Ralphs Grocery Company operated a store at a location it leased from a commercial landlord. In this dispute over lease language, the landlord claimed the lease obligated Ralphs to pay “percentage rent” on the sales price for merchandise sold at the store, and that the sales price should be calculated without taking into account before any “Rewards” program price discounts that Ralphs applied to purchases by program participants. The trial court issued a statement of decision in favor of the landlord. The court decided the parties could not have contemplated a reduction in the basis for percentage rent to allow for program discounts, because the lease was signed before “Rewards”-type programs were adopted in the grocery industry. The trial court ordered Ralphs to pay over $500,000 in past rent, fees, and costs, and to calculate future rent payments without applying the Rewards program discounts.
Ralphs retained Horvitz & Levy LLP to represent it on an appeal from the judgment. In an unpublished opinion, the California Court of Appeal (Second Appellate District, Division Two), reversed with directions to the trial court to enter judgment for Ralphs. The Court of Appeal observed the lease obligated Ralphs to pay percentage rent on the sales price for merchandise sold to customers. It held that under the Rewards program, the sales price is the reduced amount that program participants actually pay.