Why You Should Hold On To Old Lease Agreements
One set of old papers you want to keep are the old lease agreements. You may not see the use of keeping old leases, but there are times when you need to refer back to as old as you can possibly get. If you talk to a lawyer, or a judge, the way the law looks at it is, the old leases could come in as evidence or proof to show how things were done in the past. This could only be useful if, for example, your old tenant wants to do something that would affect the property rights of the new one . It will depend on the situation at hand, but tenants come and go but the property stays the same. It is best to keep the old lease agreements because they will also help you correct recordkeeping errors that you may have had in the past. The old lease could also prove prior rent or deposit payments of previous tenants which will protect you if you are being sued by a tenant.
Legal Guidelines On Keeping Old Documents
Laws governing the retention and disposal of documents during and after the lease process are not uniform throughout the various jurisdictions of the United States. Although specific requirements with respect to document retention vary from jurisdiction to jurisdiction, the retention of lease agreements will likely be governed by the statute of limitations applicable to a default on a lease (in most states, three to five years) if the retention is triggered by the tenant’s default. If the retention requirement is triggered by the landlord receiving a document containing the tenant’s signature, then the duration of the document retention requirement may very well be determined by applicable statutes of fraud. Statutes of frauds exist in many states requiring certain types of documents to be in writing to be enforceable.
The Federal Rules of Evidence ("FRE") sets forth rules governing the admission of evidence in United States Courts of Appeal and Federal District Courts. FRE Rule 803(6) provides an exception to the requirement that a witness be present to testify as to matters of which the witness has personal knowledge. It allows for the introduction of business records into evidence if the following conditions are met: The requirements set forth above must be met in their entirety, and the subject records must have been made during the regularly conducted activity.
Another federal statute related to document retention is the Uniform Commercial Code ("UCC"). Several states have adopted all or portions of the UCC. Section 2-725 sets forth the statute of limitation on general breach of contract claims (i.e., failure to make payments under a lease agreement), and it requires that such a breach claim be brought within four years. This limitations period is generally preferable to the statutes of frauds limitations period, which, in most states, is three years, however, if a tenant were to claim that it never signed the lease agreement, rather than defaulted thereon, then the applicable statutes of frauds limitations period may apply. Many state and local governments also have record retention requirements that differ from each other and from what would be legally-permissible on a federal level.
The Uniform Law Commission’s Uniform Electronic Transactions Act ("UETA") has now been adopted in 47 states. UETA addresses the retention and use of electronic records (including paper records stored as electronic records) and signatures. While UETA frees persons from keeping hard copies of electronic records, those records must be capable of retention or accurately reproduced. Thus, time-worn records reflectively stored on an underground microfilm roll may not have been "accurately reproduced" and should be properly disposed of in a reasonably prudential manner.
Because document retention requirements vary greatly among jurisdictions and are subject to constantly-changing statutory and common law, you should always consult applicable laws in the applicable jurisdiction(s) with respect to which records should be retained and for how long.
Duration: How Long Is Safe?
The general consensus among legal professionals is that you should maintain a copy of your lease agreements for a period of at least six years after the termination of the lease or the termination of the last remaining lease under a portfolio of leases. The rationale for the six-year figure is based on the common statute of limitations for contract claims in most states. However, this does not mean that you should not keep them longer. A good rule of thumb is that you should retain the lease for as long as possible and eliminate leases with historical information last. While six years is a great baseline, there are compelling reasons to retain your lease portfolio even longer.
Notably, most states have longer statutes of limitations for actions against or involving landlords. If you are subject to an action with a statute of limitations in the 10 to 12-year range, there is no dispute in the question of whether to keep older leases. This can be the case in real estate finance transactions or tax credit investments that provide tax credits to owners and developers in exchange for low income housing commitments for extended periods of time.
Advantages Of Keeping Your Old Lease Agreements
One may think that once an old lease has expired or when a lease has been fully performed and is no longer in effect, the lease is then a useless, empty document that would be of little or no value to the landlord or tenant. However, a lease should not be discarded wholesale as there are certain benefits to keeping old leases, which can often be overlooked. A few of those benefits are as follows:
In financial record-keeping:
Most business owners, whether landlords or tenants, who have rental properties or lease space, will prepare annual financial statements for their accountant, IRS, or bank. When listing rent expense or rent revenue, a copy of that lease will be requested so that income or expense can be confirmed. If the lease is not readily available, the accountant will have to track down the tenant or landlord to obtain the rent numbers. This is a time-consuming process that may result in the accountant not being satisfied with the numbers being provided to them.
In tax documentation:
Most business owners are required to have a number of documents available for various taxing authorities and governmental agencies, such as the IRS, HUD, SEC, State Agencies, City Agencies, etc. This will include various types of leases, including executed documents, proposed leases, letters of intent, correspondence with the other party, and agreements to extend, renew, or terminate the existing businessman like leases for cell towers and DOT facilities. Many of these agencies are beginning to require electronic storage of documents and electronic submission of records. If the required leases are not readily available, it may be necessary to email the documents after the initial request and that takes time and is not always well received by a taxing authority or governmental agency.
In asserting or defending a legal claim:
If there is a breach of that lease and the landlord must file a lawsuit for collection of unpaid lease rent, or the tenant may have a cause of action against a landlord, the original lease has full value. The lease would be admissible into evidence as an exhibit, or could be copied and then made an exhibit, or it could satisfy discovery requests for copies of all leases and amendments to leases. Copies of such leases could also be provided to title companies for title insurance or to closing agents at the time of sale of the property.
How To Organize & Store Old Lease Agreements
Once you’ve made the decision to keep old lease agreements, having a plan for organizing and storing them will help keep your data streamlined. Whether you choose to keep physical copies or opt for a digital repository, there are best practices you can follow.
If you’ve decided to store your old lease agreements physically, the first step is to find a suitable location. Ideally, this would be a dry, cool area that’s protected from water damage and pests. Consider using a filing cabinet or storage box, but in either case, make sure you use clearly labeled folders or files for easy access. A color-coding system can also be beneficial, allowing you to categorize leases by date, property type, or other relevant criteria for quicker retrieval.
In the tech-savvy world we live in , digital lease storing is becoming the most efficient option, even if you choose to keep paper records as well. To digitally store your old lease agreements, you need to decide on a format. Many people opt for PDFs for their universality, but JPEGs, TIFFs, and other image formats are also options if you’re using an imaging scanner. In any case, once you’ve chosen a format, you can upload them to cloud storage services to share with other authorized users. Both Google Drive and Dropbox are secure platforms with several options for plans, including ones exclusively for businesses.
Maintaining an organized system for your old lease agreements, whether physical or digital, is key to preventing time-consuming data retrieval down the road.
When Is It Acceptable To Toss Old Documents?
In general, it is only safe to destroy old lease agreements once you are entirely sure that you safely expired or terminated all of the leases they relate to. If you believe that you will be renewing the lease, you may be able to keep the older ones even if you stop using them for signature purposes.
If possible, keep the old lease agreements in storage even after you have no more use for them as reference material. Once you are officially ready to destroy them, check to be sure there are no relevant outstanding obligations under any of the old leases. If the leases are expired, look at the old leases to look for any continuing obligations.
For instance, suppose that you are caught up on all outstanding costs of repair and indemnification responsibilities. In such a case, you should be safe to destroy the old leases. But if there are ongoing litigations, especially involving the tenant in question, do not destroy the old leases just yet.
Make this determination beforehand because if you wind up destroying old leases and subsequently need to seek the enforcement of their provisions, you will be out of time. You may be able to write replacement lease agreement clauses that accomplish the same goals as the old leases, but some exceptions may exist. For instance, the Statute of Frauds sometimes prohibits doing this with a lease that is for an interest of longer than one year.
Alternatively, you can even send the old leases to a safe storage facility, so that if tenants ever require verification, you can easily retrieve them rather than having to break a seal on a locked filing cabinet. At the very least, do not ditch old lease documents in the trash. Instead, shred them to make sure that no confidential information can be read or deduced from them.
Once you are ready to destroy old leases, you should only do so via an indisputable shredding process. You can proactively inform your tenants that old leases are about to be destroyed, to warn them as to why they might not be able to find a copy of it.
Digital Solutions: Is Scanning Them Enough?
Many people suggest that if you have old files or records, you can just scan the document and save it to a cloud service. But whether you should do this for documents as important as lease agreements requires more than a one-size-fits-all solution. Security is a big issue: If you hold onto an old hard drive that has sensitive information saved to it, or use a private cloud service that isn’t encrypted, your information is not secured to the same level as if you kept physical copies of your lease agreements in a locked file cabinet in your office or safety deposit box.
But even if you use a secure service, you shouldn’t keep digitized records for too long . For example, if you keep the lease agreements of commercial tenants for too long, you could be violating Fair Housing laws.
Additionally, there may be legal considerations in some states: For instance, attorneys in California are required by the Business and Professions Code. In fact, under this law and state rules of court, attorneys must keep certain documents for a certain amount of time and then properly destroy them.
All things considered, while scanning the original records and storing them digitally may be acceptable in some cases, keeping secure, physical copies may be the better option.