Deemed contracts arise by operation of law when a business takes supply at premises without signing a contract. Suppliers apply their highest commercial rates under deemed terms, and the cost compounds daily. Ofgem's Standard Licence Condition 7A requires suppliers to inform customers of deemed rates and their right to switch. Converting to a negotiated fixed-price contract or switching supplier can begin immediately, and there are no exit fees on a deemed contract.
Last reviewed: 12 May 2026
What Triggers a Deemed Contract
A deemed contract arises by operation of law when a business begins consuming gas or electricity at premises without having arranged a supply agreement with the incumbent supplier. The legal basis sits in the Gas Act 1986 and Electricity Act 1989, which require licensed suppliers to continue supply to connected premises and allow them to charge on deemed contract terms where no formal agreement is in place.
The most common trigger is change of tenancy: a new occupier moves into commercial premises and the previous tenant's supply contract ends. The incumbent supplier continues supply automatically from the date of occupancy under deemed terms. The new occupier is legally obliged to pay for the energy consumed, even though they have not signed anything. The rate applied is the supplier's deemed contract rate, which is typically the highest commercial tariff in the supplier's schedule.
Other triggers include taking supply at newly connected premises without arranging a contract from connection date, a gap between the expiry of a fixed-term contract and the start of a new one, and transfer to a supplier of last resort following the failure of the previous supplier. For the change of tenancy route and its specific obligations, the dedicated guide at /change-of-tenancy-business-energy-uk/ covers the process in detail.
The Rate Applied on Deemed Contracts and the Daily Cost
Deemed contract rates are set by individual suppliers and are not subject to a regulatory price cap for non-domestic customers. Suppliers apply their highest commercial rates under deemed terms because the arrangement carries higher credit and volume uncertainty than a negotiated fixed-term contract. The deemed rate is typically materially above the rate available on a negotiated 12-month fixed contract with the same supplier.
The cost of remaining on a deemed contract compounds daily. A business consuming 50,000 kWh of electricity annually that is paying 2p/kWh above the negotiated rate is losing approximately £1,000 per year, or around £2.74 per day, through inaction. For higher-consumption premises the daily cost of delay is proportionally greater.
Businesses that discover they are on a deemed contract should treat conversion as urgent. The administrative process of arranging a new contract or initiating a switch to a new supplier typically takes a number of weeks, meaning every day spent on the deemed rate before action is taken represents a recoverable cost opportunity that has been lost.
Ofgem Standard Licence Condition 7A
Ofgem's Standard Licence Condition (SLC) 7A imposes obligations on suppliers providing supply under deemed or out-of-contract arrangements. Under SLC 7A, suppliers are required to take reasonable steps to make customers aware that they are on a deemed or out-of-contract arrangement, the rate being applied, and the fact that they have the right to switch supplier or negotiate a new contract.
In practice, the obligation under SLC 7A means a supplier should communicate proactively with a new occupier who appears to be taking supply without a contract. This communication should include the applicable rate and information about how to arrange a negotiated contract or switch. A supplier that allows a business to remain on deemed rates for an extended period without communicating these rights may be acting inconsistently with its SLC 7A obligations.
Businesses that have been on deemed rates for a significant period without receiving any communication from their supplier about the rate being applied or the right to switch may have grounds to raise a formal complaint. The Ombudsman can consider complaints about supplier conduct under SLC 7A obligations, including whether adequate steps were taken to inform the customer of their position and options.
Converting a Deemed Contract to a Negotiated Fixed-Price Contract
The conversion process begins with identifying the incumbent supplier. If it is not immediately obvious which supplier is providing energy to the premises, the electricity meter's MPAN (Meter Point Administration Number) can be used to identify the registered supplier through the relevant network operator. For gas, the MPRN (Meter Point Reference Number) can be used through National Grid's meter point enquiry service.
Once the supplier is identified, the business should contact the supplier's business sales team directly and request a quote for a negotiated fixed-term contract. The business is not obligated to accept this quote; it can be used as a benchmark against which to compare quotes from other suppliers.
Because deemed contracts carry no exit fee and no minimum period, there is no contractual penalty for switching to a different supplier rather than converting the deemed arrangement with the incumbent. The switch can begin immediately. Standard business energy switches typically complete within 28 days, during which time the deemed rate continues to apply. Any competitor quotes should therefore be obtained and evaluated as quickly as possible to minimise the period on the deemed rate.
What to Do If the Supplier Refuses to Convert
A supplier is not obligated to offer a negotiated fixed-term contract on any particular terms. However, a supplier that refuses to engage with a conversion request at all, provides no quote, or applies pressure tactics to prevent the business from exploring the market may be acting inconsistently with its obligations under Ofgem's licence conditions on fair treatment of customers.
Where a supplier refuses to convert and the business believes this is obstructive rather than a legitimate commercial decision, the first step is a formal written complaint to the supplier. If the complaint is not resolved satisfactorily, escalation to the Energy Ombudsman is available for qualifying microbusinesses. The Ombudsman can investigate and can direct the supplier to provide appropriate remedies including a fair contract offer or compensation for the period of obstructive conduct.
The more common resolution, however, is simply switching supplier. The deemed contract carries no lock-in, no exit fee, and no notice period obligation. The fastest practical resolution to a problematic deemed contract is typically to obtain competitive quotes from alternative suppliers and initiate a switch rather than negotiating with an uncooperative incumbent.
Backdating Claims for Overcharging on Deemed Rates
Where a business has been placed on deemed rates following a change of tenancy, and the supplier did not communicate the rate or the right to switch under SLC 7A, there may be a basis for a complaint seeking a retrospective adjustment. The Ombudsman can consider whether the supplier's failure to comply with its SLC 7A obligations caused financial detriment to the customer, and may award compensation reflecting the difference between the deemed rate and the rate the customer could have obtained had they been properly informed.
This is not automatic and depends on the specific facts. A business that was unaware of the deemed contract for a short period faces a different assessment than one that was on deemed rates for years. Documentation of when occupancy began, any correspondence received from the supplier, and the rates charged in the relevant period is important for any retrospective claim.
Frequently asked questions
Editorial disclaimer: The following questions address common points of uncertainty about deemed contracts for UK business premises. They do not constitute legal or energy procurement advice. Businesses unsure of their contract status should contact their supplier in writing and request confirmation of the terms applicable to their supply point.
Am I liable for energy costs on a deemed contract even if I didn't sign anything?
Yes. A deemed contract arises by operation of law from the moment energy is consumed at the premises without a formal supply agreement. The legal basis under the Gas Act 1986 and Electricity Act 1989 means consumption creates a payment obligation regardless of whether anything has been signed. Challenging the deemed rate applied is different from challenging the obligation to pay for the energy consumed, which is enforceable even without a signed contract.
Is there an exit fee for leaving a deemed contract?
No. Deemed contracts carry no exit fee and no minimum period. A business on a deemed contract can switch to any licensed supplier or negotiate a new fixed-term contract with the incumbent at any time without incurring a termination charge. This is a significant advantage compared to exiting a mid-term fixed contract, which typically carries breakage costs.
What is Ofgem SLC 7A and how does it protect me?
Standard Licence Condition 7A requires suppliers to take reasonable steps to inform customers on deemed or out-of-contract arrangements of the rate being applied and their right to switch or negotiate a new contract. A supplier that fails to communicate this information may be in breach of its licence obligations. Businesses that were left on deemed rates for an extended period without any communication from their supplier about the applicable rate or options available may have grounds for a formal complaint.
How long does it take to get off a deemed contract?
The practical timeline depends on whether the business converts with the incumbent supplier or switches to a new one. A conversion with the incumbent can in principle be arranged quickly, subject to the supplier's sales process and contract documentation timescales. A switch to a new supplier typically completes within 28 days. Obtaining and comparing quotes from multiple suppliers before deciding which route to take is worthwhile given the cost difference between the deemed rate and any negotiated rate.
Can I claim compensation if I was not told I was on a deemed contract?
Where a supplier failed to comply with its SLC 7A obligations and this caused financial detriment by leaving the business on a high deemed rate without knowledge of the right to switch, there may be grounds for a complaint seeking retrospective redress. The Energy Ombudsman can consider such complaints from qualifying microbusinesses and may direct compensation reflecting the financial loss caused by the supplier's failure to inform. The strength of any claim depends on the specific facts, the duration of the deemed arrangement, and the evidence available about what the supplier communicated.
How we verified this
This article draws on the Gas Act 1986 and Electricity Act 1989 as published on legislation.gov.uk, Ofgem's published Standard Licence Conditions including SLC 7A, Ofgem guidance on deemed and out-of-contract supply, and Citizens Advice guidance on deemed energy contracts for businesses.
Sources
- Ofgem - Standard Licence Conditions including SLC 7A
- Gas Act 1986 - legislation.gov.uk
- Electricity Act 1989 - legislation.gov.uk
- Citizens Advice - Deemed energy contracts
For related reading on contract terms and renewal rights, see Deemed Rates Business Energy UK and Business Energy Contract Renewal UK.
