What Is a Deemed Contract and Why Your Business Energy Bills Are So High

What Is a Deemed Contract and Why Are Your Energy Bills So High?

If you’ve moved into business premises and the energy bills seem steep, there’s a good chance you’re on a deemed contract. You never agreed to it. You probably don’t even know you’re on one. But it could be costing you thousands of pounds a year more than it should.

Quick Answer

A deemed contract is a default energy agreement that kicks in automatically when you move into business premises without arranging a supplier first. You never signed anything. You never agreed to the rates. But you’re paying them anyway, and they’re typically 80% higher than a negotiated deal. For gas specifically, our business gas comparison walks through the switch from deemed to a negotiated rate. The good news is you can switch away at any time with no exit fees and no notice period.

In this Guide

1. What a Deemed Contract Actually Is
2. How Businesses End Up on Deemed Rates
3. What It’s Actually Costing You
4. Deemed Rates vs Out-of-Contract Rates
5. Your Rights on a Deemed Contract
6. How to Get Off Deemed Rates
7. How to Make Sure It Doesn’t Happen Again
8. Key Takeaways

What a Deemed Contract Actually Is

You’ve just picked up the keys to your new shop. Or maybe it’s an office on an industrial estate, or a unit you’re taking over from the last tenant. You walk in, flick the lights on, and everything works. The heating fires up. The kettle boils. Nobody asked you to sign anything, and you didn’t have to sit on hold with an energy company for forty-five minutes. Feels like a win.

It isn’t.

What’s happening behind the scenes is that the building’s existing energy supplier has started billing you at whatever rate they see fit. You haven’t agreed to it. They haven’t asked you. But energy is flowing into the premises and somebody has to pay for it. That arrangement, where a contract exists because energy is being consumed rather than because anyone actually agreed to terms, is a deemed contract.

The legal basis sits in the Gas Act 1986 and the Electricity Act 1989. Both pieces of legislation allow suppliers to charge for energy consumed at a premises even when there’s no formal agreement in place. The idea was to prevent businesses from using energy for free while they sort themselves out. Fair enough in principle. The problem is what suppliers charge during that period. It’s not a small markup. We’re talking rates that Ofgem’s own data shows can be 80% higher than what you’d pay on a negotiated fixed deal.

Most business owners don’t even realise they’re on one until the first bill arrives. By then, you’ve already been paying over the odds for weeks.

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How Businesses End Up on Deemed Rates

It happens more often than you’d think, and it’s almost never deliberate. The most common route is a straightforward change of tenancy. The previous occupant moves out and closes their energy account. You move in and start using energy before you’ve arranged your own contract. The supplier sees a new occupier consuming power and puts you on their deemed tariff. It can happen in the space of a single afternoon.

The second way in is taking over a business where the previous tenant left things in a mess. You might assume the energy deal transfers with the building. It doesn’t. Contracts are tied to the business entity, not the bricks. If you’re a different company moving into the same space, you’re a stranger to the supplier as far as they’re concerned. Deemed rates from day one.

There’s a third scenario that catches people out. Your existing contract expires, but instead of rolling onto a standard out-of-contract variable rate, something triggers a deemed contract instead. This tends to happen when there’s been a change in your business’s legal structure, a company name change, or anything that makes the supplier treat you as a new customer rather than a continuing one. It’s less common, but it’s worth knowing about because the rates can be even worse than a standard out-of-contract rollover.

The thread running through all three is the same. Nobody planned it. Nobody wanted it. But the supplier isn’t going to ring you up and suggest you find a better deal. They’re quite happy collecting deemed rates for as long as you’ll let them.

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What It’s Actually Costing You

This is the part that tends to focus the mind. Deemed rates aren’t a gentle premium. They’re a penalty you’re paying for not having a contract in place, and suppliers price them accordingly.

Ofgem’s guidance acknowledges that deemed rates can be up to 80% more expensive than a negotiated fixed-term contract. Suppliers justify this by pointing to the risk involved. They don’t know your credit history, how long you’ll stay, or how much energy you’ll use. So they charge a premium to cover the uncertainty. The result is a significantly higher daily standing charge and a unit rate that bears very little resemblance to what you’d find on the open market.

To put some numbers on it, here’s a rough comparison for a typical small business using around 25,000 kWh of electricity per year.

Negotiated Fixed Deal — £5,200/year (£433/month)

Deemed Rates — £9,360/year (£780/month)

You Could Save £4,160/year (£347/month)

That £4,160 gap isn’t theoretical. It’s the kind of number we see regularly when businesses come to us after discovering they’ve been on deemed rates for months. For larger operations, care homes, restaurants with heavy gas usage, multi-site retail, the figures get much bigger. We’ve seen businesses paying £15,000 or more above market rate over the course of a year simply because nobody flagged the deemed contract early enough.

Every week you stay on deemed rates is money you won’t get back.

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Deemed Rates vs Out-of-Contract Rates

These two get lumped together constantly, and it’s worth unpicking why they’re different. Both are expensive. Both mean you’re paying more than you should. But they’re not the same situation, and the distinction matters when it comes to understanding your options.

A deemed contract means you’ve never had a formal agreement with the supplier at this premises. You moved in, energy was flowing, and they started billing you. There’s no history between you. No signed paperwork. No agreed terms. You’re an occupier consuming energy, and that’s the extent of the relationship.

Out-of-contract rates are different. They apply when you did have a contract, it reached its end date, and you didn’t renew or switch in time. The supplier knows exactly who you are. You’ve got a billing history, an account number, the lot. But because your fixed term ended without a new deal being agreed, they’ve moved you onto their default variable rate.

The practical difference matters most when it comes to switching. On a deemed contract, you’ve got maximum freedom. No notice periods, no exit fees, no rollover clauses to worry about. You can switch the moment you find a better deal. Out-of-contract customers generally have the same freedom, but it’s worth checking whether your expired contract had any lingering notice requirements.

The rates themselves can vary too. Some suppliers charge deemed customers more than out-of-contract customers because the risk profile is different. Others treat them roughly the same. Suppliers like EDF, British Gas, and SSE all publish their deemed and out-of-contract rate schedules separately, and the differences can be significant. If you want to see what the major suppliers are currently charging, we’ve put together individual rate guides for EDF deemed rates, British Gas deemed rates, and SSE deemed rates.

We’ve written a more detailed guide on out-of-contract energy rates if you want to dig into that side of things.

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Your Rights on a Deemed Contract

There’s a silver lining here, and it’s a useful one. Because you never signed a contract, the law gives you significant protections.

You can leave at any time. No exit fees. No notice period. This isn’t a grey area or a loophole. It’s a legally protected right under Ofgem’s rules for deemed contracts. If a supplier tries to charge you a penalty for switching away from a deemed tariff, they’re almost certainly overstepping. Push back on it.

You’re also entitled to rates that are “reasonable.” Ofgem uses that word deliberately because it gives them flexibility to assess on a case-by-case basis. In practice, it means suppliers can’t charge completely disconnected-from-reality prices. They can charge a premium for the risk and uncertainty involved, but there are limits. Whether those limits are tight enough is debatable. We’d argue that 80% above market rate doesn’t feel particularly reasonable, but that’s the regime we’re working with.

One thing you can’t avoid is paying for the energy you’ve actually used. Even if the rates feel unfair, the consumption is yours. The supplier will bill you from the date you took occupancy until the date your new contract starts. That’s why acting quickly matters so much. The longer you sit on deemed rates, the bigger that final bill becomes.

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How to Get Off Deemed Rates

If you’ve just realised you’re on a deemed contract, here’s what to do. The whole process typically takes one to two weeks from start to finish if you’re organised about it.

Take a meter reading straight away. Do it today, not next week. This stops the supplier from estimating your usage and gives you a clear line in the sand for when you took action. Write down the numbers, photograph the meter, and keep a record.

Find out who your current supplier is. If you don’t have a bill yet, you can track it down through your meter’s unique reference numbers. For electricity, that’s your MPAN (Meter Point Administration Number). For gas, it’s your MPRN (Meter Point Reference Number). Both are printed on your meter or on any correspondence from the supplier. Our MPAN and MPRN lookup guide walks you through exactly where to find them and what the numbers mean.

Get quotes from the market. You’re not tied to the incumbent supplier and you don’t have to negotiate with them. You can go anywhere. This is the point where a broker earns their keep, because they can pull prices from across the market in a fraction of the time it would take you to ring round suppliers individually. If you want to see what’s available, you can compare business energy prices here.

Pick a deal and switch. Once you’ve chosen, the switch itself usually takes between two and five working days for business energy. Your supply isn’t interrupted during this time. The lights stay on, the heating keeps running. The only thing that changes is who’s sending the bill and how much they’re asking for.

How Long Does It Actually Take?

From realising you’re on deemed rates to having a new contract live, you’re looking at roughly one to two weeks if you act promptly. The switch itself is two to five working days. The rest is gathering your meter details, getting quotes, and picking the right deal. Most of our clients are surprised how quick it is.

The biggest cost isn’t the effort involved. It’s the weeks of deemed rates you’ll accumulate if you put it off.

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How to Make Sure It Doesn’t Happen Again

Prevention is considerably cheaper than the cure here.

If you’re moving into new premises, arrange your energy supply before you get the keys. You can contact suppliers or a broker weeks in advance. Have a contract ready to start on the day you move in, and you’ll never see deemed rates at all. It takes thirty minutes of planning to save potentially thousands of pounds.

If you’re taking over a lease, make energy part of your due diligence. Ask the landlord or outgoing tenant for a copy of a recent energy bill. That tells you who the supplier is, what the current rates are, and gives you a head start on getting your own deal in place before the change of tenancy goes through.

For businesses that are already established and just want to avoid falling out of contract, the simplest thing is a calendar reminder. Set one for six months before your contract end date. That gives you plenty of time to review the market, compare options, and agree a new deal without any gap. Most of our clients let us handle this for them. We monitor their contract dates and start the renewal process well ahead of time so there’s never a window where deemed or out-of-contract rates can creep in.

If you’re currently on deemed rates and want to know what you could be paying instead, we can run a comparison in about ten minutes. No obligation, no pressure. It’s just about understanding where you stand.

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Key Takeaways

✓ A deemed contract starts automatically when a business occupies premises without a formal energy agreement. You don’t have to sign anything for it to apply.

✓ Ofgem data shows deemed rates can be up to 80% more expensive than a negotiated fixed-term contract. For a typical SME, that’s thousands of pounds a year.

✓ You can switch away from a deemed contract at any time with no exit fees and no notice period. This is a legally protected right.

✓ Deemed contracts and out-of-contract rates aren’t the same thing. Deemed means you never had a contract. Out-of-contract means yours expired. Both are expensive, but the switching process differs slightly.

✓ The fastest way off deemed rates is to take a meter reading, find your MPAN or MPRN, and get quotes from the market. The switch itself takes two to five working days.

✓ Prevention comes down to arranging supply before you move in, checking energy during lease due diligence, and setting renewal reminders well ahead of contract end dates.

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If your energy costs have been higher than expected since moving premises, or if you’ve inherited a supply you didn’t ask for, there’s a reasonable chance you’re sitting on a deemed contract. It’s one of those things most business owners only learn about after it’s already cost them. At least now you know what to look for. If you want to see how your current rates compare to what’s available on the open market, get a free business energy comparison and we’ll show you the difference.