Avoiding deemed, out‑of‑contract rates and expensive contract gaps at renewal
Missing your business energy renewal window can result in your supplier automatically placing you on deemed or out-of-contract rates, which are typically much more expensive. Many businesses don’t realise they’re overpaying until their bills increase, so it’s important to act early and understand the steps needed to avoid this costly mistake.
In this guide for small and medium-sized businesses, we’ll explain how these rates work, when they apply and what you can do to secure a better business energy deal.
"Many SMEs unknowingly overpay by rolling onto out-of-contract rates that are often higher than what they’d get on a fixed rate. Without a comprehensive comparison, businesses can miss out on significant savings. The average customer saves 35% by signing a direct contract with Bionic vs going out of contract." - Head of Commercial Operations, Alex Staker.
Five-point summary of our deemed contracts and out-of-contract rates guide
- Act before renewal - Missing your renewal window can automatically move you onto expensive deemed or out-of-contract rates.
- Know the difference - Out‑of‑contract rates usually apply after a fixed contract ends, where the contract provides for post‑expiry pricing. Deemed rates apply where energy is used without an agreed contract, most commonly when moving into new premises or when a contract has ended without agreed continuation terms.
- Costs can spike - These rates are often higher than fixed-term deals, increasing business energy bills significantly. The average customer saves 35% by signing a direct contract with Bionic vs going out of contract.
- Avoid with planning - Secure a new contract early, ideally 6 to 12 months in advance, to prevent gaps and higher charges.
- Switch anytime (usually) - Both deemed and out-of-contract rates typically allow switching without penalties, but high rates apply until the switch completes.
What’s the difference between deemed rates and out-of-contract rates?
Both deemed and out-of-contract rates can result in higher energy bills, but they apply in different scenarios.
Out-of-contract rates
What are out-of-contract rates?
Out-of-contract (OOC) rates are the variable prices your current supplier moves you onto once your fixed-term energy agreement ends, provided your contract has specific terms allowing this. These rates are not protected by a price cap and are higher than fixed-term contracts.
When do you become out of contract?
You will be moved to out-of-contract rates when:
- Your fixed-term deal reaches its end date
- You haven't agreed on a renewal or new business energy supplier.
- You miss your contract’s notice period.
How to avoid out-of-contract rates?
The simplest way to avoid out-of-contract rates is to start your search at least six months before your contract ends, compare new contracts early and secure an energy deal. Preparing early gives you ample time to handle the switch and ensures there is no gap where high variable rates can creep in.
If you’re unsure when your business energy tariff is ending, check out our helpful guide.
Can you switch away from out-of-contract rates?
Yes. Out-of-contract rates usually don't have a fixed end date or a notice period. This means you are free to switch at any time. But be aware that you will have to pay the expensive daily rates until the switch is officially completed.
Deemed contract
What is a deemed contract?
A deemed contract is created when a business uses energy at a property without formally agreeing on terms with a supplier. These are typically the default rates applied if you don’t arrange a fixed contract before moving into new premises.
When do businesses end up on deemed rates?
You may be placed on deemed rates if:
- You move into a new property and don’t arrange a new energy contract before you start using energy.
- You don’t sign a new contract before your previous one expires, especially in new premises or under a new supplier.
Why are deemed tariffs so expensive?
Deemed rates are generally more expensive because the supplier has no data on your usage habits and is taking on a higher level of risk by not having a formal contract with you. To mitigate the risk, they charge a premium. In addition, they are not incentivised to offer competitive rates without a signed agreement.
How to avoid deemed contract rates
To avoid being placed on deemed rates, you should always arrange an energy contract before moving into new premises, renew your contract within your renewal window (ensuring you don’t miss the notice period) and be proactive in comparing business energy deals to secure a better offer.
What alternatives are there to deemed rates?
The best alternative is a fixed-term contract. This allows you to lock in a unit rate and standing charge for 1 to 4 years, providing budget certainty.
Can you switch away from deemed rates?
Absolutely. Under Ofgem rules, you can switch away from a deemed contract at any time. The supplier cannot charge you a termination fee or force you to stay for a notice period.
Are there any Ofgem regulations in place?
Yes, there are protections in place under Ofgem’s rules to prevent excessive charges. However, deemed rates are still far more expensive than contract rates, so it’s essential to avoid them if possible.
Compare business energy quotes with Bionic
At Bionic, we help SMEs compare business energy quotes, secure competitive contracts and plan procurement strategically through our panel of suppliers. To switch to a better deal, just give us your postcode and our tech-enabled experts will use smart data to find a business energy contract that suits the unique needs of your business. Join thousands of UK businesses already saving through Bionic’s business energy suppliers comparison service.
Get in touch to discuss your business energy needs or get more information by starting a quote online today.
Deemed and out-of-contract rates FAQs
Still unsure about deemed and out-of-contract rates? Check out the answers to some of our most frequently asked questions:
Which is more expensive: deemed or out-of-contract rates?
Both are expensive, but deemed rates are often the highest due to increased supplier risk and lack of contract agreement.
How do businesses end up on deemed energy rates?
Businesses are placed on deemed rates when they move into a property or use energy without setting up a contract in advance.
Can I switch away from deemed or out-of-contract rates?
Yes, you can switch at any time without penalties, though you will pay higher rates until the switch is completed.
How can I avoid out-of-contract energy rates?
Start comparing suppliers and secure a new contract within your renewal window before your current deal ends.
Are deemed energy rates regulated in the UK?
Yes, Ofgem provides some protections, but deemed rates are still significantly higher than fixed-term contracts.
What is the best alternative to deemed or out-of-contract tariffs?
A fixed-term business energy contract offers lower rates and price certainty for budgeting and cost control.
Can I be blocked from switching if I'm on deemed rates?
No. A supplier cannot stop you from switching from a deemed rate, as no formal contract exists. However, they may still try to block a switch if you have significant unpaid debt on the account.
How do I know if I'm overpaying?
A sudden spike in energy bills is often the first sign a business has been moved onto higher rates without realising.
