A Guide To Deemed Energy Contracts
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Quick Answer: A deemed energy contract is a default arrangement that applies when a business uses gas or electricity without agreeing a formal contract with a supplier upon moving into a new premises. These contracts ensure continuity of supply but typically come with higher rates and less favourable terms. Businesses are usually placed on a deemed contract after moving into new premises or when a previous agreement has ended. Acting quickly to secure a fixed contract can help avoid unnecessary costs and improve billing clarity.
What is a deemed contract?
A deemed contract is a temporary energy agreement automatically applied when a business consumes energy without having signed a formal contract with a supplier. It ensures there is no interruption to energy supply, even when ownership or tenancy changes occur. These contracts are legally binding, meaning businesses are still responsible for paying for the energy they use. However, because they are not negotiated, they tend to include standardised terms and higher pricing structures compared to fixed or negotiated contracts.
They’re sometimes applied as a means to tide a premises over, but they can become long-term arrangements if businesses don’t organise things properly.
How a deemed energy contract works
A deemed contract begins the moment a business starts using energy at a property without an agreed tariff. The supplier responsible for that property, as in dealing with the previous occupants, automatically provides energy under default terms. The business does not need to sign anything for the contract to take effect, but charges begin immediately based on supplier’s deemed rates. These arrangements continue until the business actively switches to a formal contract or supplier, making it essential to act quickly to avoid higher ongoing costs.
| Action | What happens |
| Move into property | Energy supply continues automatically under a deemed contract |
| No contract in place | Supplier assigns standard rates and terms |
| Energy usage begins | Charges are applied from the first day of occupancy |
| No negotiation | Pricing remains fixed at supplier’s deemed rates |
| Switch arranged | Deemed contract ends when a new agreement is confirmed |
When businesses are placed on a deemed contract
Businesses are often placed on a deemed contract without realising it, especially during transitions such as moving premises or changes in tenancy. These contracts are not chosen or procured intentionally but occur due to gaps in formal agreements, covering time in which nothing has been arranged.
New occupancy
When a business moves into a new property, energy supply is already active. If the new occupier does not immediately arrange a contract, the supplier places them on a deemed rate. This ensures uninterrupted service but will often lead to higher costs from day one.
Expired previous agreement
If a previous tenant’s contract ends and no new agreement is put in place, the supplier automatically shifts the account to a deemed contract. Businesses that fail to renew or renegotiate their energy deal may find themselves paying more without realising it until the bills come in.
Unclear supplier setup
Sometimes businesses are unaware of who supplies their energy when they move in. This lack of clarity delays contract setup, resulting in a deemed arrangement continuing longer than necessary. Clarity is vital, especially in the midst of the energy crisis.
Change of tenant
During a change of tenancy, responsibility for the energy account transfers to the new occupier. If the incoming business does not contact the supplier promptly, they are placed on a deemed contract until a formal agreement is established.
Deemed rates vs out of contract rates
Deemed rates and out-of-contract rates are often confused, but they differ in how they are applied and managed. Both can be expensive, but understanding the distinction helps businesses make informed decisions about switching.
| Aspects | Deemed rates | Out-of-contract rates |
| When applied | Automatically when you start using energy at a new site with no contract exists | When a fixed contract expires without renewal |
| Agreement type | Default legal arrangement | No active agreement in place |
| Pricing | High but structured | Often even higher and more variable |
| Flexibility | Can usually switch anytime | Limited until new contract arranged |
| Usage period | From move-in or takeover | After contract end date |
Why deemed contracts are usually more expensive
Deemed contracts are widely known for being costly, and this is largely due to how suppliers structure their pricing and risk management.
Higher risk pricing
Suppliers face uncertainty with deemed customers because there is no long-term commitment in writing or otherwise. To offset this risk, they apply higher rates to ensure costs are covered regardless of usage patterns or customer behaviour.
Standard tariff terms
Unlike negotiated contracts, deemed rates are standardised. Businesses do not benefit from tailored pricing or discounts, meaning they pay a default rate that often sits above market averages.
Limited cost control
With no fixed agreement in place, businesses have little control over pricing structures and could be hit with spikes. This lack of predictability can make budgeting difficult and lead to unexpected increases in energy bills over time.
Who Is responsible for charges on a deemed contract
Understanding responsibility is essential, as disputes can arise when multiple parties and stakeholders are involved in a property transition.
Occupier liability
The current occupier of the property is responsible for all energy charges, as they will be the one using the energy, even if they have not formally agreed to a contract. This means businesses must act quickly when moving in to avoid unnecessary liability.
Meter readings
Accurate meter readings at the point of move-in are critical. Without them, suppliers may estimate usage, which can lead to incorrect billing and potential disputes.
Billing records
Keeping detailed billing records helps businesses track energy usage and identify discrepancies. Clear documentation also supports smoother transitions when switching suppliers or contracts.
How to avoid problems on a deemed contract
Avoiding issues with deemed contracts requires proactive management and early communication with suppliers.
Notify the supplier
As soon as a business moves into a property, it should ascertain the existing energy supplier and contact them immediately. This ensures the account is updated correctly and prevents confusion over responsibility.
Submit meter reads
Providing accurate meter readings at the start of occupancy ensures billing begins on a correct basis. This avoids estimated charges that may not reflect actual usage.
Confirm contract options
Businesses should explore available contract options immediately, and then prepare for negotiations, rather than remaining on a deemed rate. Comparing tariffs early can result in significant cost savings.
Keep move-in records
Maintaining documentation such as tenancy agreements and move-in dates provides evidence in case of disputes. These records help confirm when responsibility for energy charges begins.
How to switch from a deemed contract
Switching from a deemed contract is usually straightforward, but it requires careful preparation to ensure a smooth transition.
Check current supplier
The first step is identifying the current energy supplier. This information is essential for understanding existing charges and initiating a switch.
Gather business details
Suppliers will require details such as business name, address, meter numbers and estimated usage figures. Having this information ready speeds up the switching process.
Compare contract options
Businesses should review different suppliers and tariffs to find the most suitable option. This includes considering pricing, contract length and flexibility.
Arrange the switch
Once a suitable contract is selected, the new supplier manages the switching process. The deemed contract ends automatically when the new agreement becomes active.
What features to look for when choosing a business energy contract
Selecting the right energy contract can have a significant impact on long-term costs and operational efficiency.
Contract length
Businesses should consider how long they want to commit. Shorter contracts offer flexibility, while longer terms may provide price stability.
Clear pricing
Transparent pricing structures are essential. Businesses should look for contracts that clearly outline unit rates, standing charges, and any additional fees.
Billing support
Reliable billing systems and customer support help businesses manage their energy accounts more effectively. This includes access to accurate statements and responsive service teams.
Flexibility options
Flexible contracts allow businesses to adapt to changes, such as growth or relocation. Features like break clauses or adjustable terms can be particularly valuable.
Conclusion
Deemed energy contracts play an important role in maintaining uninterrupted supply, but they are rarely the most cost-effective option for businesses. Understanding how they work and acting quickly to secure a formal contract can help reduce costs and improve control over energy usage. By staying proactive and informed, businesses can avoid unnecessary expenses and ensure their energy arrangements align with their operational needs.
D-ENERGi is one of the most reliable business energy suppliers in the UK, offering price-matching and switching support to ensure you don’t get pushed underwater by a deemed energy contract. For more insights into the world of the business energy sector, visit our blog today. We have guides just like this one, perfect for navigating this ever-changing energy market.
Frequently Asked Questions
Can I get out of a deemed contract straight away?
Yes, in most cases businesses can switch from a deemed contract to a new agreement at any time without penalty. Because there is no fixed agreement in place, suppliers typically allow customers to move onto a formal contract or switch providers quickly. However, it is important to ensure all account details are accurate before initiating the switch to avoid delays.
Who pays if I have just moved into a property?
The current occupier is responsible for energy charges from the moment they take possession of the property. This applies even if no formal contract has been agreed. Providing a move-in date and meter readings helps ensure billing is accurate and reflects actual usage.
Are deemed contracts the same as out-of-contract rates?
No, they are different. Deemed contracts are automatically applied when there is no agreed contract in place, while out-of-contract rates occur when a previous agreement has expired. Both tend to be expensive, but they arise under different circumstances and may have slightly different terms.
Should I stay on a deemed contract?
Remaining on a deemed contract is generally not recommended due to higher costs and limited flexibility. Businesses are usually better off securing a fixed or negotiated contract that offers more predictable pricing and improved terms.
How much do deemed contracts cost?
Deemed contract rates vary depending on the supplier and market conditions, but they are typically higher than standard business energy tariffs. Costs can fluctuate, making it difficult to budget accurately. This is why many businesses prioritise switching to a fixed contract as soon as possible to gain better control over their energy expenses.
