Property manager Mary Hack vividly recalls the day when an Upper West Side co-op came looking for the paperwork on the building's capital repairs. The board wanted to apply for a J-51 tax abatement, and needed the engineer's report to submit with the paperwork. But after several searches through the building files, Hack could only shrug helplessly. Her company, Blue Woods Management, had recently begun managing the property, and there was nothing in the files from the previous agent that had to do with the cooperative's capital repairs.
For a little while, it looked like the board was going to lose out on the abatement. Without the project information, there was no way for the shareholders to prove that the work had been done and paid for.
But Hack was undeterred.
After several marathon weeks of phone calls and document drafting, "we were able to get an affidavit from the engineer for what the total cost was, and a statement from the contractor saying he was paid. Had we had to hire an expeditor, it would have cost, on a time basis, $4,000 to get that one thing straightened out."
Hack's persistence paid off. The building won the $100,000 abatement, spread out over ten years. While she was pleased with her efforts, piecing together the co-op's lost files delayed the filing nearly five months and took the building's property manager away from other work she needed to do. "It made life really difficult."
Talk to nearly any managing agent and you are bound to hear a tale or two of lost files and the messy aftermath: tax abatements nearly lost, purchases held up, refinancings that didn't go through, and renovations put on hold. And that's only part of it. Co-op boards that misplace insurance policies could be losing a chance to file a claim for an accident that occurred while the policy was in effect. Throwing away employee files too quickly after a termination means the board has no evidence if it needs to defend itself against a lawsuit.
But the flip side of trying to keep track of nearly everything is that, well, you find yourself trying to keep track of nearly everything. What with all the apartment transfers, purchase applications, financial packages, and subtenant forms, even the smallest management company quickly finds itself in charge of a "voluminous amount of files," as Lynn Whiting, director of management at Argo, puts it.
In an effort to reduce its own massive paper files and figure out a way to streamline its filing for the future, Argo executives recently went on a hunt for advice in dealing with their files, talking with attorneys on what to keep and what they could throw away. "The consensus of people we spoke to recommended a seven-year turnover," reports Whiting. Old shareholder and subtenant files could be purged after seven years, so could some financial records, tax returns, and paid bills. Such documents as proprietary leases, stock certificates, alteration agreements, and building plans are kept.
John Sicree, a senior vice president at Brown Harris Stevens, has his additional advice. Any documents dealing with the building's physical plant, such as alterations, plans, building systems information, copies of warranties, engineering reports, and blueprints, should be stored at the building. "They are not very often needed, but when they are needed, they should be there," he says.
Part of the reason why documents can get lost in management transfers is that there is no industry standard for storing records on an indefinite basis, observes Whiting. Every company establishes its own policy.
In an effort to help guide management companies and self-managed buildings on which files to keep, and which can be pruned, Mark Shernicoff, principal at Zucker & Shernicoff, recommends boards should get a copy of the record retention guide published by the American Institute of Certified Public Accountants and adapt it to their needs and to the recommendations of the building's attorney.
While the guide is not all-inclusive, it is a start. (A co-op board's accountant can provide the one-page record retention guide or interested shareholders can go to www.aicpa.org and order the form from the website.)
"Generally, most business records are kept for six or seven years," says Shernicoff, but there are some notable exceptions. "Financial statements should be kept forever. Tax deduction records should be kept forever. General business records, cancelled checks: six or seven years. Minutes books are forever." Personnel records should be kept six or seven years after an employee is terminated, in case he or she comes back and sues. As for tax returns, while most boards are safe getting rid of them after six years, "we recommend you keep tax returns forever, but throw out the supporting material after three to seven years."
When it comes to records pertaining to the corporation's permanent assets, those records need to be kept. That includes all work orders, contracts, and building improvement records. As for the building's corporate seal, that should be kept with the property's transfer agent, who oversees all sales.
"The point of holding something is to preclude regret," observes Shernicoff. "How many requests do you get for an old document? Very, very few. But when you need to produce it, it can be serious problem if you can't - because usually there is a problem, if someone is asking for it."