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Business energy: what is a deemed contract?

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08 February 2021
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deemed contract is when you move into a new business premises and start to use gas, electricity or both without negotiating a new contract with the supplier.

These types of contracts do not present good value for money, but around 10% of micro-businesses are on deemed contracts, according to energy regulator Ofgem.

How else could you be on a deemed contract?

A deemed contract may also exist where an existing contract comes to an end, but the customer continues to use energy from their supplier. This second possibility could arise in two ways:

1. If a contract is terminated (by either the supplier or the business) but the supplier continues to supply the business, there is likely to be a deemed contract if:

  • the original contract does not say what will happen after termination. For example, if it does not say that the original contract terms must apply when you are ‘out of contract’
     
  • the existing business continues to use gas, electricity, or both at the premises.

2. Where a contract expires but the business is still using gas, electricity, or both from the same supplier, a deemed contract is likely to exist if:

  • the original contract does not say what will happen after expiry (eg, it does not contain renewal provisions or state that the original terms still apply)
     
  • the existing business has told the supplier that they don’t want the original contract to continue.

What are your rights when you are on a deemed contract?

If you start taking supply on a deemed contract, your supplier must, according to Ofgem:

  • take all reasonable steps to provide you with the Principal Terms of the deemed contract including the charges or fees
     
  • provide you with a copy of the full contract if you ask for it
     
  • take all reasonable steps to tell you about other available contracts and how you can get information on these
     
  • take all reasonable steps to ensure that the terms of its deemed contract are not unduly onerous.

If you are a business using energy on a deemed contract, the supplier can’t:

  • prevent you from switching to another supplier, for any reason or at any time, (ie, they cannot object to you transferring for reasons of debt or contract)
     
  • require you to give notice before terminating the contract or charge you a termination fee.

So, what if you are running a small, medium or micro-business, how can you secure the best deal? The answer is simple: switch supplier.

How can you switch from a deemed contract?

There are various ways you can break from your deemed contract. There is no exit fee, and you can switch at any time. The important thing to remember is to be pro-active and always on the lookout for a better deal.

Under rules introduced by the energy regulator Ofgem, energy suppliers must provide micro-businesses with renewal letters. These should include your current prices, renewal prices, and current energy consumption.

Prices provided on your renewal letter are likely to be much higher than the best rates available.

By comparing the latest energy prices, you can ensure you switch to the best deal for your business.

To switch, you'll need a copy of your most recent bill so you can compare energy deals with other suppliers. Note your unit rates and standing charge, along with your annual consumption levels.

When you decide to switch, make sure you pay off any outstanding bills with your previous supplier.

What other types of energy contract are available?

In general, there are three types of contract available for businesses:

  • 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. It 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.
     
  • 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 can be among the supplier’s most expensive.