The New UAE Civil Transactions Law (Federal Decree Law No. 25 of 2025) Takes Effect

The United Arab Emirates has officially entered a new era of jurisprudence. Effective June 1, 2026, Federal Decree Law No. 25 of 2025 (the “New Civil Code”) has come into force, completely repealing and replacing the landmark Federal Law No. 5 of 1985 (the “Old Civil Code”).

Overview of the New Civil Code

While the new law preserves the foundational core of UAE civil and commercial principles, it introduces a highly modernized framework, codifies decades of court precedents, and aligns local commercial practices with international standards.

The Old Civil Code will generally continue to govern contracts concluded prior to June 1, 2026, while the New Civil Code strictly applies to all transactions and agreements executed moving forward.

For businesses, legal practitioners, and investors operating in the UAE, understanding the practical adjustments required by this legislative overhaul is critical.

Key Highlights and Structural Shifts

Pre-Contractual Obligations and Good Faith

In a major departure from the historical framework, the New Civil Code introduces an explicit statutory regime regulating the pre-contractual negotiation phase.

• Good Faith in Negotiations: Under Article 121, parties are legally mandated to conduct and terminate negotiations in good faith. Walking away from negotiations arbitrarily or in bad faith can now trigger statutory liability for actual damages (though notably, this does not extend to lost profits or anticipated opportunities).
• Mandatory Disclosure: Article 122 requires parties to disclose information of “decisive importance” to the other party’s consent. Failing to disclose or actively concealing material details gives the aggrieved party the right to seek contract annulment. Crucially, the law dictates that any clauses attempting to waive or exclude this pre-contractual disclosure obligation are null and void.
• Confidentiality: Article 123 explicitly penalizes the unauthorized use or disclosure of confidential information obtained during the negotiation or due diligence phases, even if a final contract is never signed.

Contract Formation and Modern Commercial Realities

The New Civil Code explicitly accommodates digital economic practices and modern contract structures:

• It formally recognizes electronic communications, automated conduct, and implied acceptance in contract formation.
• It clarifies the distinction between a binding offer and an “invitation to treat” (such as advertisements).
• It introduces clear statutory guidelines governing framework agreements, providing solid legal footing for long-term supply and commercial arrangements.

Redefined Provisions on Hardship and Force Majeure

The New Civil Code reframes how courts handle exceptional, unforeseeable circumstances that make contractual performance overly burdensome. Onshore courts are granted structured powers to modify or rescind agreements, rebalance obligations to mitigate manifest unfairness, or dissolve contracts entirely if performance becomes objectively impossible.

It also updates rules regarding exploitation, protecting parties facing severe economic imbalances due to vulnerability or dependency.

Adjustments to Liquidated Damages and Termination

• Upward Revision Threshold: Article 340 confirms that while parties may pre-agree on compensation (liquidated damages), a court may reduce the amount if the debtor proves it is heavily exaggerated or exceeds actual losses. However, for a creditor to claim an amount exceeding the pre-agreed cap, they must now prove the debtor committed fraud or gross negligence—establishing a much higher legal threshold than before.
• Termination for Convenience in Construction: In line with established Cassation Court practice, Article 836 codifies an employer’s right to terminate a contractor for convenience prior to completion, provided the contractor is compensated for actual work, expenses, and potential lost profits. However, courts are granted the authority to reduce lost profit payouts if the contractor mitigated losses through alternative work.

Lowering the Age of Legal Maturity

In a significant social and commercial update, the age of legal majority has been reduced to 18 Gregorian years (replacing the old standard of 21 Lunar years).

This changes contractual capacity dynamics across the board, enabling young adults to legally enter into financial transactions, manage assets, and execute commercial contracts independently.

Strengthened Guarantor Protections

Creditors must re-evaluate their debt collection and enforcement strategies. Under Article 1009, isolated lawsuits against a guarantor are no longer permitted.

A creditor must either sue the primary debtor individually or sue both the debtor and the guarantor collectively, granting guarantors a stronger statutory defense of prior recourse.

Enhanced Defect and Warranty Claims

Article 495, read with Articles 493 and 494, substantially expands the remedies available to buyers of defective goods. Rather than being confined to the binary choice of rescission or acceptance at full price, a buyer may now elect to reject the goods outright, retain them at a proportionally reduced price, or require the seller to provide a defect-free substitute.

Sellers’ liabilities have correspondingly been broadened to cover defects that diminish the value of goods or frustrate the purpose expressly agreed in the contract.

Additionally, Article 510 extends the limitation period for latent defect claims from six months to one year from the date of delivery, unless a longer contractual guarantee has been agreed.

Practical Implications for Businesses and Investors

The New Civil Code enhances legal certainty and elevates the UAE’s standing as a mature, investor-friendly jurisdiction. However, the sudden transition will inevitably create friction for ongoing business relationships.

We strongly advise our clients to initiate an immediate comprehensive review of their corporate templates, procurement contracts, and employment guidelines. Particular attention must be paid to modifying pre-contractual NDA protocols, structuring disclosure files during negotiations, and reassessing default, warranty, and force majeure clauses to ensure full compliance with the new statutory mandates.

Co – Authored by : Nandana K Vijayan