What are deemed energy contracts?
When a UK business moves into new premises and starts using gas or electricity without actively agreeing a supply deal, it automatically falls onto a deemed contract. These contracts are imposed by the existing supplier for that property and are designed to ensure uninterrupted supply. However, they typically come with some of the highest rates on the market, making them among the most expensive ways to buy business energy.
Deemed contracts are different from out-of-contract tariffs. They are not the result of a contract expiring, but rather from having no agreed contract in place from the outset. Under Ofgem regulations, suppliers must apply transparent terms, allow businesses to leave with no exit fees, and clearly inform them about their tariff. Despite this protection, energy costs on these tariffs can be 30% to 80% higher than negotiated rates, significantly increasing overheads for small and large businesses alike.
These contracts affect all types of businesses, whether you are a sole trader renting a small office, a retailer taking over a shop, or a large manufacturer moving into new premises. The moment you begin consuming energy, you are responsible for the charges, even if you are unaware of the energy supplier. Suppliers usually issue a welcome letter within a few weeks but businesses often receive their first bill before any communication arrives, leading to confusion and unexpectedly high costs.
How deemed contracts work
When you use energy at a business property without arranging a contract, the existing supplier must legally continue supply under deemed terms. These contracts have no fixed end date and continue until you switch supplier or agree a new contract. You do not need to give notice to leave, and you can switch immediately once you have chosen a better tariff.
Because deemed contracts carry higher rates, most businesses should move to a fixed or flexible contract as soon as possible. With bespoke pricing available for businesses, negotiated rates are almost always cheaper. The only exceptions are short-term occupancies, such as pop-up shops or short leases, where flexibility might temporarily justify higher prices.
Typical prices on deemed contracts
Exact costs vary by supplier, but deemed electricity unit rates often sit between 38p and 55p per kWh, with standing charges around 90p to £1.50 per day. Gas deemed rates commonly range from 12p to 18p per kWh, with standing charges up to 60p per day. By comparison, negotiated business tariffs could offer electricity at 22p to 30p per kWh and gas at 7p to 12p per kWh. Over a year, this could mean hundreds or even thousands of pounds in wasted expenditure.
Ofgem rules and your rights
Businesses on deemed contracts benefit from several protections:
- No termination fees: You can switch supplier at any time without penalty.
- Clear pricing: Suppliers must publish deemed rates clearly and make costs transparent on bills.
- Prompt communication: Suppliers must contact new occupiers within a “reasonable period” to explain the situation and provide options.
- Ability to negotiate: You can agree a tailored contract with the current supplier or switch to a new one at any time.
For microbusinesses, the protections are even stronger. Suppliers must provide contract summaries, pricing explanations and clearer switching terms.
How to find your current supplier
If you inherit a property and are unsure who supplies the energy, you can:
- Ask the landlord or managing agent.
- Check the property’s meter for supplier details.
- Contact the Meter Point Administration Service for electricity (0845 601 3268).
- Contact the Meter Number Helpline for gas (0870 608 1524).
Once identified, you can contact the supplier directly to request a quote or begin switching.
How to avoid or leave a deemed contract
The best way to avoid being placed on a deemed contract is to arrange your energy supply before you take occupancy. If that is not possible, act quickly once you move in:
- Identify your current supplier and confirm you are on deemed terms.
- Compare business energy deals using a switching service or broker.
- Negotiate bespoke rates with the current supplier or initiate a switch.
- Provide final meter readings once your new tariff starts.
Switching usually takes around five to ten working days, depending on supplier and meter type.
Why switching makes financial sense
Even small businesses with modest consumption can save significantly by moving away from deemed rates. A typical small office using 12,000 kWh of electricity per year could save £1,200 annually by switching. Larger users, such as warehouses or production facilities, could save tens of thousands over a multi-year contract.
Conclusion
Deemed contracts are designed to keep the lights on, but they are not designed to offer value. They are a temporary stopgap and should be treated as such. If your business has moved premises or inherited an energy supply, checking whether you are on deemed terms should be a top priority. By switching to a negotiated business contract, you can reduce energy costs, gain budget certainty and avoid unnecessary overspending.
EnergyCosts.co.uk can help you compare business energy tariffs, secure competitive prices and make sure you never stay on a costly deemed contract longer than necessary.
FAQ
A business energy deemed contract applies when your business uses gas or electricity at a property without agreeing a formal contract with a supplier. It is automatically applied by the existing supplier to ensure continued supply but usually has higher rates than standard business tariffs.
You might be on a deemed contract if you have just moved into new premises and have not chosen a supplier or signed a contract. Signs include unusually high rates, lack of contract documentation, or a supplier informing you that you have no agreed contract in place.
Yes. Deemed contract rates can be 30% to 80% higher than negotiated business tariffs. For example, electricity might cost 40p to 55p per kWh on a deemed rate compared with 22p to 30p on a fixed contract. Gas can be 12p to 18p per kWh instead of 7p to 12p.
Yes. Ofgem rules allow you to switch suppliers at any time without giving notice or paying penalties. There are no termination fees, and you do not have to wait for your current supplier’s permission to leave.
A deemed contract occurs when there has never been an agreed contract in place, often when a business moves into a new property. Out-of-contract rates apply when an existing contract expires but the business continues using energy without renewing or switching.
No. Deemed contracts cannot include exit fees. You are free to leave at any time and move to a different supplier or negotiate a new contract with the current one without paying any penalties.
Switching from a deemed contract typically takes between five and ten working days, depending on the supplier and meter type. In most cases, switching can be faster if meter readings and business details are provided promptly.
Suppliers set higher prices on deemed contracts because there is no fixed agreement, and they carry more risk. These tariffs are meant to be temporary until the customer actively agrees a contract or switches to a cheaper supplier.
The best way to avoid a deemed contract is to arrange energy supply before moving into a new property. If that is not possible, contact the existing supplier immediately after occupancy and start comparing business energy tariffs straight away.
Yes. Ofgem requires suppliers to make deemed contract terms transparent, allow switching without penalty, and provide clear communication. Microbusinesses receive additional protections, including simplified pricing information and contract summaries.
Yes. You can negotiate a bespoke contract with the supplier while on a deemed contract. However, comparing rates across the market often results in cheaper deals than simply accepting a renegotiated offer from the current supplier.
You can ask the landlord, check the meter, or contact the Meter Point Administration Service for electricity and the Meter Number Helpline for gas. Once you know your supplier, you can confirm your tariff and begin switching if necessary.