Construction Contracts Under the UAE 2025 Civil Transactions Law: What Has Changed?

For more than four decades, muqawala (including, in particular, construction) contracts in the UAE have been governed by Federal Law No. 5 of 1985 (the Civil Transactions Law) (the “Current Civil Code”), which has formed the legal backbone of contract law in the country. While this framework supported the UAE’s rapid urban expansion, its provisions on construction contracts often left parties navigating a degree of judicial discretion, particularly in relation to fixed-price rigidity, notice requirements and contractual time-bars, termination rights, and the availability of effective mid-project remedies.

The enactment of the Federal Decree-Law No. 25 of 2025 replacing the current Civil Transactions Law (the “New Civil Code”), and is set to take effect on 1 June 2026, introduces new concepts aimed at fostering a more predictable and commercially aligned legal environment. The New Civil Code also brings UAE construction contract regulation closer to modern construction-law regimes adopted elsewhere in the region.

In this article, we analyze the key changes introduced by the New Civil Code and explain what these developments mean in practice for developers, contractors, and legal practitioners.

Supremacy of Agreement and Customary Principles

The New Civil Code gives primacy to the contractual terms agreed between the parties, expressly providing that the contractor must complete the works in accordance with the contract and within the agreed timeframe. Where no agreement is in place, or where the agreement does not specify the completion period, the new provisions require the contractor to perform the works in accordance with customary principles and within a reasonable period, having regard to the nature of the works.

For contractors and owners alike, the takeaway is clear: contractual certainty is paramount. Scope, specifications, timelines, and all other material terms should be clearly and comprehensively addressed in the agreement to minimise any scope for discretion or subjective assessment.

Notice Obligations and Contractual Time Bars

Under the Current Civil Code, notice obligations and the consequential time bars for default are not clearly articulated, leaving courts and tribunals with a wide margin of discretion when determining whether to enforce contractual time-bar provisions arising from a failure to comply with notice requirements.

The New Civil Code adopts a firmer approach: contractors must notify the employer immediately when events or circumstances arise that may impede performance. Failure to provide timely notice makes the contractor liable for all consequences resulting from the omission.

This development may prove to be a game changer in how courts and tribunals interpret and enforce contractual notice and time-bar provisions going forward.

Effective Remedies for Defective Work

Under the Current Civil Code, remedies for defective work are generally limited to termination or step-in and require prior approval of the relevant dispute resolution (“DR”) forum. The New Civil Code, however, reduces the need to seek such permission.

Under the new provisions, if defective work is identified during execution, the employer may issue a formal warning with a correction period. If the contractor fails to remedy the defect within that window, the employer may terminate the contract or appoint another contractor to complete the work at the defaulting contractor’s expense. Notably, the relevant provision does not explicitly require prior approval from the DR forum before exercising termination or step-in rights, making these remedies more effective, particularly during the lifecycle of the project.

That said, the employer may still need to apply to the court to formally establish the status of the defective work, a process that is typically managed on an expedited basis.

Decennial Liability: Continuity and Clarification

The landmark principle of joint ten-year liability for architects and contractors remains a cornerstone of UAE law. The New Civil Code reaffirms the joint liability for total or partial collapse, as well as for defects that compromise the durability or safety of a building.

Importantly, the New Civil Code expressly excludes decennial liability rules from the relationship between the main contractor and its subcontractors, limiting their application to the relationship between the employer on one hand, and the architect and main contractor on the other.

Practical Takeaway: Contractors should ensure that decennial liability obligations are clearly addressed in agreements with subcontractors, including provisions on risk allocation, responsibility for defects, and related insurance coverage.

Lump-Sum Price and Hardship

Lump-sum contracts have long been valued for price certainty. The New Civil Code introduces a hardship exception. Where exceptional general circumstances arise that were unforeseeable at the time of contracting and substantially upset the contractual balance, the DR forum will be expressly empowered to restore that balance.

Unlike the more restricted interpretation under the Current Civil Code, the new provisions explicitly empower the DR forum to extend the completion period, increase or decrease remuneration, or terminate the contract to achieve fairness.

Termination for Convenience

The New Civil Code introduces termination for convenience, allowing employers to withdraw from a contract before completion, provided the contractor is fairly compensated for expenses, completed work, and lost profit. Compensation is subject to mitigation: any savings or alternate profits the contractor achieves are deducted.

This mechanism is designed to prevent overcompensation and ensure that the final compensation reflects the actual loss incurred, thereby preserving termination for convenience as an equitable exit strategy.

Consequences of Work and Material Perishing

The New Civil Code clarifies risk allocation in cases of destruction due to force majeure:

• If the item perishes before delivery due to force majeure, the party providing it bears the loss.
• If the item perishes after the employer has put the contractor in default to take delivery, or the loss is attributable to the contractor’s fault, the employer is entitled to compensation.
• Conversely, if the item perishes after the contractor has put the employer in default to take delivery, or the loss is attributable to the employer’s fault, the contractor is entitled to remuneration and, where appropriate, compensation.

These provisions clarify risk allocation between the parties and provide a structured approach to handling perished work or materials, particularly in force majeure scenarios.

Conclusion

The New Civil Code represents a significant evolution in UAE construction law, introducing clearer rules, enhanced protections, and more equitable remedies for parties to construction contracts. From reinforcing contractual certainty and notice obligations to modernizing remedies for defective work, hardship, and termination, the reforms aim to reduce ambiguity and disputes while preserving fairness and commercial balance.

For contractors, owners, and legal practitioners, these changes underscore the importance of carefully drafting contracts, explicitly addressing risk allocation, and documenting all project activities. Early awareness and proactive adaptation to the New Civil Code will enable stakeholders to manage risks effectively, safeguard their rights, and navigate UAE construction projects with greater legal certainty.

To learn more, please contact our Construction team: Partner, Hasan El-Shafiey at hasan.elshafiey@galadarilaw.com, Associate, Omar Masadeh at o.masadeh@galadarilaw.com and Junior Associate, Asqa Adil at aqsa@galadarilaw.com

	Hasan El-Shafiey Partner hasan.elshafiey@galadarilaw.com
	Omar Masadeh Associate o.masadeh@galadarilaw.com
	Aqsa Adil Junior Associate aqsa@galadarilaw.com