Published On: January 9th, 2018 / Categories: brokers, Bureau of Real Estate, California Civil Code /

Stack of documents, how long should you keep them?“Out with the old and in with the new” is a common refrain heard around the New Year, as this is a popular time to eliminate clutter and start fresh, both personally and professionally. Recently, a reader of this blog who is a commercial real estate broker asked me how long brokers had to hold on to their files, and what items they should keep. Given the propitiousness of this topic, I thought a blog article on this point to begin the year would be helpful to many of you.

As a starting point, California Business and Professions Code Section 10148(a) provides as follows:

“A licensed real estate broker shall retain for three years copies of all listings, deposit receipts, canceled checks, trust records, and other documents executed by him or her or obtained by him or her in connection with any transactions for which a real estate broker license is required. The retention period shall run from the date of the closing of the transaction or from the date of the listing if the transaction is not consummated.

Thus, licensed brokers in California should, at a minimum, keep copies of all such documents signed or received in connection with a transaction for a period of three years after the closing (or three years after the listing date, if the transaction doesn’t close). You should be aware that the explicit purpose of this statutory requirement is to allow the Bureau of Real Estate to audit those records. Because a violation of this mandate could potentially result in the suspension or revocation of a broker’s license, brokers are well advised to heed its demands; still, the primary beneficiary of this rule is the Bureau.

Beyond this minimum file retention requirement, brokers are well advised to take into account other considerations that primarily serve their own professional benefit.  In this regard, the most important factor is being able to defend themselves against lawsuits. For this purpose, the safest practice is to hold on to files as long as possible; a helpful rule of thumb is to retain files until the statute of limitations for relevant claims has expired. While the statute of limitations for many contract claims is two years, other types of contract-related claims have three-year and four-year statutes of limitations. Further, a number of real property-related statutes of limitation can be ten years, and the statute of limitations for many other claims does not begin to run until after the claim is discovered, which extends the retention period even further.

Fortunately, retaining records for such lengthy periods of time has become easier with technology. Brokers who maintain complete electronic files need not keep hard copies; this can significantly lower the cost of file retention. It is also important to note that the record retention requirements of Section 10148(a) described above do not apply to text messages or instant messages, or any other type of electronic transmission of a transient nature. Effective as of January 1, 2015, California Civil Code Section 1624(d) was enacted to clarify the meaning and effect of such messages in real estate transactions, as follows:

“An electronic message of an ephemeral nature that is not designed to be retained or to create a permanent record, including, but not limited to, a text message or instant message format communication, is insufficient under this title to constitute a contract to convey real property, in the absence of a written confirmation” that is sufficient under California law to otherwise constitute a contract.

As such, California brokers need not maintain their text messages or instant messages as part of their file retention obligations. It should be noted, however, that emails are not among the types of communications covered by this change, so brokers should also keep all emails relevant to their transactions.

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