Deemed Energy Contracts Explained

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When your business energy contract comes to an end, it’s important to either agree a new deal with your supplier, switch to a better deal elsewhere. Otherwise, your supplier will automatically put you on an uncompetitive rate, known as a deemed contract - this works out much more expensive in the long run.

What is a deemed contract?

A deemed contract is normally put in place when you move into new premises and start using gas, electricity, or both, without agreeing a contract with a supplier. You may also find yourself on a deemed contract when your existing contract comes to an end, but you continue to use energy without negotiating a new deal, as in the following instances:

  1. If a contract is cancelled, either 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.
  1. Where a contract expires but you are still using gas, electricity, or both 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.

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 supplier offers for a new energy contract, as you could make some serious savings.

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, and 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.

What other types of energy contract are available?

In general, there are five types of main contract available for businesses. These 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.
  • 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 tariff 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 326 5517 or leave a few details at the top of the page and we’ll give you a call back.