Deemed rates apply when a business takes energy supply without a signed contract, typically on moving into new premises. They are legally authorised by the Gas Act 1986 and Electricity Act 1989. There are no exit fees and no minimum period, and switching away can begin immediately.
Last reviewed: 12 May 2026
What Deemed Rates Are and Their Legal Basis
A deemed contract is a supply arrangement that arises by operation of law. It is not a contract that has been signed or agreed to explicitly. When a business starts consuming gas or electricity from a supplier without agreeing a fixed-term contract, that supplier has a legal obligation to supply under the terms of a deemed contract and can charge deemed rates for that supply.
The legal basis for deemed contracts sits in the Gas Act 1986 and Electricity Act 1989, which require licensed suppliers to provide supply to premises in their licence area when it is requested or when consumption simply begins.
Deemed rates are set by individual suppliers and are typically among the highest tariffs in a supplier's schedule. They are not subject to a regulatory price cap for business customers. Ofgem has published guidance noting that deemed contract rates are generally higher than both fixed-term contract rates and out-of-contract rates because the supplier carries the risk of providing supply without any commercial agreement.
Trigger Scenarios for Deemed Contracts
The most common situations where a business finds itself on deemed rates are:
Change of tenancy: A new tenant occupies commercial premises and the gas or electricity supply transfers to the incumbent supplier's deemed contract automatically. Supply continues under deemed terms from the day occupancy begins until a new fixed-term contract is signed with any supplier.
Supplier failure: When a business energy supplier ceases trading, Ofgem appoints a supplier of last resort (SoLR). Customers transfer to the SoLR on deemed terms. They have no fixed contract with the SoLR and are on deemed rates until they either sign a new fixed term with the SoLR or switch to a different supplier.
Contract gap: A fixed-term contract ends, a new one is not in place, and the customer takes supply during the gap. Technically this is an out-of-contract situation with the same supplier, but where the previous contract has definitively ended and the supplier continues supply without any contractual basis, the supply may revert to deemed terms depending on the supplier's tariff structure.
New premises with no prior occupant: A business takes supply at newly built or newly connected premises without signing a contract. Supply begins under deemed terms from the connection date.
Contract expiry without a known supplier: If a business is uncertain which supplier is actually serving their premises, they may be on deemed terms with a supplier they have not knowingly engaged with. This happens in complex multi-site portfolios and after business acquisitions.
How Deemed Rates Differ from Out-of-Contract Rates
The key distinction is the contractual history:
| Deemed Contract | Out-of-Contract | |
|---|---|---|
| Trigger | Supply taken without any prior signed contract | Fixed-term contract ends without renewal |
| Signed agreement | None | Previously had one |
| Exit fees | None | May apply if rolled into a new fixed term |
| Notice period | None required | Check supplier terms |
| Legal basis | Gas Act 1986 / Electricity Act 1989 | Supplier's standard terms |
| Typical rate level | Higher than out-of-contract | Higher than fixed term, lower than deemed in many cases |
The absence of exit fees and notice period obligations under a deemed contract is significant. It means switching away can begin immediately from day one of occupancy without any penalty.
Your Rights on a Deemed Contract
Under Ofgem's framework, a supplier providing deemed contract supply must:
- Inform the customer of the rates being applied
- Provide accurate billing
- Not require a minimum contract period
- Allow immediate switch to another supplier or fixed-term contract without exit fees
You are not obligated to stay on deemed rates. There is no lock-in and no minimum period. The supplier cannot impose termination charges for ending deemed supply.
For microbusinesses, Ofgem's enhanced protections also require the supplier to offer information about fixed-term contracts available if you contact them. The supplier cannot simply leave you on deemed rates indefinitely without proactively offering alternatives.
How to Switch Away from Deemed Rates
The process is straightforward.
Identify the incumbent supplier: check your electricity or gas meter for the MPAN (electricity) or MPRN (gas) and use these reference numbers to identify the current registered supplier. For electricity, Contact the electricity distributor for your region. For gas, the National Grid's Meter Point Administration Service (MGAS) holds MPRN records.
Obtain competing quotes: contact at least three suppliers directly or use a broker, noting that any brokered rate will include commission embedded in the unit rate. Request quotes for a 12-month fixed-term contract as a baseline.
Confirm no exit obligations: write to the incumbent supplier confirming you are on a deemed contract (not a signed fixed term) and requesting written confirmation that there are no exit fees or notice period obligations. Keep this confirmation.
Sign a new fixed-term contract: choose the most competitive offer and sign the new contract. Switching typically completes within 28 days. During the switching period you continue on deemed rates with the incumbent supplier; those charges are your obligation until the switch completes.
Obtain a final statement: once the switch completes, request a final statement from the incumbent supplier for the deemed period and check it against the rates you were notified of. Billing errors on deemed contracts are not uncommon during transitions.
What to Do After a Supplier Failure
If your supplier has failed and you have transferred to a SoLR under Ofgem's supplier of last resort process, the same principles apply. You are on deemed terms with the SoLR. You can switch immediately to any licensed supplier without penalty.
Ofgem publishes details of supplier of last resort appointments on its website. Confirming the SoLR's identity and obtaining their contact details allows you to formally notify them of your intention to switch and request information on the rates being applied in the interim.
Any credit balance held with the failed supplier is protected under Ofgem's rules and should transfer to the SoLR or be refunded.
Editorial disclaimer: This page provides general guidance only and does not constitute energy or legal advice. Deemed contract law is specific and fact-dependent. Always verify your contract status and rights directly with your supplier and Ofgem before making procurement decisions.
Frequently asked questions
What triggers a deemed contract for business energy?
The most common triggers are moving into new premises where supply was already connected, a supplier failure resulting in transfer to a supplier of last resort, or taking supply at newly connected premises without signing a contract first. In all cases, the supply continues legally under deemed terms set by the receiving supplier.
Are deemed rates higher than fixed-term business energy rates?
Yes. Deemed rates are typically higher than both fixed-term contracted rates and out-of-contract rates. The premium reflects the risk the supplier carries in providing supply without a commercial agreement. There is no regulatory cap on deemed rates for business customers.
Can I switch immediately if I am on deemed business energy rates?
Yes. Deemed contracts have no exit fees and no minimum period under Ofgem's framework. You can begin the switching process from day one. A standard business energy switch completes within 28 days.
What is the difference between deemed rates and out-of-contract rates?
Deemed rates apply where supply has never been under a signed contract. Out-of-contract rates apply when a previously signed fixed-term contract has ended without renewal. Deemed contracts carry no exit obligation. Out-of-contract situations may carry exit obligations if the supplier has rolled the account into a new fixed term.
What happens to my credit balance if my energy supplier fails and I end up on deemed rates?
Under Ofgem's supplier of last resort process, credit balances held with the failed supplier are protected. They should transfer to the supplier of last resort or be refunded. Ofgem publishes guidance on credit balance protections as part of each supplier failure announcement on its website.
How we verified this
This article draws on the published guidance from Ofgem, the Department for Energy Security and Net Zero, and the relevant primary legislation listed in the Sources section. No aggregator or supplier-produced content was used as a primary source.
