Oct 012009

The May Inside Self Storage Legal Learning With Jeffrey J. Greenberger webinar was on the subject of protecting your customer’s personally identifiable information. This is an important topic and if you missed the Webinar, I would encourage you to listen to the webinar on ISS website. One question that kept coming up during and after the Webinar was: How long do I keep the records of both former tenants who move out voluntarily and those that abandoned, or were sold.

Unfortunately, this article will not contain a hard fast answer because state laws are different and this answer depends on state law however, I would like to give you the factors to take into consideration in making a determination of what the answer should be.

It is absolutely imperative that you have a policy about how long you are going to keep former tenant’s records (for the purpose of this article we generally treat former tenants as those who moved out voluntarily, those who abandoned, and those who were sold) and stick with that policy. One of the worst things you can do is have a policy for destruction of former tenants’ records and then not abide by it, because your sporadic disposal of records, when you have a disposal policy, is going to be questioned if you are ever sued. We will discuss the method of disposal and the importance of having set destruction schedule later in the article.

There are several considerations to help you decide when to dispose of former tenants’ records. The first factor is the time limit that a lawsuit can be brought against you in your state. This is a term known as the “statue of limitation”. There are different statue of limitations for different types of actions in each state, for example, the statue of limitations on a medical malpractice claim may be longer or shorter than the statue of limitations on a legal malpractice claim or a personal injury claim. Since there are multiple statue of limitations in each state the one you will probably want to look at is the statue of limitations for breach of a written contract. This will be the most common type of lawsuit that a self-storage facility would see because most of you have written contracts with your tenants. There can also be other claims such a wrongful conversion however, the breach of contract statue of limitations tends to be one of the longer statues of limitation and serves as a good guide post of the longest possible length of time you may need to keep records. The statue of limitations on breach of written contract in most states is between 5 and 15 years. Thus, one factor would be to keep records until the statue of limitations of breach of contract has run which would be “x” years after move out, sale, or an abandonment.

The second factor to use in your consideration is tax auditing. It is my understanding that the IRS can audit a tax return for up to 7 years after it has been filed. I mention this because if a tenant moves out in January of a certain year the 7 year audit statue of limitations is the tax return filing date for that year, which is generally April 15 of the next year. If any of you file for an extensions or fail to file on time, the time calculation does not begin until the filing occurs. Thus, keeping records for 7 years after the tax filing date of the year after move out (which is really 8 years) is a minimum time limit.

The third consideration is your own internal needs for audit and reconstruction of any transaction. Many times my clients need go back to records that are 5 to 10 years old for various reasons, an example that recently occurred with one of my client is my self storage client was trying to locate a former occupant. The manager remembered that the former occupant and another one of their occupants were related. Going back several years we figured out the whereabouts of the relative and through this contact we were able to find the former occupant. More likely you will need these records to solve a problem or audit an issue, but the value of old records to your operation needs to be factored into your time limits. I understand some of this requires institutional memory which your facility might not have, but it is worth considering how long you may want your records for these types of purposes.

The fourth and final factor is a gut check, if you are still holding leftover property from an abandonment or property that was not purchased at a sale because it was not suitable such as photos and business records, you certainly should not dispose of the underlying paperwork sooner then you dispose of the property that you are still holding.

Now put all of these dates into a sifter and shake it out. You should hold former tenants’ records for at least the length of time where you may need some portion of those business records for your own internal audit purposes and for tax audit purposes. This would mean approximately 8 years after the year of a move out, abandonment, or sale. That would be the minimum time. The maximum amount time you would want to hold records is the longer of all of those times and the statue of limitations for breach of written contract in your State, which for example, may be 15 years.

With that time span in mind you then need to discuss with your attorney if there is an advantage in disposing of the records sooner then the maximum hold date. If you have a longer statue of limitation for breach of written contact discuss with your attorney whether or not there is any advantage in disposing of the records before the breach of written contract statue of limitations runs out. There is a defense to certain lawsuits known as Laches, that essentially means you are unable to defend yourself because of a change in conditions such as someone waited so long to make the claim that you do not have adequate information or records to defend yourself. This is not a perfect defense and should not be relied on, but should be addressed with your attorney. We advise many of our clients to dispose of the records before of the end of the written breach of contract period because it is unlikely that a claim will be raised more than 7 or 8 years after a move out, and at some point our clients do not want to have the records around if they are sued. Notice, this is an important discussion to have with an attorney to obtain the appropriate statue of limitations information and understand whether Laches applies in your State, and if so whether it is beneficial to you to dispose of the records after the audit and tax statue of limitation runs out, but before the written breach of contract statue of limitations runs out.

The non-mathematical answer is in the worst case scenario you should dispose of records after the last of the appropriate statues of limitations has run out, whether that would be 8 years or 15 years, however, there may be a reason, in consultation with your attorney, to make the date of destruction sometime shortly after the tax audit statue of limitation.

You also must have an appropriate plan for destruction of these documents. Eventhough these documents may be 7 or more years old they still contain social security numbers, credit card numbers, drivers license numbers, and other personally identifiable information which, should it fall into the wrongs hand could lead to identity theft. When it is time to dispose the records make sure the records are properly destroyed by shredding, or other type of destruction service to ensure that these records do not fall into the wrong hands, which would result in a new set of legal problems for you.

As always it is best to consult with your attorney to ensure that your plan complies with the laws of the state which you are located and once you have a plan from your local counsel, set up a way to be certain that you comply with your policy on a regular basis so that you do not raise attention because of your inconsistency. Finally, make sure you are not causing new troubles by failing to dispose of these documents properly when you are done with them.

Jeffrey J. Greenberger is a Partner with the law firm of Katz Greenberger & Norton LLP in Cincinnati, Ohio and is licensed to practice in the states of Ohio and Kentucky. Mr. Greenberger’s practice focuses primarily on representing the owners and operators of commercial real estate, including self-storage owners and operators.

This column is for the purpose of providing general legal insight into the Self-Storage field and should not be substituted for the advice of your own attorney.

Jeffrey’s website, www.selfstoragelegal.com, contains Jeffrey’s legal opinions and insights into the self-storage industry, as well as an article archive. You can send your questions, comments, or suggestions for future topics to Jeffrey J. Greenberger at jjg@kgnlaw.com, or mail them to Jeffrey J. Greenberger, c/o Katz Greenberger & Norton LLP, 105 E. Fourth Street, Suite 400, Cincinnati, Ohio 45202, or you can reach Mr. Greenberger at (513) 721-5151.

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