The New UAE Civil Transactions Law: Key Changes and Practical Implications for Businesses

Federal Decree by Law No. 25 of 2025 Promulgating the Civil Transactions Law (the “New Law”) marks one of the most significant updates to the UAE’s civil law framework since the enactment of Federal Law No. 5 of 1985 (the “Old Law”). The New Law came into force on 1 June 2026 and expressly repealed the Old Law, introducing a revised and more structured framework for civil obligations, contracts, legal capacity, remedies, property rights and certain nominate contracts.

While the New Law preserves many foundational principles of UAE civil law, it also introduces important changes that businesses, investors and contracting parties should consider when negotiating, drafting and performing UAE-law-governed arrangements. The reforms are particularly relevant to commercial contracts, joint ventures, construction arrangements, long-term supply relationships, financing documents, shareholder arrangements and disputes involving liability or agreed compensation.

 

A clearer hierarchy of legal rules and public order

The New Law refines the concept of public order. Article 3 identifies public order as including definitive rulings of Islamic Shari’ah, provisions relating to the system of governance, personal status rules applicable to Muslims, and mandatory legal rules from which parties may not derogate by agreement.

This formulation provides a more structured approach than the previous law, which referred more broadly to matters such as personal status, sovereignty, freedom of trade, circulation of wealth and private ownership. The practical effect is that parties should continue to respect mandatory UAE law and public order limits, but with a clearer statutory reference point when assessing enforceability.

For commercial parties, this remains important when drafting clauses on interest, damages, limitation of liability, termination, property rights, corporate authority, public morality, regulated activities and consumer or third-party protection.

 

Greater clarity on governing law in cross-border contracts

Article 19 of the New Law is a significant development for cross-border transactions. It provides that contractual obligations, both as to form and substance, are governed by the law expressly agreed upon by the parties. Where no law is chosen, the law of the country of the parties’ common domicile applies. If their domiciles differ, the default rule is now the law of the country where the main obligation of the contract is to be performed (rather than the law of the place where the contract was concluded), unless the circumstances indicate that another law was intended.

This is a notable refinement of the previous approach, under which the fallback rule, where parties were domiciled in different countries and had not chosen a law, was generally the law of the place where the contract was concluded.

 

Pre-contractual negotiations now carry express statutory duties

One of the most commercially relevant reforms is the introduction of express rules governing pre-contractual negotiations.

Article 121 provides that negotiations do not, by themselves, oblige parties to conclude a contract. However, parties must negotiate and terminate negotiations in good faith. A party who negotiates or terminates negotiations in bad faith may be liable to compensate the other party for actual damage suffered (and not for the expected benefits of the contract). Importantly, compensation does not include the expected benefits of the contract that was not concluded, or lost opportunities to obtain those benefits, unless the parties agree otherwise.

Article 121 also gives an example of bad faith: deliberate failure to disclose material information that has a substantive effect on the validity of the contract.

Article 122 goes further by imposing a statutory duty on a party who knows information that is decisive to the other party’s consent to disclose that information, in particular where the other party’s ignorance of that information is presumed or where the other party has placed trust in the contracting party. The provision treats information as essential and decisive where it has a direct and necessary connection to the content of the contract or the status of the parties. The duty cannot be excluded or limited by agreement, and any contrary condition is void.

Article 123 also addresses confidentiality, providing that a person who uses or discloses confidential information obtained in connection with negotiations or a contract without permission may be liable under the general rules sanctioning such diclosure.

These provisions are likely to influence how parties conduct tenders, due diligence, data room disclosures, settlement discussions, heads of terms and long-form negotiations. Businesses should now place greater emphasis on maintaining negotiation records, identifying material information, using disclosure letters or disclosure schedules where appropriate.

 

Framework agreements are expressly recognised

Article 138 expressly recognises framework agreements for the first time in the Civil Transactions Law. This is particularly relevant to parties with recurring or long-term commercial relationships, such as master supply arrangements, distribution models, project companies, joint ventures and purchase-order structures.

Under the New Law, parties may agree on essential terms that will govern future contracts between them. Unless the parties agree otherwise, whether expressly or implicitly, the framework agreement will be treated as forming part of those future contracts.

This gives statutory recognition to a structure that is already widely used in practice. However, it also means that businesses should review whether their future purchase orders, work orders, call-off agreements or side letters are intended to incorporate or override the master framework terms. Where the parties intend a later document to depart from the framework agreement, that departure should be stated clearly.

 

Legal capacity: age majority reduced to 18 Gregorian years

The New Law modernises the rules on legal capacity. Article 84 provides that a person reaches the age of majority upon completing 18 Gregorian years, provided that the person has full mental capacity and has not been interdicted.

This replaces the previous age of majority of 21 lunar years under the Old Law; the new rule is now expressly stated in Gregorian years. The change is important for civil and commercial transactions because it expands the category of persons who may independently exercise civil rights, enter into contracts and manage their legal and financial affairs.

Businesses dealing with young entrepreneurs, shareholders, founders, guarantors, tenants or contracting counterparties should update their internal capacity checks and standard onboarding procedures accordingly.

 

Liquidated damages: continued judicial control, but with clearer parameters

The New Law preserves the ability of parties to agree compensation in advance, but Article 340 now sets out more detailed parameters for judicial review.

Parties may predetermine compensation in the contract or in a later agreement. However, the court may reduce the agreed compensation if the debtor proves that the assessment was excessive or that the original obligation was partially performed. The court may also reduce the agreed compensation, or decline to award it, where the creditor contributed, through its own fault, to the occurrence or increase of the damage. This contributory-fault ground is an express new feature of Article 340.

The creditor may claim more than the agreed compensation if it proves that the debtor committed fraud or gross fault. Any agreement contrary to Article 340 is void.

This should not be described as a complete departure from the Old Law, because Article 390 of the Old Law already allowed courts to vary agreed compensation to match actual loss. The New Law is better understood as a clarification and reorganisation of that judicial power, including express treatment of contributory fault and fraud or gross fault.

For contracting parties, the practical message is that compensation should be drafted as a genuine and commercially justifiable pre-estimate of loss. Parties should also preserve evidence of expected loss at the time of contracting, particularly in construction, supply, exclusivity, delay and early termination contexts.

 

Hardship and force majeure

The New Law also updates the treatment of exceptional circumstances and impossibility of performance.

Article 224 addresses unforeseen exceptional circumstances of a public nature that make performance oppressive. The new formulation is important because it allows the court not only to reduce an oppressive obligation to a reasonable level, but also, where appropriate, to rescind the contract – a remedy that was not expressly available under the Old Law. Clauses that attempt to exclude or limit this judicial power should be approached with caution.

Separately, the rules on force majeure and impossibility remain important where performance becomes impossible, whether wholly or partly. Parties should therefore continue to draft detailed force majeure, change in law, hardship and suspension clauses, while ensuring that those provisions are consistent with the mandatory rules of the New Law.

 

Construction and muqawala contracts

The New Law also reorganises and updates the muqawala provisions, which apply to contracts for works, including construction and engineering arrangements.

Among the most important changes are the contractor’s obligation to notify the employer immediately of defects in employer-supplied materials or other matters that may hinder performance, revised rules allowing the employer to respond to defective work, updated provisions on decennial liability, and an express statutory route for the employer to be released from the contract before completion, subject to compensating the contractor.

These changes should be reviewed carefully against standard construction contracts, including FIDIC-based forms, local contractor agreements, consultancy appointments and subcontracting arrangements. Employers, contractors and consultants should pay particular attention to notice requirements, defects procedures, termination wording, decennial liability, caps on liability and the relationship between contractual remedies and statutory rights.

 

Transitional and limitation issues

The New Law does not generally apply retroactively to preceding facts and acts unless the law provides otherwise. However, the transitional rules on limitation periods require careful attention. The new provisions on time-barring apply from their effective date to limitation periods that have not yet been completed, while the former provisions continue to apply to matters concerning commencement, suspension and interruption of time for the period before the New Law entered into force.

The New Law applies to limitation periods that were still running as of 1 June 2026. If the new limitation period is shorter, the new shorter period runs from 1 June 2026. However, if the remaining period under the Old Law is shorter than the new period, that shorter remaining old-law period continues to apply.

Practical steps for businesses

In light of the New Law, businesses should consider the following steps:

1. Review standard form contracts to ensure that governing law, jurisdiction, disclosure, confidentiality, damages, limitation of liability and termination clauses are aligned with the New Law.
2. Update negotiation protocols, especially for transactions involving tenders, due diligence, heads of terms, letters of intent, settlement discussions or long-term supply arrangements.
3. Revisit compensation clauses to ensure that they are proportionate, evidence-based and commercially defensible.
4. Review framework agreements and purchase-order structures to clarify when master terms apply and when later documents override them.
5. Update capacity checks, particularly where counterparties, shareholders, guarantors or signatories are between 18 and 21 years old.
6. Recalculate limitation periods for existing or potential disputes where time began running before 1 June 2026.
7. For construction and engineering projects, map existing contract forms against the revised muqawala provisions, including notice, defects, termination and decennial liability clauses.

 

Conclusion

The New Law does not abandon the foundations of the Old Law. Rather, it modernises and clarifies them. Its most important practical effect is to make certain principles more express: party autonomy in governing law, good faith and disclosure during negotiations, recognition of framework agreements, clearer legal capacity rules, more structured judicial review of agreed compensation, and refined remedies in construction and long-term contractual relationships.

For businesses operating in the UAE, the reform is not merely academic. It requires a practical review of how contracts are negotiated, drafted, performed and enforced. Parties who adapt their documents and internal processes early will be better positioned to manage risk and avoid disputes under the new legal framework.

 

	Charbel Fadel Partner & Head of Corporate and Commercial charbel@galadarilaw.com
	Faizan Daud Senior Associate faizan.daud@galadarilaw.com
	Paul Baloukjy Junior Associate paul.baloukjy@galadarilaw.com