Deemed energy contracts explained

When your business energy contract comes to an end, it’s important you agree a new deal with your existing supplier or switch to a better deal elsewhere.

If not, your supplier will automatically put you on deemed contract energy rates, which are among the least competitive you can get – being on a deemed agreement means you’ll definitely be overpaying for business energy.

The good news is that it’s easy to switch from a deemed contract to a better-priced fixed deal.

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What is a deemed contract with an energy supplier?

A deemed energy contract is a default energy deal that a business is placed on when it hasn’t agreed a contract with an energy supplier. Deemed contracts are usually put in place when you move into new premises and start using energy without agreeing a contract with the existing supplier or a new one.

Why might I be on a deemed contract for business energy?

The most common reason businesses find themselves on deemed energy contracts is because they’ve moved into a new premises without arranging a new energy deal. But you might also find yourself on a deemed contract if your existing energy deal comes to an end but you’re still using energy, such as in the following instances:

If a contract is cancelled

If your energy contract is cancelled by yourself or the supplier, but the supplier continues to supply you, there is likely to be a deemed contract if:

  • The original contract doesn’t spell out what will happen after termination. If, for instance, it doesn’t say the original contract terms must apply when you’re ‘out of contract’
  • You continue to use gas, electricity, or both at the property

If a contract expires

If your fixed energy contract comes to and end, but you are still using energy from the same supplier, a deemed contract is likely to exist if:

  • The original contract does not spell out what will happen after expiry (e.g. it doesn’t include provisions for renewal, or state that the original terms still apply)
  • You have told the supplier you don’t want the original contract to continue

Is deemed energy more expensive?

Yes, deemed rates are some of the most expensive on the market. That’s why it’s vital you don’t let yourself get caught out.

About one-in-ten micro-businesses are on deemed contracts, and prices on these contracts are around 80% higher than rates charged in a negotiated contract. If you’re on a deemed contract you should shop around and compare business energy suppliers to find a new contract and make some serious savings.

Deemed energy contracts for new tenants are also a big problem, largely because it’s so easy to overlook sorting a new business energy deal when you have so much else on your plate when moving into a new workplace.

It’s not all on you as a business owner though, as your supplier is duty-bound to inform you of the contract you’re on. If you start taking supply on a deemed contract, your supplier must take all reasonable steps to provide you with the Principal Terms of the deemed contract, including the charges or fees, and give you a copy of the full contract if you ask for it.

Your supplier also needs to take all reasonable steps to tell you about other available contracts and how you can find out more about these. Your supplier must also take all reasonable steps to make sure the terms of its deemed contract easy to understand.

The good news if you’re on a deemed contract, your supplier can’t stop you switching to another supplier, for any reason or at any time, meaning you won’t have to give notice before terminating the contract and you can’t be charged a termination fee.

How do deemed energy contracts affect landlords?

There’s also an issue where deemed energy contracts and landlords are concerned, especially in cases where premises have been left unoccupied. This has been a big issue during the various coronaviurs lockdowns across 2020 and 2021.

If you’re a commercial landlord and your premises has been left vacant for any reason, you might find yourself on the receiving end of claim for payment from the property’s energy supplier. Even if the lease remains in place, you could still be liable for non-payment of bills for the vacant property.

The only way to avoid this is to find out who the energy supplier is and contact them as soon as the property is left vacant. Although you might still be held liable for energy costs that have already been incurred but, it may be possible to challenge liability based on the provisions of the Electricity Act. But this all depends upon the circumstances of the claim.

Are deemed contracts enforceable?

Yes. Deemed contracts as legal and enforceable as any other type of energy contract. This means you’ll be bound by the terms of any deemed contract energy unless you can demonstrate that your energy supplier has not taken steps to inform you that you are on a deemed contract.

If this is the case, you should be able to negotiate a new deal with them, but you might be able to get it terminated if any of the following apply:

  • Your supplier hasn’t given you a copy of the full contract, if you ask for it
  • Your supplier hasn’t contacted you about other contract options before the end of your current contract and how you can get information on these

Can I switch from a deemed energy contract?

Unlike fixed energy deals, deemed contracts don’t have a switching window, which means you’re free to switch from deemed rates at any time, with no notice period and no termination fees to pay.

If you’re on a deemed energy contract, your supplier can’t stop you from switching to another supplier, for any reason or at any time.

What other types of energy contract are available?

Before comparing business energy deals, it's worth knowing the different types of business energy contracts and tariffs that are available. They are:

  • Fixed term contract - You pay a fixed cost per unit (kWh) for your energy for the duration of your contract. This doesn’t mean that the cost of your bill is fixed - this will still go up or down depending on how much energy you use.
  • Variable-rate contract - Your unit rates are linked to market activity, meaning they can increase and decrease throughout the duration of your contract. There’s an element of risk with this tariff.
  • Blend and extend contract - This type of deal allows you to extend the length of your current contract with the same supplier, who will then usually offer you lower rates. If you’re offered this type of deal, you should still shop around to see if you can get a cheaper contract from another supplier.
  • Flex approach contract – Designed for businesses with a high energy demand, this type of deal allows to gamble on the energy market and bulk-buy energy when prices are low. There is always a risk that you could find yourself out of pocket if you buy before a price drop.
  • Pass through contract – This splits your bill between the fixed wholesale rates and other costs, including Transmission Network Use of System (TNUoS) charges, VAT, National Grid levies and Feed-in Tariff charges.
  • 28-day contract - A contract for businesses who haven’t switched since the energy market deregulation came into effect.
  • Rollover contract – A rollover contract is used when no alternative has been agreed before your current contract’s end date. You will automatically be signed up for another year, and rates are usually among the supplier’s most expensive. This is a place you don’t want to be.

What happens if you don’t switch before your current deal ends?

When your energy contract ends, you’ll be transferred onto your supplier’s more expensive standard tariff - this is something you want to avoid. This situation occurs because you haven’t cancelled your old plan. Cancelling your contract and renegotiating a deal elsewhere is how you get a better price for your business.

Our business energy experts are always on hand to explain, help and compare deals on your behalf, completely free of charge. We take a fee at the end of the process from the supplier, so you save money, time and effort by letting us take the stress away from you. For more information, give our experts a call on 0800 688 8773 or leave a few details at the top of the page and we’ll give you a call back.

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