Business Energy Rollover Contracts UK: How to Avoid the Auto-Renewal Trap

The auto-renewal clause is one of the most commercially consequential provisions in any business energy contract, and one of the least read. When a fixed-term business energy contract expires without a termination notice having been served, the clause typically activates a new fixed term - often for the same duration as the original - at rates set by the supplier rather than negotiated by the customer. For many small businesses, discovery of a rollover comes with the first bill at the new rate, by which point the window to exit cheaply has already passed.

How rollover contracts are structured

A rollover provision in a business energy contract typically works as follows. The original contract specifies a fixed end date and a notice period - the number of days before that date by which a termination notice must be served to prevent automatic extension. If no notice is served by the specified deadline, the contract automatically extends into a new period. That new period may be another full fixed term (for example, another 12 months), a shorter fixed term, or a move to the supplier's standard variable commercial rate, depending on the specific contract wording.

The rates that apply to the rolled-over contract are not the same as the original contracted rates. They are the rates set out in the SLC 7A renewal notice (for microbusiness customers), or the rates set unilaterally by the supplier for larger commercial customers. These rates are typically set with reference to current wholesale costs, but without the competitive market pressure that would apply if the business had actively re-tendered. Published figures from Ofgem's quarterly energy price data have consistently shown non-domestic variable and rollover rates running materially above equivalent fixed contracted rates.

Why rollover rates are typically far above market

The economics of a rollover contract favour the supplier in three ways. First, the supplier faces no competition for the business at the point of rollover - the customer has already missed the window to switch competitively. Second, the customer is locked into a new fixed term with an exit fee, further reducing the practical ability to leave. Third, the rates can be set at or near the supplier's standard commercial rate, which is designed to recover higher margins than a competitively tendered fixed contract.

For businesses that contracted at a market rate during a period of lower wholesale prices and then rolled over into a period of higher wholesale prices, the combined effect can be significant. A business that contracted at 20 pence per kWh and rolls over onto a rate of 35 pence per kWh faces a 75% increase in unit cost with no ability to switch away until the exit fee makes departure commercially viable.

The pattern is consistent enough that Ofgem identified rollover contract practices as a priority concern in its non-domestic market work, leading to the December 2022 amendments to the standard licence conditions that strengthened microbusiness protections.

Ofgem's December 2022 microbusiness rule changes

In December 2022, Ofgem implemented amendments to the standard conditions of electricity and gas supply licences that tightened the obligations on suppliers dealing with microbusiness customers at the point of contract renewal and rollover. The key changes relevant to rollover contracts were:

• Suppliers must send the SLC 7A renewal notice within a defined window (between 49 and 10 days before the termination notice deadline), not merely before contract expiry. This narrows the supplier's ability to send a late notice that technically complies while leaving the customer insufficient time to act.
• The notice must clearly state the termination notice deadline - the date by which the customer must act, not just a general statement about the contract end date.
• Where a supplier has failed to send a compliant SLC 7A notice, Ofgem's expectation is that the supplier should not seek to enforce a rollover that resulted from the failure. Businesses in this position have grounds to request release from the rolled-over contract without an exit fee.
• The rates that will apply on rollover must be explicitly stated in the notice, not described by reference to a tariff schedule the customer must look up separately.

These protections apply to microbusiness customers only. Businesses above the microbusiness thresholds - more than 10 employees, electricity consumption above 100,000 kWh per year, gas consumption above 293,000 kWh per year - are outside SLC 7A and must rely on the contractual terms agreed at signing.

How to serve termination notice correctly to avoid rollover

The single most effective way to avoid a rollover contract is to diarise the termination notice deadline from the day the original contract is signed. The deadline is typically the contract end date minus the notice period specified in the contract. A 12-month contract ending 31 March with a 60-day notice period requires notice by 30 January.

Serving notice correctly requires attention to:

• Form: the contract will specify written notice. Email is usually acceptable but the contract may require a specific format or reference. Read the relevant clause before drafting the notice.
• Recipient: notice sent to the general customer service address rather than the specified contract notices address may not be valid. Check the contract for the correct address.
• Content: include the account number, supply address, MPAN or MPRN, and an explicit statement that this is a termination notice under the contract served in accordance with the notice provisions.
• Proof of delivery: send by a method that produces a delivery record. Follow up in writing if no acknowledgement is received within five working days.

Serving a valid termination notice does not oblige the business to switch. It preserves optionality: the business can still renegotiate with the incumbent supplier, sign with an alternative, or (if it cannot finalise a new arrangement before the end date) move to the incumbent's out-of-contract rate and switch from there without a new fixed-term lock-in.

What to do if a rollover has already occurred

A business that discovers it has been rolled over into a new fixed term has four practical routes, depending on its circumstances:

1. Check whether SLC 7A was complied with: for microbusiness customers, request written confirmation from the supplier of the date on which the SLC 7A renewal notice was sent and the address to which it was sent. If it was not sent within the required window or was sent to an incorrect address, the business has grounds to challenge the rollover and request release without an exit fee.
2. Review the contract for the rollover clause: some rollover clauses are not clearly drafted, or the notice period requirements were not clearly communicated at point of sale. If the rollover mechanism was not adequately disclosed, there may be grounds for a mis-selling complaint under the Consumer Rights Act 2015 (for sole traders) or contract law principles more broadly.
3. Calculate the exit fee: if the rollover is enforceable, quantify the cost of exiting the new fixed term. The exit fee may be economically justified if the difference between the rollover rate and an available market rate is large enough to recover the fee within the remaining contract period.
4. Raise a formal complaint: for microbusiness customers, a complaint to the supplier followed by escalation to the Energy Ombudsman (after eight weeks without resolution) is the standard route. The Ombudsman can award release from a contract where the supplier's conduct caused the customer to be trapped in unfair terms.

The difference between rollover and out-of-contract rates

A rollover contract and an out-of-contract (OOC) rate are different commercial situations, though both result from a failure to renegotiate before the contract expires. A rollover locks the customer into a new fixed term with an exit fee and specific contract terms. An OOC rate puts the customer on a variable supply arrangement with no fixed term and no exit fee, but typically at the supplier's highest standard commercial rate.

From the customer's perspective, the OOC position is commercially more flexible (no lock-in) but potentially more expensive in the short term. The rollover is less flexible but may offer a lower unit rate than OOC, depending on the supplier's pricing structure. The choice between the two - where a choice exists - depends on the customer's view of how long it will take to arrange a new competitive contract and the rate differential between the two options.

Frequently asked questions

Editorial disclaimer: This article explains rollover contract mechanics and the relevant Ofgem licence conditions. It does not constitute legal advice for any specific contract dispute.

Can a supplier enforce a rollover contract if the SLC 7A notice was never sent?

Ofgem's position is that suppliers should not enforce rollover terms against microbusiness customers where the required SLC 7A advance notice was not properly given. A supplier that attempts to do so is in breach of its licence conditions. The appropriate response is a formal complaint to the supplier, citing the specific SLC 7A obligation and requesting written confirmation of when and how the notice was sent. If the supplier cannot demonstrate compliance, a request for release without exit fee is well-founded. Escalation to the Energy Ombudsman is available if the complaint is not resolved within eight weeks.

Are rollover clauses in business energy contracts legally enforceable?

Rollover clauses are generally enforceable in commercial contracts between businesses where the clause was clearly set out in the original agreement and adequate notice of the renewal mechanism was given. The Unfair Contract Terms Act 1977 and the Consumer Rights Act 2015 provide different levels of protection depending on whether the customer is a business or a consumer - most limited companies are businesses and have limited recourse to unfairness arguments that would apply to consumer contracts. However, for sole traders and partnerships where the principals are natural persons, the Consumer Contracts Regulations 2013 and the Consumer Rights Act 2015 may provide additional routes to challenge terms that were not adequately drawn to attention at point of sale.

How long do rollover contracts typically last?

Rollover duration varies by supplier and contract. Some contracts roll over for the same fixed term as the original - a 12-month contract rolls to a further 12 months. Others roll to a shorter period: six months or three months. Some contracts, rather than rolling to a new fixed term, move the customer to the supplier's variable commercial rate with no fixed duration. The specific outcome is determined by the auto-renewal clause in the original contract. Businesses should identify this clause before signing any new commercial energy contract.

What is the Energy Ombudsman's approach to rollover complaints from microbusiness customers?

The Energy Ombudsman considers rollover complaints from microbusiness customers by assessing whether the supplier complied with SLC 7A, whether the rollover mechanism was adequately communicated at point of sale, and whether the customer took reasonable steps to manage the renewal. Where a supplier failed to provide the required advance notice, the Ombudsman can require the supplier to release the customer from the rolled-over contract without an exit fee. Where both parties acted in accordance with the contract terms, the Ombudsman has more limited grounds to override the commercial agreement.

Does a broker have any obligation to alert a client to an upcoming rollover deadline?

Brokers have no statutory obligation under Ofgem's licence conditions to notify clients of upcoming renewal deadlines - those obligations run between the supplier and the microbusiness customer directly. However, if a broker held itself out as providing a contract management or renewal advisory service, a failure to alert the client to a rollover that causes loss may give rise to a claim against the broker under the terms of the service agreement or general negligence principles. The distinction between a broker acting as a one-off introducer and one providing ongoing contract management is commercially and legally material.

How we verified this

This article draws on Ofgem's Standard Licence Conditions for electricity and gas supply (SLC 7A), Ofgem's December 2022 licence condition amendments, and Ofgem's published guidance on microbusiness protections at ofgem.gov.uk. References to the Consumer Rights Act 2015 and Unfair Contract Terms Act 1977 draw on legislation.gov.uk. No broker, aggregator, or comparison site content was used as a primary source.

Sources

• Ofgem: Microbusiness protections - ofgem.gov.uk
• Unfair Contract Terms Act 1977 - legislation.gov.uk
• Consumer Rights Act 2015 - legislation.gov.uk
• Ombudsman Services: Energy - ombudsman-services.org

For more on contract renewal timing and notice obligations, see business-energy-contract-renewal-uk. For information on exit fees when leaving a rollover contract, see business-energy-exit-fees-uk.