Your complete guide: What is a deemed contract with a business energy company?
Key takeaways: Deemed energy contracts.
What is it? A statutory, legally binding agreement for energy supply created when you consume gas or electricity without a formal, written contract in place.
When does it happen? Commonly occurs when moving into a new business premise, or following a Supplier of Last Resort (SoLR) transfer.
Business impact: Unlike domestic tariffs, business deemed contracts are not price-capped, often resulting in significantly higher rates than standard negotiated deals.
Essential action: Treat this as a temporary stop-gap. Immediately document your meter readings on the day of your move, then switch to a fixed-rate contract to secure competitive pricing and avoid ongoing higher costs.
When you’re moving business premises, energy bills can be the last thing on your mind. However, understanding how you’re being charged from day one is important. This guide explains everything you need to know about deemed energy contracts and how to manage them.
What is a deemed contract with an energy company?
A deemed contract is a statutory agreement that starts when you begin using electricity or gas at your property without having a formal, written contract in place with an energy company.
Yes, it might seem a bit strange being in a contract you never actually signed, but it’s commonplace in the UK energy market. These contracts exist so your business always has a live energy supply, even between switches. Basically, you won’t need to worry about being without power when you need it most.
The ‘legal bit’ comes from the Gas Act 1986 and the Electricity Act 1989. These laws state that if an energy company provides energy and a customer consumes it, a contract is ‘deemed’ to exist. It’s legally binding, meaning you’re responsible for paying for the energy you use, but it also protects you by ensuring the lights stay on.
Moving in.
Deemed energy contracts for new tenants and owners are the most common. When you move into a new property, the previous occupant’s contract ends. If you flick a switch or use energy before choosing a new energy company, you’ll automatically go onto a deemed contract with whoever’s already supplying the property.
Supplier of last resort (SoLR).
If an energy company goes bust, Ofgem, energy regulator for Great Britain, steps in to move customers to a new provider. Depending on the transition arrangements, you may be placed on a deemed contract with your new energy company until you pick a specific plan or change to another energy company.
Note: Business customers do not automatically move to a deemed contract simply because their existing contract expires; in that scenario, the account transitions directly onto a flexible ("flex") tariff instead.
Termination.
When your fixed contract ends, your service automatically transitions to flexible rates to ensure you're never without power while you choose your next agreement. (Note: If a customer moves premises, they automatically start on a deemed contract at the new location.)
The rules for business customers.
For business customers, including micro-businesses, deemed contracts operate differently than standard negotiated deals. The main factor is that there’s no price cap on business energy. Because an energy company has no credit history or usage data for a business they’ve inherited through a deemed contract scenario, the situation’s seen as a high risk.
Explore our business tariffs or get more information on setting up a business energy contract.
Find out more about how these rates are structured and the most recent prices.
Deemed tariffs: the pros and cons explained.
Before deciding whether to stick or switch when you’re on a deemed tariff, it’s worth weighing up the advantages and disadvantages of this automatic arrangement.
Flexibility.
The biggest benefit is flexibility – there are no exit fees, meaning you can switch at any time without being penalised.
For business customers, prices can go up or down based on market changes (needs to be with notice).
Speed.
You get an instant supply – there’s no waiting around for a contract approval or for a switch to complete when you first move in.
However, because there’s no fixed agreement, your energy company can change the price they charge you at short notice (though they must inform you first).
Notice period.
There’s no notice at all for business customers on deemed contracts.
What’s the difference between deemed and flexible tariff?
It’s easy to confuse these two, but how they differ is the circumstances.
Feature | Deemed contracts | Flexible tariffs |
When it applies | When you move into a new property and use energy, regardless of whether you have a prior relationship with the energy company. | When your existing fixed contract expires, or if you actively choose to move off a deemed tariff without committing to a new fixed-term contract. These tariffs are fixed for 12 months, offering the flexibility to leave at any time provided there is no outstanding debt. |
Price security | None. Rates are variable and can change at short notice. | Offers 12 months of price security. |
Cost comparison | Usually the highest and most expensive standard variable rate. | Higher rate than a negotiated fixed contract, but typically slightly lower than deemed rates. |
Leaving the tariff | Can leave at any time with no exit fees and no notice period required. | Total flexibility to leave at any time without notice, provided there is no outstanding debt on the account. |
Deemed contracts vs flex tariff.
While both options are more expensive than negotiated deals, there are key differences in how they apply. Deemed contracts apply when you have no prior relationship with the energy company, such as when you first move into a property. In contrast, flex rates apply when an existing contract expires, but you continue to take supply without signing a new agreement.
A major distinction is that deemed rates are almost always variable and can change at short notice, whereas flexible rates can sometimes be fixed-term depending on the energy company's policy.
Is there a better alternative to a deemed energy contract?
Yes, almost any negotiated plan should be cheaper. You should see a deemed contract as a temporary option. Moving to a customised business energy tariff is one of the easiest ways to lower your overheads.
Fixed rate tariffs: Fixed rate options could be useful for budgeting more effectively. You lock in a price for a set period (currently 12, 24, or 36 months for SME), offering more protection from price hikes (though note that terms and conditions usually include clauses allowing price changes under exceptional circumstances).
Flexible tariffs: Even a standard flexible tariff that isn't a deemed rate can be more competitive. They still offer flexibility but are often priced more fairly for long term customers.
What should you do if you are on a deemed tariff?
The main takeaway is, if you’ve just moved into a property, immediately take a meter reading (to make your billing more accurate), find out your current energy company, and then look for an energy deal that fits your needs. Usually, a deemed tariff is a temporary option when you're in between moves.
Step-by-step: setting up business energy in new premises
Step 1: Document meter readings.
Take a photo of the meters immediately upon move-in to ensure you have proof of your starting point and avoid an overcharge. It is highly recommended to share and agree on this initial reading with your landlord to prevent any future disputes.
Step 2: Identify the incumbent energy company.
Find out which company currently supplies the property.
Step 3: Contact the energy company.
Get in touch to open an account under your business name. To speed up the call, make sure you have the following information ready:
Your exact moving-in date.
The opening meter readings you took on day one.
The full business name and registered address.
Landlord or managing agent contact details.
Your business's registration number or VAT details (if applicable).
Step 4: Compare and switch.
Move to a negotiated tariff as soon as possible to avoid staying on expensive deemed rates.
Explore more useful pages and guides on energy contracts and business tariffs:
Frequently asked questions
Is it law to pay for electricity and gas?
Yes. The Gas Act 1986 and Electricity Act 1989 make it a statutory obligation to pay for the energy you consume, even if you haven't signed a formal contract.
Do I have to pay a deemed contract if I didn't sign anything?
Yes. Under the Gas Act 1986 and Electricity Act 1989, a 'deemed contract' is a statutory agreement. This ensures there's never a gap in supply between occupants. By using energy in a new property, you've entered a legally binding agreement to pay for what you consume, as outlined in Ofgem's Guidance on Deemed Contracts.
Can I be charged an exit fee to leave a deemed tariff?
No. One of the main benefits of being on a deemed tariff is that you aren't tied in. Ofgem regulations prevent energy companies from charging exit or termination fees if you’re on a deemed contract.
How do I set up energy in my new business?
Begin by taking a photo of the meter readings on the day you move in. This ensures you aren't charged for the previous person’s energy use. Then, find out who your current energy company is (Ofgem has helpful advice on locating your energy company).
Once you’ve found your energy company, contact them with your details and the moving in day readings. You’ll be on a deemed contract initially, but you can then switch to a deal that better suits your business.
Can tenants choose an energy company?
In most cases, yes. If you're responsible for paying the energy bills directly, you have the right to choose your provider. The only exception is if your landlord pays the bills and charges you a rent that includes electricity and gas, in which case they will make the decision.
What is a deemed electricity reading?
An estimate based on historical property usage, used when actual meter readings are unavailable for the day you started your tenancy or moved in. To avoid being overcharged on a deemed contract, make sure you provide your own accurate reading as soon as you get the keys. This should iron out any billing issues, leaving you to focus on your move.