Can I Cancel a Business Energy Contract?

In most cases, once a business energy contract has started, it cannot be cancelled. Business energy contracts are usually binding for their full fixed term and do not come with the 14 day cooling off period that protects domestic and some consumer contracts. There are a few limited situations where you may be able to cancel or unwind a contract, but they are the exception rather than the rule.

The first thing to be clear about is the difference between cancelling a contract part way through and simply choosing not to renew it. These are very different things, and confusing them is where a lot of disputes start.

Why mid-term cancellation is so hard

When you agree a business energy contract, the supplier buys energy in advance to cover your expected usage for the whole term. That is the main reason these contracts are treated as firm commitments. Unlike a domestic deal, there is generally no automatic right to walk away during the fixed period, and there is no statutory cooling off window in the way consumers might expect.

This applies whether you signed a written contract, agreed terms over the phone, or arranged the deal through a broker. Verbal agreements, if recorded, are usually legally binding, so do not assume a phone call leaves you free to change your mind.

There are some circumstances where cancelling or unwinding a contract may be possible:

• The contract has not yet started. There is sometimes a short window between agreeing terms and your supply switching over. Suppliers often allow cancellation during this period, though this depends on their own terms. Ask in writing as soon as possible.
• Mis-selling or a contract that was not properly explained. If you can show the deal was misrepresented, that key terms were hidden, or that a broker did not properly explain what you were agreeing to, you may have grounds to challenge it. Keep any emails, call references and broker correspondence.
• Errors in the agreement. If the contract contains a genuine mistake, for example the wrong rate, wrong term or wrong meter, you can ask the supplier to correct or cancel it.
• Microbusiness protections. Ofgem sets extra rules for microbusinesses, covering things like clearer information about brokers, contract terms and renewal. A business usually qualifies as a microbusiness if it uses less than a set amount of electricity or gas each year, or has fewer than ten employees and turnover or a balance sheet below a set threshold. If you qualify, you may have stronger grounds to challenge how a contract was sold. Check the current criteria on the Ofgem website, as the thresholds can change.

None of these is a guaranteed escape route. They are arguments you may be able to make in specific situations, and the supplier may dispute them.

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Not renewing is different from cancelling

At the end of your fixed term you usually can leave, but you normally have to serve notice in the right way and within the right window. Many business contracts require written notice before the end date, and missing that window can roll you onto more expensive out of contract or deemed rates, which are generally higher than negotiated contract rates.

Check your contract now for the notice period and how notice must be given. Provide written notice with proof of dispatch. If you do nothing, the supplier may renew or move you to a default tariff, which is rarely the cheapest option.

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What happens if you just stop paying

Stopping payment is not the same as cancelling, and it does not end your obligations. If you stop paying or switch away without a right to do so, the supplier can pursue you for the money owed, add charges, and in some cases disconnect supply. Suppliers can also recover debts through legal proceedings, and unpaid bills can affect your business credit standing.

If you are struggling to pay, contact the supplier and ask about a payment plan rather than withholding payment. Suppliers are generally more willing to help when you raise problems early.

How to complain or escalate

If you think a contract was mis-sold, contains errors, or has been handled unfairly, start by submitting a written complaint to the supplier. Set out clearly what went wrong and what you want them to do. Keep a record of everything.

If the supplier does not resolve the complaint, or eight weeks pass without a final answer, you can usually take it to the Energy Ombudsman. The Ombudsman's decision is binding on the supplier if you accept it, but if you do not accept it, the decision is not binding on either party. Microbusinesses are normally covered by this service. Citizens Advice can offer free guidance, and Ofgem publishes the current rules for business and microbusiness customers.

For the latest definitions, rights and figures, consult both the GOV.UK and Ofgem websites for the most up to date guidance, as the rules differ in places across England, Scotland and Wales and are updated from time to time.

If your contract is near its end date, the cleaner route is to give proper notice to your supplier. If you are moving out of the premises, your liability can end through a change of tenancy.

The Next Step

Now that you have read through the advice above, you might want to put it into practice. Our Out of Contract Energy Rate Checker lets you find out if your business is stuck on expensive out-of-contract energy rates, and how to escape. Try it now →