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White Acre Homeowners Association never put too much effort into records retention. Boxes of paperwork were simply shuffled from one board member to another. Some records were destroyed by a board member who thought they were too old to be needed anymore. When the association was sued for mismanagement of funds, its defense was hamstrung. Though it had done nothing wrong, the records to prove it were gone. In addition, the board member who destroyed the records was named as a defendant. Though she acted out of ignorance, it was alleged that she willfully destroyed records that must be retained.
It is sometimes forgotten that a homeowners association is a business. As a business, it must safeguard its records. Unfortunately, the question of what documents are essential to keep does not have a clear answer. This article provides some general guidance on record retention. Though it specifically addresses homeowners associations’ records, these principles are generally applicable to other nonprofit entities. Financial Records Most financial records should be kept permanently. Financial records provide a financial history of the association. Financial records have information that can help the current members of the association make financial decisions. This is even more important when you consider the board of an association is often a group of volunteers who may change frequently. The following documents should be retained permanently:
- general ledgers and journals
- year-end financial statements
- tax returns
- audit reports
- depreciation schedules
Any financial records that might be subject to an Internal Revenue Service audit or to an accounting-related challenge should be retained for at least seven years. These include: - accounts payable and accounts receivable ledgers
- expense records
- canceled checks
- electronic payment records
- purchase orders and vendor invoices
Finally, the following financial documents should be kept for at least four years:
- bank statements
- deposit slips
- budgets
- petty cash vouchers
If you are unsure about whether to keep a financial document, keep it. If you must destroy it, the default should be to wait seven years. Corporate Records There are certain association documents that relate to organizational and legal status. The following corporate records should be permanently retained:
- conditions, covenants and restrictions (CC&R)
- articles of incorporation
- bylaws
- rules and regulations
- deeds
- easements
- contracts
- board resolutions
- minutes of board meetings
- recommendations and actions of committees, as well as records documenting complaints filed by homeowners and how they were resolved
- requests for architectural modification—decisions on those requests and other documents related to them should remain permanent record to provide the background information to future owners
In most associations, the membership of a board changes at least annually. These corporate records provide a historical perspective and a collective memory. New board members will look to these documents for policies and procedures established by former boards, and long-serving board members have a written record to remind them of the reasons for previous decisions. If the association has employees, any employment records should be retained for at least seven years. If the medical records of those employees are in the possession of the association, they should be kept for at least 30 years. The following corporate records should be kept for at least seven years:
- expired contracts and old leases
- insurance records
- accident reports
- settled insurance claims
Individual members’ records should be retained in separate member files. In dealing with individual members, the following documents should be kept until an applicable statute of limitations has expired:
- correspondence with unit owners
- copies of work orders
- complaints and violation notices
Storage of Documents The board should ensure it is properly storing its documents. - The board should centralize hard-copy file storage for ease of access.
- Individual members of the association should not be charged with retention of records, as they may be tampered with or lost.
- A duplicate copy of records should be held by a management company.
- The file storage facility should be weather- and fireproof.
- Computer files should be backed up regularly.
Records Requests by Members Members have a right to review and copy most of the association’s documents. However, certain records may be withheld. These include: - privileged communication between the board and the association’s attorney
- pending litigation
- minutes or other records of an executive session
- personal, health and financial records of a member or employee
- records relating to job performance, compensation or complaints against an employee
Any time the board receives a request for records, it should consult counsel before turning over documents. Litigation If the association is currently in litigation or it reasonably anticipates it will be in litigation in the future, the law requires that all records be retained. If the association does destroy records, it may be subject to harsh penalties from a court. Conclusion Properly managing homeowner association records is a tedious—but necessary—task. Knowing what to keep and how long to keep it will make the task easier and keep the association out of trouble. Peter J. Smith IV is an attorney in the Coeur d’Alene, Idaho office of Lukins & Annis, P.S. His primary areas of practice include real estate, litigation and general business. He can be reached by telephone at 208-667-0517 or by e-mail at
This e-mail address is being protected from spambots. You need JavaScript enabled to view it
. For more information, see www.lukins.com/about/pjs.
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