What is a deemed contract and how does it work?

In utility markets, the Government and regulators have put in place a system of default contractual terms. This is to ensure that all customers have access to services, and that customers are all required to pay their fair share for the provision of essential services. These are deemed to be in force without either party being required to consent to the terms or sign a contract. Invoices issued pursuant to a Deemed Contract can be enforced through the courts.

A Deemed Contract is designed to provide:

- Fair Terms & Conditions for all customers who have not agreed to different contract terms with their supplier

- Extra regulatory protections

- Clarity over the prices that apply to an invoice for water services.

A deemed contract also applies when a customer first enters a premises. A Deemed Contract came into effect from 1 April 2017 for non-household water customers. For the vast majority of business water customers, this governs the prices and terms of water supply.

Under Ofwat’s Retail Exit Code: "A Scheme of Terms and Conditions must not include non-price terms which cumulatively in complying with them would cause Transferred Customers to be materially worse off, whether financially or operationally than they were immediately before the Exit Date."

But it also states: "The price terms may allow higher charges to be paid by a Customer where the Customer freely chooses to pay different charges to those that they would otherwise be liable for."

So a Deemed Contract provides protections to customers which can be waived by signing a new contract with the same or another retailer.

Who sets the terms of a Deemed Contract?

Although the key features of a Deemed Contract are set out by Ofwat and in statute, each licensed retailer published its own contract terms. A series of regulatory codes tell water retailers, such as Castle Water, what needs to be incorporated into a Deemed Contract; and the Deemed Contract is submitted to Ofwat. Ofwat does not explicitly approve the Deemed Contract. Customers should therefore always review the contractual terms when accepting an alternative contract for water services.

Hidden benefits of a Deemed Contract

The Deemed Contract has some specific advantages for customers: it is submitted to Ofwat; it is subject to potentially valuable protections in the Retail Exit Code which do not apply to customers transferring to other retailers (such as requiring there to be no termination fees).

It is very important to review fully any T&Cs from a new retailers, as many include additional charges:

- Although Castle Water does not have any termination fees for customers moving into new premises which we supply, other water retailers may have these fees

- Some retailers charge additional fees or vary their tariffs if you change payment method, such as cancelling a direct debit. Castle Water does not charge fees in this situation (if you let us know you are changing).

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