Community Associations Update - May 2014
A Guide to Association Records Retention: What You Need to Know
By: Julie A. Chase, Esq.
Your “Records Retention Policy” – What it is and why you need it.
Do you know where your association’s important documents are located and how to access them quickly if necessary? Keeping association records organized and safe can be an overwhelming task. When new members join the board, it is vital for associations to have a good set of records so that prior board actions can be reviewed when necessary. Condominium and homeowners associations are also obligated by law in many states, and often by their governing documents, to retain certain documents and make them available for owners to review upon request.
Maintaining records in an organized and safe manner is not only important to help preserve association history, it can also make it easier for an association to prove losses to its insurance company, prepare taxes and challenge contractor records if disputes arise. Association records are also essential in the event of litigation, as they provide information necessary to successfully defend claims against the association. In addition, if an association is audited, all financial records and employee payroll information will need to be produced.
Having a good records retention policy in place will let you find and retrieve important records quickly. And it should include a system so that documents are only kept for as long as they are needed, saving space and resources.
Associations should focus on the following factors when developing a records retention policy: a) who will be responsible for maintaining documents, b) what documents should be stored and for how long, c) where and how will the documents be stored, and d) how will documents be destroyed?
- Who will be responsible for maintaining documents?
It is important to establish who is responsible for implementing, monitoring, and updating an association’s records retention policy. The ultimate responsibility for keeping good records belongs to the association, even if the association has a management contract that stipulates otherwise. As a result, the Board should work together with management and legal counsel and consider how to best to maintain the necessary documents in a safe, organized and efficient manner.
- Which documents and information should be stored and for how long?
When it comes to association records, different documents should be kept for different lengths of time, sometimes indefinitely. Document retention needs will vary on a case-by-case basis, depending on the type and size of the association and where it is located.
Because laws vary from state to state, there is no one-size-fits-all standard. Instead, associations should discuss their document retention needs with legal counsel and the association’s accountant so that an informed decision can be made about each specific type of document based on state laws and standard practice. Here is a general list of documents that should be maintained and their recommended retention periods:
- Permanent - Current and past governing documents, including articles of incorporation, declarations and bylaws, and any amendments to them, should be maintained permanently. Minutes from board meetings and meetings of the membership should also be kept permanently, as well as tax returns and budgets.
- Varying - Other important documents should be kept for various lengths of time. Contracts including management, landscaping and insurance agreements, should be kept for at least seven years after they expire. Assessment information, employment, personnel, and bank records should also be kept for at least seven years. Election ballots should be kept for at least four years and association newsletters for three years.
- Legal Documents - Records relating to legal action or possible legal action should be reviewed on a case-by-case basis. For example, records of judgments and liens are kept on file at the courthouse and are easily replaceable. If there is ongoing or potential litigation, unless an association has received specific advice from legal counsel, no documents pertaining to the matter should be destroyed. Failure to properly retain documents may result in penalties or fines if the matter goes to court.
The general guidelines outlined above are the same for paper records and electronic documents, such as Word files, spreadsheets, e-mails, photos, databases and any backup files.
- How and where will documents be stored?
When considering how and where documents should be stored, it is important to consider the volume of documents and how often the documents will need to be accessed. For example, an association may want to keep current documents that are referred to frequently in paper form and use an electronic storage system for documents that are not currently in use and need to be stored for a long period of time. Using electronic storage reduces the physical space necessary to store documents and can make it easier to search for specific documents. However, associations must also keep in mind that as technology changes, it is important to keep up with current formats for electronic storage so that information can still be retrieved when it is needed.
When considering where to physically store both paper documents and electronic files, associations should always make sure records are kept in a secure area due to the confidential nature of many documents.
How will documents be destroyed?
After an association determines what documents need to be kept and for how long, there will be outdated documents that will need to be discarded. Documents and electronic devices that contain records, such as CD’s or flash drives, can be destroyed by shredding or incinerating. The method the board selects should preserve the confidentiality of the records, as association documents may include sensitive legal information or personal information relating to members of the association. If a third party is maintaining association documents, the association should ensure that they understand their obligations, and that they only destroy records with the association’s written consent.
Again, if litigation is ongoing or imminent, it is important to speak to an attorney prior to destroying any association documents, changing the association’s retention policy, or deleting e-mails or electronic files.
Developing a Retention Schedule
We recommend that all condominium and homeowners associations work with their managers and legal counsel to adopt a formal document retention and destruction policy. If you have questions about your association's records retention policy and activities please contact one of our attorneys.
Does Your Building Have an Asbestos Survey and an O & M Program?
Why It Matters if Your Building is in D.C.
By: Valerie L. Tetro, Esq.
Take-away: If you have a pre-1981 building, you have special asbestos-related obligations.
Under federal law, any building constructed before 1981 is presumed to contain asbestos in certain installed construction materials (these materials are referred to as “ACM” or “PACM”). This presumption covers thermal systems insulation, such as pipe wrap and duct insulation; sprayed or troweled surfacing materials, such as fireproofing and acoustical material; and asphalt and vinyl flooring and mastic. While not covered in the statutory presumption, other construction materials in buildings of the same age that frequently have been found to contain asbestos include ceiling tile, gaskets, siding and roofing material, wallboard/wallboard systems, and ceiling plaster/stucco systems.
The presumption that asbestos is present triggers two separate but related obligations of “building owners” with respect to ACM or PACM in the common areas. In the case of associations and cooperatives, the “owner” is the association itself, not individual unit owners or shareholders.
First, building owners are required to determine the presence, location and quantity of actual and presumed asbestos containing material, ACM and PACM. This obligation is typically satisfied with an Asbestos Survey conducted by a certified industrial hygienist. The Survey must be updated before any repair, renovation, demolition or restoration work is done in an area that has been designated as containing ACM or PACM.
Second, if ACM, which is presumed to be present in designated materials unless removed, or PACM has been found, an Operations and Maintenance Program (O&M) for the building is also required. The purpose of the O&M is to minimize the exposure of all building occupants, workers, contractors, and their employees to asbestos fibers through the implementation of a written plan of policies and procedures. The O&M establishes work practices for the building including cleaning, maintenance, inspection and monitoring to maintain ACM and PACM in good condition; to prevent the accidental release of asbestos containing fibers during routine and/or scheduled maintenance/repairs/renovations; and to ensure proper clean-up of asbestos fibers previously released. The O&M should also include training of the property manager in all of the foregoing.
Finally, building owners are required by statute to notify residents, tenants, building employees, maintenance and housekeeping persons, as well as contractors and their employees, who will be doing any maintenance/repair/renovation/construction activities, of the presence, location and quantity of ACM and PCM in the building. This notice obligation is not triggered only by the commencement of work to remove or abate ACM but begins much earlier with the determination of ACM and PACM from the time of the Asbestos Survey or Update, and includes anticipated construction work that could potentially damage or disturb ACM or PACM.
Inspectors with the D.C. Department of Environment can impose fines and sanctions for violations of these requirements. If your Association should need assistance working through these requirements, please contact us.
Valerie L. Tetro, Esq.
Partner, Co-Head, Insurance Coverage & Defense Litigation and General Counsel
D.C. Updates: New Condo Act Provisions
By: Jane Rogers, Esq.
Legislation to amend the District of Columbia Condominium Act was signed by Mayor Gray on April 28, 2014, and will go into effect as soon as the mandatory Congressional review period has expired. Hopefully, that will be sometime before June 15, 2014.
The legislation is the product of years of efforts by the D.C. Legislative Action Committee of the Community Associations Institute, which sought this legislation to fix certain shortcomings in the Act and to modernize the statute to allow condominiums to use electronic voting and meeting notification, among other changes. Jane Rogers, who practices in WTP’s D.C. office, currently serves as Chair of the D.C. Legislative Action Committee. The following is her summary of the changes. –Ed.
The Condominium Amendment Act of 2014 (D.C. Act 20-308) makes substantial changes to current law and will affect all D.C. condominium associations. Therefore, care should be given to understand the changes and advise unit owners of steps the association will have to take to comply with the statute.
Insurance: Unit owners will now be required to obtain condominium owner’s insurance coverage with dwelling (whether residential or commercial) property coverage at a minimum of $10,000 and condominium owner personal liability insurance coverage at a minimum of $300,000. These coverage amounts may be increased by the executive board.
Unless the governing documents provide otherwise, if the cause of any damage to a portion of the common elements originates from the common elements, the association’s property insurance deductible will be considered a common expense. However, if the damage originates from a unit, the owner of that unit will be responsible for the association’s insurance deductible up to $5,000. This amount may be assessed against the owner’s unit.
Electronic communications and votes: The amendments will also allow electronic notice of meetings and electronic voting and proxies. Meetings of the executive board may be conducted by telephone conference or video conference or similar electronic means, provided all in attendance are able to hear and be heard by the other participants.
Open meetings: Meetings of the executive board will have to be open to observation by all unit owners in good standing. The agenda of board meetings must be available for review by unit owners prior to the meeting. Each board meeting must include an open forum section.
Financial and other records: The association is required to maintain financial books and records subject to unit owner examination, with certain exceptions for confidential documents. Minutes of board meetings are reviewable by unit owners upon a written request and five days’ notice.
Leasing restrictions: The amendments add certain authority not currently found in the Act. The association will now have the power to adopt leasing restrictions subject to certain restrictions as to units being leased by existing owners.
Assessments for limited common elements: The amendment clarifies the association’s right to specially assess units for costs of maintaining limited common elements. It also authorizes the association to pledge assessment income as collateral for a loan, unless prohibited by the condominium instruments from doing so.
Delinquencies: The statute specifies that condominium liens for unpaid assessments include late fees, interest, expenses and legal fees. It further clarifies the association’s authority to convey title upon completion of non-judicial foreclosure under the statute’s terms.
“Business Judgment” rule: The statute adopts the business judgment rule as the standard applied to govern decisions of the executive board.
Boundary adjustments: It makes technical amendments to current law to permit the relocation of boundaries and subdivision of units, unless prohibited by the condominium instruments.
Other details regarding the amendments are too numerous to include here. Copies of the Re-enrolled Act are available from our offices and briefings regarding the changes will soon be offered. Details to follow.