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 plaintiffs first assignment of error—obviates the need to address plaintiffs 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 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 plaintiffs 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 P.2d 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

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 P.2d 787 (1980). As explained in the Restatement (Second) of Contracts § 246(1) (1981),

In the context of a lease agreement, when a landlord learns that a tenant has breached the lease in such a way that provides the landlord with a basis to terminate the lease, the landlord must not accept performance of lease obligations by the tenant if the landlord wishes to terminate the lease. See Smith, 45 Or.App. at 143, 607 P.2d 787 ("Acceptance of rent accruing after breach of condition with knowledge of the breach is a discharge of the breach." (Internal quotation marks omitted.)).

For example, in KMT Enterprises, the defendants rented a commercial building to the plaintiff, who subsequently sublet the property to a third party. 154 Or.App. at 479, 959 P.2d 640. The lease between the defendants and the plaintiff authorized the defendants to terminate the lease—after giving the plaintiff notice—if the plaintiff defaulted, and the sublease between the plaintiff and the third party imposed on the plaintiff an obligation maintain the roof of the building. The plaintiff did not fulfill its obligation to maintain the roof, and, as a result, the defendants declared on May 23, 1995, that the plaintiff was in default. On June 1, the plaintiff sent the defendants its rent payment for that month, which the defendants accepted, but the defendants nonetheless terminated the lease on June 16.

The plaintiff brought an action seeking, among other things, an injunction preventing the defendants from forfeiting the plaintiffs interest in the lease and moved for summary judgment on the injunction claim on the ground that the defendants had waived their right to terminate the lease in June by accepting rent for that month with knowledge of the plaintiffs alleged breach, and the trial court agreed. On appeal, the defendants argued, in part, that the trial court had erred in granting summary judgment for the plaintiff.

We agreed with the trial court's resolution of that issue, concluding that the defendants "could continue to accept payments only on the assumption that they intended to elect to continue the lease in spite of the [plaintiffs] breach." Id. at 482, 959 P.2d 640. The defendants' acceptance of the plaintiffs performance—v/z., the payment of rent—was legally incompatible with their attempt to terminate the lease. Their duty to perform their obligations under the lease for the month of June was triggered by their acceptance of the rent, and, therefore, the defendants had elected to continue the lease through June despite the plaintiffs breach.

Here, because defendant had not paid its equipment rent and, therefore, had failed to fulfill a duty imposed on him by the lease, plaintiff terminated the lease on December 1, 2009; however, despite defendant's breach, plaintiff accepted defendant's base rent payments for December 2009 and January 2010. Plaintiffs acceptance of those rent payments—like that of the defendants in KMT Enterprises—was legally incompatible with its purported termination of the lease in December.2 By accepting defendant's base rent payments, plaintiff elected to continue the lease notwithstanding defendant's breach of his obligation to pay equipment rent.3

Accordingly, the trial court correctly entered a judgment in defendant's favor because, notwithstanding its purported termination of the lease, plaintiff had continued the lease in effect by accepting defendant's base rent payments, and, hence, plaintiff was not entitled to possession of the leased premises when it filed its FED action.

Motion to dismiss denied; affirmed.