renew one tenant but not another=discrimination?

[Mike R.]

hi and thank you for your help!

recently closed on a property and we are finally getting things in order.  However, we have two tenants who are on month to month based on the prior owners leases.  we don't like the language in those leases so we want to move to an annual lease based on our language.   However, we would rather not renew one of the tenants but are OK renewing the other tenant.  can we do that without creating a potential "discrimination" issue?

[Marcia Maynard]

@Mike R. I see you are from Washington State. I'm thinking PO might mean Port Orchard, am I right? Welcome to Bigger Pockets! I read your profile and see you didn't complete it and have it hidden, so hard to know more about you, your experience and your goals. You'll be able to network better on BP if you complete your profile. :-)

There are many good forum threads on BP about "inheriting tenants" and about which is better, a month-to-month rental agreement or a longer term lease. If you use the "search the site" feature, you can find discussion about both of these topics.

INHERITING TENANTS. It is common practice to introduce your own rental agreement/lease as soon as possible when purchasing property with tenants in place, and it is also important to introduce yourself right away, both formally in a letter and in person (yourself or your property manager). Many good reasons to keep current tenants in place, but if a tenant doesn't meet your minimum criteria to rent or is causing problems, that is certainly a reason to let them go.

MONTH-TO-MONTH. Since these tenants are on a month-to-month rental agreement, it is not a matter of renewing one tenant and not renewing the other. It is a matter of terminating both rental agreements, and entering into a new rental agreement with one and not with the other. Did you receive the tenant files from the previous owner? If not, ask both tenants to re-submit an application to rent so you will have a completed application on file. 

You need to have clear rental criteria in place that does not violate anti-discrimination law and fair housing law. In Washington State, your rental criteria must be in writing and prospective tenants must be able to read it before submitting an application to rent. If there is something on a tenant's application that doesn't meet your rental criteria, you can choose to not offer a new rental agreement to that tenant and should be safe. If you are interested in seeing an example of "Rental Criteria", you can download ours from the BP File Place; go to Resources/FilePlace/OtherDocuments.

Terminating a MTM rental agreement in Washington state is easier if you are not in King County, as it only requires properly serving a "Notice to Terminate" 20-days prior to the end of the rental term; it is a no-cause notice.  If you are in Port Orchard, you can use this type of notice to terminate the rental agreement. However, if you are in King County, you can only terminate a rental agreement "for cause" and can not use the 20-day notice.

I strongly advise you to reconsider your thought of switching to an annual lease. A MTM lease will give you more flexibility to change the terms when necessary, instead of needing to wait to the end of the year long term. It is also easier to use the 20-day notice to end a rental agreement when necessary. Just knowing that, our tenants are careful to stay in compliance with the terms of the rental agreement. Good luck!