raise in the future.
When you discard employee records, be sure to shred them to prevent both identity theft and the access of personal and confidential information by unauthorized persons.
Association Records Subject to Owner Inspection Pursuant to California Law
Civil Code section 5200 specifically identifies a number of other association records that must be made available to owners for inspection (and therefore, must be retained) for the current and prior 2 fiscal years. Excluding minutes, contracts and tax related documents, which we addressed separately, these records include: (1) all governing documents; (2) documents required pursuant to Civil Code sections 4525, 5300, 5305, 5310 and 5565; (3) interim financial statements which include a balance sheet, income and expense statement, budget comparison or a general ledger; (4) written board approval of contracts or vendor bills; (5) reserve account records and records of payments made from reserve accounts; (6) the agendas for membership meetings, board meetings and meetings of committees established by the board pursuant to Corporations Code section 7212; (7) membership lists; and, (8) check registers.
The retention period required by Civil Code section 5200 is the minimum retention period. These records should be kept longer if another rule or category applies that mandates a longer retention period.
Legal Documents
Legal documents, especially those that are not recorded in the official records of the county the association is located in, including settlement and mediation agreements, releases and maintenance agreements should be retained indefinitely – or at least until the association’s legal counsel confirms that it is safe to destroy them.
Any time there is a dispute involving the association and either a claim is made or a lawsuit is threatened, all documents pertaining to that matter must be preserved until litigation has concluded or the matter has otherwise been fully resolved, and legal counsel has confirmed that is safe to destroy them. Additionally, all electronically saved communications, documents and video related to that dispute must be preserved, including without limitation, all emails, facsimiles, website and blog postings, voice-mail and text messages.
Other Association Records
There are records that an association is not required by law to retain, but we recommend doing so (at least for a substantial period of time) as a matter of good practice.
Annual audits or reviews are among the most important association financial records. These documents, which typically come in a small booklet, summarize an entire fiscal year. It seems reasonable to keep them indefinitely.
You should maintain an inventory list, at least for items having a significant value. This list should include a description of each item purchased, the purchase date, the amount paid and the check number. If you have a casualty loss, you will need to provide the association’s insurance carrier with a copy of the applicable purchase invoice(s) or canceled check(s). Accordingly, you should keep these documents for as long as you own the property.
If you have an uncollected judgment, it is good for an initial 10 year period and can be renewed for an additional 10 year period. Judgments and recorded abstracts of judgment can pop up years later, usually when a former owner wants to pay off the judgment to obtain new credit. While a copy of these documents may be available in court files or attorney records, they may have been archived or even destroyed. Even if they can be obtained, it may take some time to obtain them from storage. Therefore, it is wise to keep these records while the judgment is valid.
Liability claims and certain property casualty claims can arise years after the incident(s) leading to such claims occurred and the association may have changed carriers one or more times in in the interim. The association will need to find the applicable insurance carrier to obtain insurance defense. A file should be kept for each insurance carrier and its policy(ies). Each year’s declarations page, as well as any changes and endorsements that take effect during the life of the policy, should be added to the file.
Most associations keep a file for each owner’s property containing all correspondence and other records relating to that property or its owners. If an owner changes, routine correspondence can be archived and probably discarded following the general guidelines at the end of this article. However, for the reasons described below, you should probably retain indefinitely those documents relating to the property itself, such as architectural applications and recorded maintenance and indemnity agreements.
If architectural applications and approvals are discarded, it becomes impossible for the association to confirm which lot alterations had been approved. It also become impossible to confirm which improvements had been owner rather than developer constructed.
There is another benefit to retaining architectural decisions. Prior architectural decisions can provide guidance to architectural committees and boards by providing a record of what alterations did and did not work in the past and why. These records can also assist an association in the event an owner challenges its approval for denial of a proposed alteration. (Courts have allowed associations to change their minds based on the lessons of experience.)
Civil Code section 4765 requires architectural decisions to be in writing, and if a proposed change is disapproved, the written decision must explain why. Although you may keep the originals in separate files for each separate interest, you may find it more helpful to have at least a summary of each decision well-indexed in one or more files or notebooks. The summary should identify the improvements proposed and the reasons why they were or were not approved. This summary should also identify any regrets or complaints that followed an approval.
A general rule would be to say that, apart from the discussion above, most records can be discarded after five years, with the exception of employee benefit data/records, which must be kept for six years. However, even a five-year guideline cannot be applied categorically, and once a unique document is discarded, it is gone forever. If you are in doubt, you probably should err on the side of keeping the document, or at least get specific advice from someone with special expertise in the area that may be affected by the disposal before deciding whether to discard it.
Effective Record Retention
Records seem to disappear over the years. Thus, it is a good idea to consider using either a professional document storage company or a commercial self-storage unit just for your association’s records. You should also develop a numbering system for the boxes and keep an index of what is in each box so that you can readily find documents many years later.
Records that you plan to keep forever should probably be kept with like documents in date order to make locating them easier (e.g., tax returns). It also makes sense to keep all records in the association’s active files that are to be kept forever in a separate drawer or banker’s box marked “KEEP FOREVER” to reduce the risk of them being inadvertently discarded. If you do not separate out these records at the time of their creation or receipt, they will become commingled with other records that may later be inadvertently discarded. Waiting until you are ready to discard records to separate out those that should be kept will likely be significantly more difficult and time consuming than filing them separately in the first place.
If you have large quantities of documents that you think you should keep, but you don’t have the room, you may consider storing the records in computer form, either with software data files or scanned images. While this will take far less physical space than paper, it is important that you develop a plan on how you will access the documents in the future. Just as floppy disk drives have disappeared, making it difficult to pull data stored on such disks, it is important to realize that technology commonly used today may become obsolete or fail. Therefore, unless you are using the most common software and hardware available now to store your records, know that it may not be readable in 10 to 15 years. In fact, even using the most common software and hardware available now will not ensure that you will be able to access your electronically stored records a decade or so from now. Additionally, hackers, ransomware, malware and viruses have all become commonplace. As a result, the security and protection of electronically stored records is becoming increasingly challenging. Built in storage redundancy, frequent document backups, and the use of current virus and malware protection software can significantly reduce the risk of loss. However, these measures are not foolproof. For these reasons, keeping paper records may still be the safest option.
[1] April 2000 edition, page 88.