The primary risk you face is the uncertainty of taking back possession of the premises after a year if the tenant does not voluntarily vacate. Under California law, after the expiration of a lease, it becomes a holdover, month to month lease. Under San Francisco's Rent Ordiance, a month to month tenant cannot be evicted unless one of the 15 just cause grounds for eviction exists. A tenant in SF is not required to vacate upon expiration of a one year lease. In fact, the Ordinance was created in order to give people the right to stay in their units.
Depending upon the number of units your property has and you plans for use of the property after a year, there may be one or more grounds for eviction. If you want to live in the premises, the most obvious one is Owner move-in. That would require you to live in the property for three years as your promary place of residence. If you wanted to sell the property off in year, depending upon the number of units and the marketing plan, you could consider using the Ellis Act, which requires you to evict ALL tenants from the building. The building could not be used as a residential rental property for the next five years (with some exceiptions).
If you find a ground for eviction that works for you, you must be aware your tenants would be entitled to relocation expenses of something less than $5000 per persion up to three person per unit. Plus, if any tenant is "protected" or disabled, you may also have to pay an additional $3300 per person.
The above is a very superficial analysis. There are other details to consider in light of your intended uses of the property and the under of units the building contains. However, as you can see, there are risks which are associated with renting and the fact that the lease expires will not give you the flexibility that you would undoubtedly desire. However, a year's worth a rent is substantial, so you will have to evaluate the worth of that beneift vs. the risks of renting.
Jeffery Woo, Esq.
Sedgwick, Detert, Moran & Arnold LLP
Complex Rental Property Group
A few things to be aware of. After a year lease, you need to give tenants 60-days notice. You also need to do a tenant buyout. This varies drastically if any tenants claim protected status.
As Eileen said, talk to an attorney. Jeff Woo is one of the best and well-knpwn for getting tenants out of buildings.
P.S. Ignore any out of City advice. Why the guy from North Carolina chimed in is unfathomable.
Your consultation can be as simple as a phone call with an attorney. Jeff Woo, a San Francisco real estate attorney who is also very active in the Trulia Voices forum, would be a good place to start. You can email Jeff at email@example.com. You can look up his bio within Trulia, as well.
Good luck. Also, as a landlord myself, I can say that not every tenant creates issues. I have had really good luck over the past 11 years.
My problem is almost identical with a slight twist. I only want to rent out the unit for 6 months rather than a year. I will obviously specify that in the lease agreement and the potential tenant has agreed to the terms. Will I have the same problem if the tenant does not want to move after 6 months? Thank you very much for your advice?
Every one telling you to speak to an attorney is correct. What you are going to ask them for is a lease, which is a contract, that spells out to the prospective tenant that the term is for one year and only one year. I believe, but I'm not an attorney, that if the terms are clear and entered into with full knowledge at the start of the contract the terms can be enforced.
Clearly a normal lease won't be sufficient. If I was your property manager I could write something in the lease to make it clear but I wouldn't. I'd have you talk to an attorney that is knowledgable about such matters.