 A lot of people have been asking me about how do you choose the perfect location? And just to let you guys know, 50% of the battle is in choosing the right location. The other 50% is hidden in the details. And today we're going to be sharing with you the top key items to look out for in your least term. So in that way, you're better best position yourself to success. This is the differentiating factor between having a business that is struggling to survive versus a business that is thriving and creating massive cash flow for you. Hey guys, this Wilson here, a serial entrepreneur. Make sure you guys subscribe along this whole journey as I share a lot more experiences with you on strategies, tips, hacks on doing business, mindset, and actionable items. Without further ado, let's dive right in. The number one thing to look out for in your lease is the term. What does the term stand for? It stands for the amount of time you're leasing the location. Really speaking, restaurant goes for three and three or five plus five. What does these number mean? Three plus three means that you're signing a lease, a fixed term lease for three years with an option to renew another three years after your fixed term. Hence, three years fixed plus another option to renew after three years. Five plus five means five years fixed and five years option to renew as well. Sometimes even go on to five plus five plus five so that way your whole commitment could be up to 15 years. Now the important thing to note on this term is to understand that your term is going to be super crucial because of the amount of money you're going to be spending on your renovations. For example, if you're spending a million dollars on renovations and your lease expires in three years, that means that in three years time, you need to make enough money to substantiate the amount of investment that you made. In addition to that, you need to be able to profit from that, which is the reason why typically speaking, a fine dining experience, they go for these longer terms. So then that way it allows the operator to recoup their investment over time. It allows it to amortize over time. So then that way the renovation costs could be divided amongst this many years. Now on the same note, having and committing to a long term lease is also quite dangerous because you're having this long term commitment of being on the hook, which is the reason why you should definitely consider what type of business that you're signing up for to consider whether it's a long term lease or a shorter term. Some short term lease can go for two plus two years because you know what? In those environments, it becomes a lot more competitive. For example, in Asia, typical lease terms are one plus one. That's how fast these markets are moving. The second item to take aware of is the annual rate increase. A lot of times as landlords, we put on annual rate increases as a monetary value or a percentage value as monetary value, which what that means is maybe $50 increase per square foot year over year or it can happen after the third year or it could happen in the second year. It really comes back down to the negotiation that you have with your landlord about what is acceptable for you. A key thing to note right here is if you're going with percentage of increase, this is something that you should really, really pay attention to because in relation to monetary wise, percentage might seem little. If we're talking about 2% increase or 3% increase year over year, it might sound like very, very little, but we've all heard about the effect of compound interest and compounding. So something that you should definitely be aware of is if your landlord talks to you about a year over year increase in percentage terms, you really need to be able to convert that into real monetary value and really gauge whether this is competitive within the marketplace. You don't want to be stuck in this hole because hey, you know what? 2% per year sounds very little, but mind you, it is 2% on top of the 2% on top of the 2% every single year. Compounding is what really allows your rental rate to slowly creep up on you without you even realizing. The third item to look out for in your lease agreement is the renovation subsidy and fit outs. What does that mean? It means that's a subsidy that your landlord is ready to subsidize you for taking over their unit. A lot of times when the landlord purchases their unit, they don't want to spend money in renovation. They don't want to spend money building a washroom. They don't want to spend money digging up the concrete and building up a pipeline, building a grease trap, building all the ventilation and all this good stuff or building a washroom. They don't want to do that, which is the reason why they want to subsidize and they're ready as landlords. Me, speaking from experience, is that we are going to be ready to give you some subsidy for you to do the renovations because at the end of the day, after you renovate the washroom and after you're out of the lease, I as a landlord, I keep the unit and I keep the washroom, which is the reason why I would be more than willing to subsidize you for you renting my location. Something to keep an eye out for on this thing is that a lot of tenants, they don't feel right asking and demanding for subsidies and fit outs because they don't understand the industry because they don't know which is the reason why they don't ask. However, speaking from the point of view of a landlord, okay, all the landlords are going to kill me out there right now because I'm busting their secrets. But mind you, as landlords, we understand this as a normal practice. We are willing to do so given the fact that we as landlords, when we commission out our units to brokers to lease out the location, the typical commission that we pay are three months worth of rent. So if I'm renting out my unit for $5,000 a month and if I'm telling someone else to help me, a broker is someone that helps me find a client to rent my location. If they successfully are able to place a tenant into my location, I need to pay this guy three months of the rent, okay? That's the typical commission that I'm talking about. So imagine if you're dealing with a landlord face-to-face without a broker. That means that they are going to be willing to pay you more than three months of free rent in subsidies, okay? So this is a secret. This is something that no one talks about. And make sure that when you negotiate your free rent, this is something that you should always ask for. The fourth thing that you should always pay attention to is the free months of rent. Now, typically speaking, not a lot of people ask for this stuff or they think it's included or it's taken for granted. It is something that you should always, always negotiate and always something that you should ask your landlord to extend. If your landlord is nice enough to offer you upfront two months of free rent and you're like, wow, that's amazing. Don't be afraid to ask for four months of free rent because they are ready to either subsidize you or give you free rent or a combination of two. And I've seen that happen. And throughout this whole COVID-19 phase, I've seen people actually give out more than a year free rent to tenants out there because as landlords, we're scared. We're scared of leaving our unit empty for years to come without people renting it. And at the same time, we still need to pay our mortgage to sustain these units. That means I'm bleeding every single month. So looking from a landlord's perspective, if I'm gonna be leaving this unit empty for the next six months, eight months, I might as well land you as my tenant, I'll give you three months of free rent or four months of free rent. But then yet for the next five years, I have confidence and I have peace of mind that someone is gonna be paying my mortgage, which is the reason why negotiating free rent is a skill and it is something that you should always do. And that's something that one of my mentees was able to do more than one year of free rent that they're able to do. So definitely, definitely pay attention to this. The fifth thing to notice within your restaurant lease is the average foot traffic within your area. Basically it is how many people are walking by your area on a daily basis or on a monthly basis. And it's a statistic that a lot of different units may have. However, it is not a deal breaker if your landlord doesn't have that statistic because you can gauge by yourself. You can be there and you can have a clicker and you can sit there and you can actually count how many people walk by. Now having said that, why would you even ask for what's the average foot traffic? It is because it allows your you to show up in front of your landlord as a professional. It allows you to show the landlord that you know what you're talking about, that you know the key metrics to ask for to compare apples with apples because with you understanding the foot traffic, you're gonna be able to compare this location versus that location down the block which has half the foot traffic. Now you're gonna be able to use statistics to compare and negotiate on the rental rates which is the reason why it is important but it is not crucial or it is not a deal breaker if they don't have it. It just shows your landlord that you know what you're talking about. If they have this statistics to provide you, it allows you to compare apples with apples like what I was saying with that location down the street or within a different area which is the reason why majority of downtown locations are that much more expensive. Why is that the case? It is because they have much more foot traffic. More foot traffic means more exposure, more exposure means more potential sales that would walk into your restaurant which means more potential revenue for you. If you guys find value in this video, make sure you smash the like button, just shows me that this is the right track that I'm heading into. I hope you guys enjoyed this. Now let's get back to regular programming. The sixth detail to pay attention to is your competitors and what does that really mean? That means if you have a location within a strip mall or in a mall or in a strata then you should definitely ask how many of your direct competitors are allowed within that unit because you don't want two ice cream shops within your plaza. You don't want two coffee houses within that strip mall. You want to be able to be a monopoly of your specific cuisine within that complex. So that's the reason why you need to ask whether other units can be rented out to do the same type of cuisine, the same type of product. And if they do allow that, that means your sales are gonna be directly impacted and that's something that is a big no-no. So make sure you ask about that, make sure that you factor that into your rental costs. If they allow other similar products to be sold within the complex and if you're confident that you can outbeat them, then you can negotiate for cheaper rent. Otherwise make sure that they have it in their contract that tells you that you're the only exclusive provider for your specific cuisine that limits other people from renting from your area. So in that way you can monopolize your specific offering. The seventh metric to pay attention to is the timeframe that the unit has been on the market. And what does that mean? It means how long has the unit been out for lease and that is still not being leased. Why is that important? It is important because it allows us to have our negotiation power. If the unit has been out on the marketplace for six months plus, that means as a landlord, I'm bleeding every single month. I'm paying mortgage out of my own pocket as a landlord every single month that this unit is not being rented, which is the reason why the longer I wait, the more that I want to rent it out and I'm much more incentivized to give you a good deal so then that way you can take over this mess, take over this empty unit and build your business on there. This is an important metric to understand and keep an eye out of because you then would understand your leverage over your landlord. The eighth metric to pay attention to is the price per square foot. So typically speaking, rent is calculated on an annual basis and what that means is, for example, if it's a $50,000 rent per year at a thousand square feet location, that means it's $50 per square feet and that's usually the metric that we go by. Depending on your geographic, this square foot could be in meters as well, which is the reason why you should definitely pay attention to it and you should understand how much is it per square feet and why is it important for us to understand how much your rental rate is per square feet? It is because it allows us to compare apples with apples. We are comparing the same metric by sizing. The more in the bigger location, the more expensive it would be. So allowing us to be able to compare the units, different units side by side through the square footage per unit is super important and that allows us to be able to make the right decision. Now as a side note for price per square foot, this variable and this condition does not mean that the cheapest is always the best one to choose because at the end of the day, there are a lot more different variables that go into deciding whether this location is good for you, whether it be community, whether it be visibility, whether it be accessibility. These are all very key information to understand before choosing the right location and this is a video that we talk about how to choose the right location. Definitely check it out. The ninth term to understand is any special levy. What does special levy mean? That means additional expenses that you need to pay your landlord on a monthly basis or on an annual basis. These special levies could comprise of marketing expenses, promotional expenses, seasonal expenses, discounts whatsoever. And this is something that you definitely need to understand and know whether they have special levies or not because you don't want to be able to get caught by surprise paying an additional two grand because it's Christmas time and the mall's doing a special promotion and you need to chip in. And this is something you need to know in advance so that way it doesn't catch you off guard. That way you can better budget for your own operations. So special levy is something that you should definitely pay attention to. The last item to pay attention to is the percentage of sale to landlord. And what is this? This is basically a special levy that is placed on your revenue given the fact that you're able to surpass a certain amount then you're gonna start paying commission on that. To give you an example, if you make more than $100,000 per month, all the additional money that you make is subject to a 3% commission to the landlord. What this does not make sense whatsoever you might think and that you haven't heard of it. It is okay if you haven't heard of it but this is very, very applicable to places that has a super high demand. Namely, the most popular mall within your area, majority of the time, they have these kind of structure in there. So there you are. The devil is in the details. I really hope you enjoyed this video. The 10 different key items that you need to be aware of in your restaurant lease. I really hope you enjoyed this video because I really think that finding the right location is only half the battle. The rest of the battle is in knowing all these details. Once again, I really hope you enjoyed this. In the link below, we have a ton of resources that's gonna be able to help you out. I really hope you enjoyed this. Make sure you guys subscribe along the journey and show me some love. I'll see you guys in the next video.