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FILED: October 26, 2011

IN THE COURT OF APPEALS OF THE STATE OF OREGON C & K MARKET, INC., an Oregon corporation, Plaintiff-Appellant, v. GIORGIO ROCCASALVA, an individual, Defendant-Respondent. Deschutes County Circuit Court EV100082 A145200

Robert Millikan, Senior Judge. Argued and submitted on June 24, 2011; on respondent's motion to dismiss filed June 23, 2011; appellant's response to respondent's motion to dismiss filed July 7, 2011; and respondent's reply in support of respondent's motion to dismiss filed July 14, 2011. David W. Melville argued the cause for appellant. With him on the briefs were J. Matthew Donohue, Law Offices of David Melville, and Markowitz, Herbold, Glade & Mehlhaf, P.C. John E. Laherty argued the cause and filed the brief for respondent. Before Haselton, Presiding Judge, and Armstrong, Judge, and Duncan, Judge. ARMSTRONG, J. Motion to dismiss denied; affirmed.

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ARMSTRONG, J. In this commercial forcible entry and detainer (FED) action, the issue presented is whether, by continuing to accept a tenant's rental payments made pursuant to a lease agreement that had been terminated by a landlord because of the tenant's breach, the landlord elected to continue the lease notwithstanding the breach. Our resolution of that issue--raised in plaintiff's first assignment of error--obviates the need to address plaintiff's other assignments of error regarding the award of attorney fees to defendant. For the reasons below, we affirm. The relevant facts are not in dispute. In 2006, plaintiff and defendant entered into a lease agreement under which defendant leased space to operate a liquor store in a grocery store owned by plaintiff. Under the lease, defendant is required to make a monthly payment to plaintiff essentially comprised of two components: base rent for the use of the space in the grocery store and equipment rent, viz., an amount included by plaintiff to reimburse it for the costs that it had incurred in installing the equipment and fixtures for the liquor store. Further, the lease provides that, if defendant fails to remedy within 10 days of receiving notice from plaintiff any default in paying his monthly rent obligations, then plaintiff has the right to terminate the lease and pursue the appropriate remedies for defendant's breach. In October 2007, plaintiff realized that, despite defendant's consistent timely payment of his base rent, he had not paid the equipment rent during his tenancy. Plaintiff began to invoice defendant for the past-due equipment rent and continued to do so for a period of time to no avail, but, because the value of having the liquor store in its
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grocery store outweighed the costs of terminating the lease, plaintiff decided not to exercise its right to terminate the lease. However, when plaintiff realized that defendant had no intention of paying the equipment rent--and after defendant had threatened to relocate the liquor store to a competitor's grocery store--plaintiff sent defendant a letter in November 2009 stating that it would terminate the lease on December 1 if defendant did not pay by that date the full amount of accrued equipment rent that he owed. Defendant did not pay the equipment rent as plaintiff demanded; however, he continued to pay his base rent for December 2009 and January 2010--payments that plaintiff accepted--and he continued to operate the liquor store. As a result of plaintiff's termination of the lease, it filed this FED action on January 26, 2010, to eject defendant from the premises. Defendant answered and asserted an affirmative defense that, by accepting his December and January base rent payments, plaintiff had waived its right to terminate the lease and, therefore, was not entitled to possession of the leased premises. The case was tried to the court, and the court agreed with defendant's affirmative defense, reasoning that, under KMT Enterprises, Inc. v. Nyssen, 154 Or App 477, 959 P2d 640 (1998), "[o]nce [a] landlord becomes aware of the breach [of the lease] and accepts rent thereafter, it is an election to proceed with the [lease] * * * in spite of the breach." Accordingly, the court entered a judgment in defendant's favor, which plaintiff appeals.1

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After plaintiff appealed the court's judgment, it informed defendant that it would not accept any base or equipment rent payments during the pendency of the appeal. However, in February 2011, after rejecting defendant's base rent checks throughout the previous year, plaintiff unexpectedly began accepting defendant's payments, including
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If a party to a contract materially fails to perform under the contract, then the other contracting party must choose either to continue or to refuse to accept performance from the breaching party. Smith v. Hickey, 45 Or App 139, 142-43, 607 P2d 787 (1980). As explained in the Restatement (Second) of Contracts

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