The snow has finally melted. Flower beds are exploding with color. The sunny days aren’t quite so rare. The next item on your to-do list is “Clean boxes out of garage.” You take a deep breath and open the first box: association records. The second box: association records. Third box…Ugh!! Do you really have to keep all these papers?? Short answer: No! Well, not everything. But what’s appropriate to throw away or shred, and what must be kept?
Even before opening those musty boxes in the garage, the Board should consider its records retention policy. If your association does not have one, the Board should adopt one. This article provides general information on issues a board may wish to address in a records retention policy, but each association’s board should also review the association’s governing documents for any additional requirements. Furthermore, if it hasn’t already done so, the association should consider converting its paper records to electronic records.
What is a “corporate record”?
The corporate records of an association are important assets. Corporate records include essentially all records, whether paper or electronic. A record may be as obvious as a memorandum, an e-mail, a contract or a reserve study, or something not as obvious, such as a computerized desk calendar, an appointment book, time card or an expense record.
Section 317A.461 of the Minnesota Nonprofit Corporations Act (Minnesota Statutes Chapter 317A) states, “A corporation shall keep at its registered office correct and complete copies of its articles and bylaws, accounting records, voting agreements, and minutes of meetings of members, board of directors, and committees having any of the authority of the board of directors for the last six years.” Further, for those associations governed by the Minnesota Common Interest Ownership Act (MCIOA) (Minnesota Statutes Chapter 515B), Section 515B.3-118 provides, “The association shall keep adequate records of its membership, unit owners meetings, board of directors meetings, committee meetings, contracts, leases and other agreements to which the association is a party, and material correspondence and memoranda relating to its operations. The association shall keep financial records sufficiently detailed to enable the association” to provide the annual report required under MCIOA and to complete resale disclosure certificates required in conjunction with the sale of a townhome, condominium or cooperative unit.
Under Minnesota law, then, “corporate record” can mean different things to different people or under different circumstances. Some records are maintained permanently, and include the association’s Declaration, Articles of Incorporation, Bylaws and Rules (and any amendments), well as plats of the community and certain consent resolutions of the Board (see below). Most records, however, need not be kept indefinitely. A contract for a new roof that is now fifteen years old need not be retained “just in case.” A copy of a letter sent to a delinquent homeowner who moved away eight years ago need not be retained. A 5-year-old reserve study should be retained.
Documents requiring special consideration
Several categories of documents that bear special consideration are identified below. While minimum retention periods are suggested, the retention of the documents identified below and of documents not included in the identified categories should be determined primarily by the application of the general guidelines set forth in Minnesota or federal law as well as any other pertinent factors.
- Tax Records. Tax records include, but may not be limited to, tax returns, as well as documents concerning payroll, expenses, proof of deductions, business costs, accounting procedures, and other documents concerning the association’s revenues. Tax records should be retained for at least six (6) years from the date of filing the applicable return or amended return.
- Financial Records. In addition to tax records, associations must also maintain certain other records related to the financial operations of the association. In general, premature destruction of financial information may leave an association without documentations of accounting irregularities. Accounts payable/receivable ledgers, as well as bank statements and reconciliations, should be retained three years. Monthly/quarterly financial statements should be retained for five years, while year-end financial statements and audits should be retained permanently.
- Employment Records/Personnel Records. Where an association has employees (g., onsite managers, caretakers or other staff), state and federal statutes require an association to keep certain recruitment, employment and personnel information. The association should also keep personnel files that reflect performance reviews and any complaints brought against the association or individual employees under applicable state and federal statutes. The association should also keep all final memoranda and correspondence reflecting performance reviews and actions taken by or against personnel in the employee’s personnel file. Employment and personnel records for past employees should be retained for six (6) years after the employee is no longer employed by the association. Records for current employees should be maintained as long as the employee continues to be employed by the association, as well as the six years after the employment relationship ends.
- Board Meeting Minutes. Minutes of association meetings should be retained permanently. A clean copy of all Board meeting minutes should be kept by the Association for no less than six (6) years.
- Board Consent Resolutions. Written resolutions of the Board usually address matters that are likely to come up repeatedly over time, or which the Board deems to be of sufficient importance to warrant being addressed in a document separate from routine meeting minutes. Topics may include, for example, policies regarding ice dam removal or certain exterior improvements. From a practical perspective, having the issues addressed in a document separate from routine meeting minutes makes the resolution easier to find among association records. Because of the ongoing nature of the topics, such resolutions should be maintained in the association’s permanent records in order to better ensure that issues addressed by such resolution are handled consistently, regardless of who may be serving on the Board.
- Architectural Change Requests and Approvals. Many associations allow owners to make changes to landscaping or the exterior of their homes. Some changes are minor, some are significant. In most cases, the owner making the change is expected to maintain the improvement. In order to be able to respond to inquiries as to whether a given modification was approved, the Board should permanently retain the application and the Board’s decision on the application, including any conditions imposed on such approval. Furthermore, as with resolutions, maintaining records of requests for architectural approval and the decisions on those requests better ensure that similar requests are handled consistently, regardless of who may be serving on the Board.
- Legal Files. Legal counsel should be consulted to determine the retention period of particular documents, but legal documents should generally be maintained for a period of six (6) years.
- Contracts. Final, executed copies of all contracts entered into by the association should be retained for at least six (6) years beyond the life of the agreement (i.e., the time for performing under the terms of the contract), and longer in the case of publicly-filed contracts.
- Credit Card/Banking Information. Credit card information, ACH payment information and other consumer banking information should be retained only in strict compliance with the Fair and Accurate Credit Transactions Act of 2003 and the corresponding Disposal Rule promulgated in 2005 by the Federal Trade Commission.
- Electronic Mail. Electronic mail is a subject of frequent discussion, particularly since COVID-19 protocols have limited in person meetings of Boards. Many associations are establishing dedicated e-mail accounts for the association that can continue to operate regardless of who is serving on the Board. Establishing a dedicated e-mail account for the association also protects the privacy of personal and business e-mail accounts of board members in the event of litigation. (Many employers also have policies prohibiting use of employer-issued e-mail accounts for personal business.)
The retention period for e-mails depends upon the subject matter of the e-mail.
- E-mails authorizing, for example, a manager to take a specific action, should be retained for six (6) years.
- E-mails regarding a resident’s noise complaint should be kept for a reasonable time after the matter has been addressed, either because the parties “worked it out” or one of the residents left the community; retention for two years after resolution should be sufficient.
- E-mails sharing vendor bids should be retained for the term of the contract for the project for which bids were sought.
- E-mails relevant to litigation (or matters where litigation is likely) should be retained until the litigation is resolved. (See below.)
In any event, e-mail that needs to be saved should be either:
- (i) printed in hard copy and kept in the appropriate file; or
- (ii) downloaded to a computer file and kept electronically or on disk as a separate file. Bear in mind that files kept electronically must be kept in a format that is accessible over time. A critical e-mail kept on a floppy disk in 1986 is likely inaccessible now, rendering its contents useless.
A caveat regarding possible destruction of evidence
There is one exception to any established policy for destruction of association records. If a board member or manager believes that association records are relevant to litigation, or potential litigation (i.e., a dispute that could result in litigation), then the association must preserve those records until the association’s legal counsel determines the records are no longer needed. This exception supersedes any previously or subsequently established destruction schedule for those records. Failure to retain those records for those minimum periods could subject an association to penalties and fines, cause the loss of rights, obstruct justice, spoil potential evidence in a lawsuit, place the association in contempt of court, or seriously disadvantage the association in litigation. Records retention policies should include a procedure for notifying appropriate personnel when the policy should be suspended such as pending or potential litigation.
Annual Review of Records
Once an association had adopted a records retention policy, it should perform annual reviews of its records to ensure compliance with that policy. The retention policy itself should be reviewed regularly and updated as necessary to comply with any laws regulating document retention. All versions of the policy should, however, be kept on file permanently.
Maintaining adequate records of the association’s operations is critical to the ongoing effective function of the association. However, not every scrap of paper needs to be kept forever. Establishing a records retention policy and following that policy can enable an association to keep the records it needs while keeping its records from becoming overwhelming. And think of all the space in your garage or hard drive you’ll re-claim!
If you have questions regarding records retention issues or would like assistance in establishing or reviewing your association’s records retention policy, or for any other questions or issues relating to community associations, feel free to contact the author.