Introduction
As a landlord, managing costs is key to making your rental property profitable. One of the biggest expenses is energy bills. Some landlords choose long-term third-party energy contracts to secure fixed prices and avoid rising costs. However, these contracts come with risks that could lead to unexpected expenses, financial losses, and difficulties managing tenants. Brighton letting agents often advise a careful evaluation of such contracts to ensure they align with your financial goals and operational needs.
Before committing to a long-term third-party energy deal, it’s important to understand the risks involved. This article explains why landlords should be cautious when signing these contracts and how to make better choices.
What Are Third-Party Energy Contracts?
Third-party energy contracts are agreements where landlords buy gas and electricity from an independent supplier instead of a big energy company. These contracts often promise:
- Fixed prices for several yearsto protect against energy price increases.
- Bulk discountsif you own multiple rental properties.
- Simple managementwith one bill covering all properties.
While these deals may seem attractive, they are not always as beneficial as they first appear.
Risks of Long-Term Third-Party Energy Contracts
Overpaying for Energy
Energy prices go up and down. If you lock into a long-term contract when prices are high, you might end up paying much more than the market rate if prices fall. Unlike big energy companies, third-party suppliers often charge extra fees, making your bills even higher.
Hidden Charges and Fees
Some third-party contracts include hidden costs that are not obvious at first. These may include:
- Early exit fees if you want to leave the contract before it ends.
- Extra charges for maintenance or meter readings.
- Price increases that were not clearly explained at the start.
Always read the small print before signing any long-term energy contract.
Difficult
Unlike regular energy contracts, third-party agreements can lock you in for several years. If you find a better deal elsewhere, switching can be expensive or even impossible until the contract ends.
This lack of flexibility can be frustrating, especially if your financial situation changes or if tenants complain about high bills.
Unreliable Suppliers
Some third-party energy providers are small companies that lack stability. If the supplier goes out of business, you may be left without energy or forced to move to a more expensive provider without warning.
This can cause stress for both landlords and tenants, leading to delays in fixing energy problems and unexpected costs.
Impact on Tenant Satisfaction
If energy prices are too high, tenants may struggle to afford their bills. This can lead to:
- Late rent paymentsas tenants prioritise energy costs over rent.
- Higher turnoverif tenants leave due to expensive energy bills.
- Difficult conversationswhen tenants ask for help with rising costs.
Happy tenants are more likely to stay longer, meaning fewer void periods and a steady rental income.
- Compliance and Legal Issues
Landlords must ensure their properties meet legal standards, including energy efficiency rules. Some third-party energy contracts may not offer green energy options or smart meters, making it harder to comply with regulations.
With the UK government pushing for better energy efficiency in rental properties, landlords must be careful not to sign contracts that make compliance difficult or costly.
How to Avoid These Risks
If you are considering a third-party energy contract, follow these steps to protect yourself and your rental income:
Compare Deals Carefully
Always check multiple suppliers before signing any contract. Look at:
- The total cost, including hidden fees.
- Contract length and flexibility.
- Reviews and ratings of the supplier.
Read the Fine Print
Make sure you understand:
- Whether prices are fixed or variable.
- What happens if the supplier goes out of business.
- Exit fees and penalties for early termination.
Choose Shorter Contracts
A 12-month contract is safer than a 5-year deal. Shorter contracts give you more flexibility to switch if prices drop or if tenants request changes.
Consider Green Energy Options
Many tenants prefer properties with green energy. Choosing a supplier with renewable energy options can make your property more attractive and help you meet government efficiency rules.
Seek Professional Advice
If you’re unsure, speak to an energy broker or solicitor before signing any contract. They can help you understand the risks and find the best deal for your needs.
Conclusion
While third-party energy contracts may seem like a good way to control costs, they come with risks that landlords must consider. High prices, hidden fees, lack of flexibility, and supplier reliability issues can all impact your rental income and tenant satisfaction.
Before committing to a long-term energy deal, always compare options, read the contract carefully, and choose flexible agreements that protect both you and your tenants. By making smart energy choices, landlords can avoid unnecessary expenses and ensure their rental properties remain profitable in 2025 and beyond.
