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2007-10-02 15:49:00

Keeping Real Estate Business Records: The Law in California

Q  Under California state law and practice, how long should a property owner, property manager, and/or real estate agent keep business records?

The time period to keep records depends on why they are being maintained. Generally records should be retained for as long as possible, but for no less than four years. There is no single, simple rule establishing the minimum time to retain records. Record retention periods must be determined on a case by case basis, after completing a cost/benefit analysis. The cost to retain the records must be weighed against the likelihood that they will be needed. Think about why the records are being kept. Are you legally required to keep them? Do you have a business need for them? Focusing on the issues you are most concerned about is an important part of the cost/benefit analysis. One factor to consider is the applicable time limitations that may apply to claims relating to the records. There are many different time periods that could apply. The "statutes of limitations" that are most likely to apply are as follows:

Two years for a verbal contract, for an alleged breach of a real estate agent's duty to inspect and disclose, or for personal injury

  • Three years for certain real estate broker/agent transaction and trust records and for alleged fraud claims
  • Four years for a written contract and for an alleged breach of fiduciary duty
  • Up to seven years for some IRS purposes (although some have no limitations)
  • Ten years for latent (not immediately noticeable) construction defects

Extensions of these time limitations can exist in different situations. Some of these extensions can be based upon:

  • Delays in discovery of injury
  • Four years for a written contract and for an alleged breach of fiduciary duty
  • Personal injury claims to people younger than 18 years old
  • Cross-complaints and indemnity claims

If the records are needed for tax reasons (to establish basis in property or otherwise), you should keep the documents for at least as long as you own the property, plus an additional amount of time.

A real estate broker must retain for three years copies of:

  • all listings
  • deposit receipts
  • cancelled checks
  • trust records and
  • other documents in connection with transactions for which a real estate license is required

The time period begins to run from the date of closing, or if the transaction is not consummated, from the date of listing.

Additionally, a real estate broker must maintain records for four years of funds solicited or accepted for a purchase or loan transaction where the broker (directly or indirectly) obtains use or benefit of funds other than for commissions, fees and costs and expenses.

Generally, retain records for at least four years and if the cost to store the records isn't excessive, consider retaining them for a longer period.

Title 10, Chapter 6, Reg. 2729 specifically authorizes a broker to use electronic image storage media to retain and store copies of required documents provided that:

  • The electronic image storage is not erasable and does not allow changes;
  • The stored documents are made or preserved in the regular course of business;
  • The original record from which the stored document was copied was made or prepared by the broker or broker's employees at or near the time of the act, condition or event reflected in the record;
  • The custodian of the record is able to identify the stored document or record, the mode of its preparation, and the mode of storing it on the electronic image storage;
  • The electronic image storage media contains a reliable indexing system that provides ready access to a desired document, appropriate quality control of the storage process to ensure a good quality image, and date ordered arrangement of stored documents or records to ensure a consistent and logical flow of paperwork to preclude unnecessary search time.
  • The broker maintains at his/her office a means of viewing the electronically stored documents.

If requested by the California DRE, the broker is required to provide a paper copy of any document(s) at the broker's expense.

Deciding how long to retain business records is a business decision that should be made after considering the applicable laws, the cost of record retention and the likelihood that the record will be needed. 

 (The above discussion is general in nature based on California law and should not be construed as individualized legal advice. Readers are cautioned to seek individualized legal assistance based on a detailed analysis of their particular facts and circumstances. If you have any questions regarding the above material or any other matter involving landlord-tenant issues, you may contact the Law Offices of Kimball, Tirey & St. John, 800-338-6039.)

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