Many tenants are required by a contractual obligation under their tenancy agreement to purchase beer and other products from their landlord or from their landlord's nominated suppliers.
The typical tenancy agreement will say that a breach of the tie entitles the landlord to commence forfeiture proceedings - which is part of the process of bringing the tenancy to an end. This is a drastic remedy. Normally a landlord will not decide to forfeit for the first offence, so long as the tenant agrees to give an undertaking to the landlord not to breach the tie in future.
If the tenant is caught breaching the tie more often, however, the landlord may decide to forfeit the tenancy. The process will start with the landlord serving a formal notice on the tenant called a Section 146 Notice. This will set out the clause in the tenancy agreement which has been breached, refer to the breach complained of, and give the tenant something in the region of seven days to remedy the breach (and to start buying again from the landlord). The landlord is also entitled under the tenancy agreement to make a claim for legal costs arising from preparation and service of the Section 146 Notice.
If the tenant continues to buy out, the landlord may then recommence forfeiture proceedings. The tenant can defend the claim if they disagree with the landlord's evidence, or can ask the court for relief from forfeiture if they are prepared to give an undertaking not to buy out in future. The court would be likely to order the tenant to pay the landlord's legal costs at this point, and to compensate the landlord in damages. While the court may be prepared to be sympathetic to a tenant caught buying out just once or twice, the court would be less sympathetic for repeated breaches of the tie.
Is it a misunderstanding?
If there were legitimate reasons for buying out, such as a failure to supply or a genuine misunderstanding with the landlord, the tenant should put that evidence to the landlord at the earliest opportunity and try to avoid any future misunderstanding.
Instead of going down the forfeiture route, landlords sometimes prefer asking the court to grant an injunction. This is a court order compelling the tenant to comply with the terms of the tie in future. Any such claim is likely to be accompanied by a claim for damages and costs.
Landlords will use different ways of trying to check whether tenants are complying with their contractual obligation to buy from them. More and more cellars are being fitted with monitoring equipment. Some tenants see this as 'the spy in the cellar', whereas others see it as a helpful way for tenants and landlords to identify trends. Landlords will also look at volume histories when querying why no orders are being placed.
Equally, under many tenancy agreements landlords have a contractual right to enter the pub without notice in order to inspect what is in the cellar, and many landlords will also have a contractual right to inspect tenants' books, invoices and accounts.