A commercial property has been sold. The keys have changed hands and the new owner takes responsibility from completion. It would be reasonable to assume the electricity and gas contracts simply end with it. They do not always work that way.

For businesses managing property portfolios, the sale of an asset can expose an easily overlooked risk: energy contract termination charges. The property may have left your portfolio, but your energy supplier may still have purchased or hedged energy on the basis that the site would remain within the contract.

Whether that creates a cost depends heavily on the contract you signed.

What happens to your energy contract when you sell a property?

When a commercial property changes occupier, the existing energy supplier should be notified, usually through its change of tenancy or change of occupier process. It will normally ask for evidence of the change, such as sale documents, title information or tenancy documentation.

But the operational process of changing occupier is not the same as deciding whether the outgoing customer still has a contractual financial liability. Property ownership and the energy contract are separate things.

Some energy contracts make genuine property sales relatively straightforward. Others allow sites to be removed subject to conditions, while some allow the supplier to calculate a termination or volume-related charge.

Timing matters: Review the energy contract before completion, not once the building has already been sold.

Asset-sale clauses vary between energy suppliers

There is no single standard approach across the commercial energy market. One supplier may allow a supply point to be removed after a genuine arm's-length property sale with no termination charge. Another may require documentary evidence first. Another may reserve the right to recover costs arising from the site leaving the contracted portfolio.

Even where suppliers offer similar fixed electricity or gas products, their treatment of property disposals can be quite different. For property businesses, asset-sale provisions should form part of energy tender preparation.

Questions worth asking include:

• Can an MPAN or MPRN be removed following the genuine sale of a property?

• Can the site or contract be transferred or novated to the buyer, if the supplier agrees?

• Will a termination or removal charge apply?

• If there is a charge, how will it be calculated?

• What evidence will the supplier require?

• Does the provision apply only to a property sale, or also to lease expiry and change of tenant?

• Is there a limit on how much of the portfolio can be removed?

• Are additions and removals assessed individually or across the overall portfolio?

• Could a disposal affect any agreed volume tolerance?

These questions are considerably easier to understand and, where possible, negotiate before the energy contract has been signed.

Why market prices affect termination charges

The economics behind a termination charge are relatively straightforward. Imagine a business signs a two-year fixed electricity contract when wholesale energy prices are relatively high. The supplier may purchase or hedge energy based on the expected consumption of the contracted portfolio.

A year later, one of the buildings is sold. If wholesale prices have since fallen materially, the supplier may need to unwind energy associated with a site that no longer requires it. If that position is worth less than when it was originally secured, the supplier may incur a loss.

Depending on the contract, it may be entitled to recover some or all of that cost from the customer removing the site.

The reverse can also be true. Where market prices have risen since the contract was agreed, the supplier may have much less economic exposure from releasing the volume.

Your relationship with the supplier can matter too

The written contract remains the starting point. But commercial relationships can matter in how an issue is ultimately resolved.

A large property group with multiple buildings, significant annual energy consumption and an established supplier relationship may have more scope to discuss a pragmatic approach than a standalone customer with a single supply.

The supplier may also be considering the wider relationship. Are other sites staying under contract? Are new properties likely to be added? Is another procurement approaching? Could displaced volume be absorbed elsewhere within the portfolio?

None of this overrides the contractual position. But good supplier governance and an established commercial relationship can sometimes create more options.

Portfolio energy contracts need particular attention

The issue becomes more complicated when multiple buildings sit within one electricity or gas agreement. Selling one property may affect more than that site's own contract position. It could alter:

• the portfolio's overall consumption

• agreed volume tolerances

• forecast demand

• minimum or maximum contractual volumes

• pricing assumptions

• credit arrangements

• the economics of the remaining contract

A property disposal should therefore trigger a review of the wider energy procurement position, particularly where the asset represents a material share of contracted consumption.

One small site leaving a 100-site portfolio may have little impact. Selling several of the portfolio's largest energy users could be a very different matter.

Don't leave the meter behind: a completion checklist

When responsibility for a property changes, the supplier needs to know. The outgoing organisation should normally provide evidence of the change of occupier and, wherever possible, a final meter reading.

For a property portfolio, good administration around completion should include:

• confirmation of the legal completion date

• final electricity and gas meter readings

• notification to the relevant suppliers

• supporting sale or tenancy documentation

• confirmation that the outgoing account has been closed

• review of final invoices

• confirmation that the MPAN or MPRN has been removed from internal portfolio records

Remember: The property may have disappeared from the asset register. That does not mean it has disappeared from your energy supplier's billing system.

Review the energy contract before the property is sold

The best time to understand an asset-sale clause is not the week after completion. Ideally, the energy contract should be reviewed as soon as a sale becomes likely enough to plan for.

That gives the business time to establish:

• What does the contract actually say?

• Could a charge apply?

• How might the supplier calculate it?

• Can the position be negotiated?

• Does the wider supplier relationship offer alternatives?

• Should the potential liability be reflected elsewhere in the transaction?

It also gives the procurement team, property team, finance function and legal advisers time to understand the issue before completion becomes urgent. This is part of good procurement governance.

Related Insight: Signing the Contract Isn't the End: What Happens Next in Energy Procurement

Think about disposals when you procure, not only when you sell

For property businesses, acquisitions and disposals are not unusual events. The flexibility to add and remove assets should be part of the energy procurement strategy from the start.

When comparing suppliers, the cheapest headline energy price should not be considered in isolation. A slightly cheaper contract with restrictive asset-sale provisions could cost considerably more if the portfolio is expected to change.

The procurement process should consider not only today's portfolio, but what it may look like over the contract term. If the business expects to buy and sell buildings regularly, contractual flexibility has real commercial value.

The building may be gone. The obligation might not be.

Selling a property feels definitive. Operationally, it usually is. From an energy contract perspective, there may still be work to do.

The supplier needs to be notified. The account needs to be closed correctly. The contract needs to be reviewed. Any termination exposure needs to be understood. And the effect on the remaining portfolio needs to be considered.

For some contracts, a genuine asset sale will be relatively straightforward. For others, it could create a material financial exposure, particularly where energy was contracted at prices above the current market.

Good energy procurement oversight means understanding the exit before you need to use it.