Document Management
A frequent comment from landlords is how much documentation is needed for legal compliances, general business matters, landlord-tenant issues, and tax reporting. Common advice given to new landlords regarding paperwork is to “document everything” closely followed by “just in case.” This is good advice but taken literally can prove to be too much of a good thing. The landlords that suggest documenting everything may be speaking from personal experience – thinking of the time they needed a document and either didn’t have it or couldn’t find it.
How does a landlord know what documents to keep, for how long, and how to dispose of a document when it is no longer needed? Common sense and business necessity provide guidance regarding document management, while due diligence provides compliance requirements for document storage and retention.
Information content, storage, retention and disposal can vary according to the type of business, the type of document, and what relationship the document has to the business. A document management policy identifies the requisite documents for legal compliances and business reporting. Once you have determined what you must have, you can begin to identify and classify your documents to determine the required retention period, and the appropriate disposal method for each class of document.
A reasoned, practical approach to document management is to record relevant business information and to organize those documents into a file management system that provides for storage, retrieval, backup, and security of business records, tax records, tenant records, and property records. The file management system can be as complex as required for business necessity, for type and number of properties, or for specific to landlord preferences.
When properly developed and implemented a document management plan becomes a time management tool for efficiency in property operations. More importantly it becomes a risk management tool to protect the business. A document management system helps provide a paper trail to aid in defense of an audit, legal dispute, or fair housing claim. At the very least, a document management system should make it easier to find and retrieve information when needed.
File Organization
Organization of information is critical to successful search and retrieval of documents, paper or electronic. Good file management organizes information in a consistent protocol using descriptive file names that clearly identify the document and its content. The naming convention, generally from broad to specific, applies whether documents are hard copy paper files stored at a physical location, electronic files saved to a computer or other media devices, and/or data stored in a cloud-based system. Document management protocol should also provide for electronic communications such as email regarding storage, retention and disposal.
A landlord will set up his files to his business and personal preference. An important point to remember is to ensure others with permissible purpose will be able to search and retrieve documents in case of an emergency or for legal compliance. For that reason once business documents have been identified and classified, an index should be created that provides a data map to the named files, document content, date created, retention date, access permissions, storage location, and document format. It may be helpful to create a hard copy document that outlines your document filing policy, provides instructions for creation of new documents, naming protocols, file location, and retrieval. Similarly a readme computer file will aid others in creation, storage, and retrieval of electronic documents.
For many landlords, a paper file system is simple, familiar to use, and provides ready access to files. Other landlords prefer the convenience of their computer files and the portability of information. Most often property management operations use both hard copy documents and electronic files.
Permanent Files
There are many documents that must be retained in permanent files for indefinite storage for business, tax, and legal matters. Permanent files may include the following:
Ownership Property Records
For real property, documents for the purchase of the property and its capital improvements must be kept throughout the ownership period and thereafter for tax record retention periods. Documents may include the purchase offer and contract; closing documents including buyer inspections, appraisal, and title policy; loan documents, tax bills and assessments; insurance policies; seller furnished original landlord-tenant documents including lease agreements, security deposit receipts, repair and maintenance records, and fire, health, and safety inspection records during seller ownership of the property.
Tenant Records
Maintaining complete, detailed, and current tenant records is essential to document the individual’s tenancy, the landlord’s compliance with legal obligations, and more likely to prove a defense against a tenant’s claim of discrimination or show cause in a landlord’s court action for tenant eviction.
Landlords need to keep a variety of records for all applicants, current tenants, and past tenants. All documentation related to filling a vacancy including rental inquiries, property showings, applications (withdrawn, rejected, and accepted), tenant screenings, selection, and tenancy records should be retained according to the appropriate retention period. Records should be kept that show calendar periods when vacant properties were available and when vacancies were filled.
Property Records
Records should be maintained on each separate rental property, detailing income and expenses for the property. Property records for an individual property may be cross-referenced to the permanent file for ownership records. Information contained in property files is used for business analysis, financial reports, and tax reporting.
Tax Records
Document management for tax reporting must prove the paper trail that supports rental income and expenses as shown on Schedule E of the landlord’s tax return. As a general rule documents maintained and secured for tax reporting purposes include rental property related expenses as detailed by receipts and business records and all income from rents, fees, or services received instead of money.
Storage
The business documents that a landlord creates, manages, and secures are the business’s information assets. As such, a landlord must take responsibility to ensure the records are properly maintained and stored to ensure the safety and security of the data and protect the business interest. Appropriate to the business model a document storage system may be as simple as a locking file cabinet in a physical location not accessible to the general public. Computer files should always be protected with an administrative login and strong passwords to prevent data theft or misuse of information. Access to records that contain personally identifying information about individuals (applicant and tenant), such as consumer reports should be limited to only those with a “need to know.”
Backup System
Document management requires records and supporting documentation be kept secure yet accessible. A good business practice is to have a backup system for document management in the event of a business disruption. Regularly backing up computer files to a portable device or to cloud storage, or securing a hard copy of relevant business and ownership documents to a secure off-site location can provide needed data to re-establish your business, prove ownership records, banking access, or other assistance in the event of an emergency such as a computer failure, burglary, fire, or natural disaster.
Document Management System
The focus of document management is organization and storage of relevant business documents in such a manner that document information can be created, shared, stored, and retrieved through an efficient process. The process can be paper files secured in a file cabinet, a computer application with security enabled access, or a full document management platform provided by an organization’s information technology department.