UAE Civil Transactions Law 2026: What Changes

Author

Derya Bandak

Attorney at Law (Germany) I Legal Consultant (UAE) I Partner

July 2026 · Civil Law · Contracts

On 1 June 2026, the United Arab Emirates enacted its most significant overhaul of private law since 1985. Federal Decree-Law No. 25 of 2025 — the new Civil Transactions Law — repeals and replaces Federal Law No. 5 of 1985, which had governed civil and contractual relations in the UAE for over four decades. The new law is not a minor amendment. It is a structural reset of the UAE’s civil code.

For businesses, investors, property owners, and individuals operating in the UAE, the changes are immediate and material. New obligations arise at the negotiation stage — before a contract is even signed. Limitation periods have shifted. Courts have expanded powers to intervene in contracts. And the legal framework that underpins every commercial relationship in the UAE has been comprehensively rewritten.

This guide sets out the key changes, what they mean in practice, and how TME Legal can advise on the transition.

Background: Why the 1985 Civil Code Was Replaced

Federal Law No. 5 of 1985 served as the backbone of UAE private law for 41 years. Over time, piecemeal amendments in 1987 and 2020 tried to keep pace with the UAE’s rapid commercial development — but the framework had become increasingly difficult to apply. Overlap and duplication with newer specialist laws (the Companies Law, Bankruptcy Law, and sector-specific legislation) created uncertainty. Many legal principles had been developed through judicial interpretation rather than clear statutory text, making outcomes less predictable.

Federal Decree-Law No. 25 of 2025 addresses these shortcomings by: eliminating duplication with specialised legislation; codifying judicial principles that had evolved over decades into clear statutory rules; modernising legal capacity, contract formation, liability, and property rights; and aligning the UAE civil framework with comparable reforms in the region, including Kuwait, Qatar, and Saudi Arabia.

Transitional rule: The new law generally applies to contracts entered into on or after 1 June 2026. Contracts concluded before that date remain governed by the 1985 law — but parties should be aware that limitation periods that were already running on 1 June 2026 are now subject to the new, and in some cases shorter, limitation periods of the new law.

1. Pre-Contractual Good Faith and Disclosure — A Fundamental Shift

This is the most significant change for commercial practitioners. Under the 1985 Civil Code, good faith was recognised in principle but not expressly regulated in the pre-contractual phase. Parties could, for the most part, negotiate freely without statutory consequences for how they conducted those negotiations.

The new law changes this entirely. Articles 121 to 123 introduce mandatory, non-excludable obligations governing pre-contractual conduct.

The Good Faith Obligation (Article 121)

Parties must conduct negotiations in good faith. Breaking off negotiations abruptly or without justification creates liability for the actual loss caused to the other party. This applies even where no contract has been concluded. Importantly, this obligation cannot be waived or excluded by agreement — any clause attempting to do so is void.

The Disclosure Obligation (Article 122)

Each negotiating party is under a positive duty to disclose information of decisive importance to the other party’s consent. The obligation:

Applies to both parties — it is not one-sided
Cannot be limited or excluded by contract — any such clause is void as a matter of law
Covers information relating to the negotiations, the contract, and the practical circumstances and facts of the transaction
Arises even where ignorance of the information is presumed or where trust has been placed in the counterparty

A party who fails to disclose material information is in breach. The aggrieved party may request annulment of the contract. Deliberately withholding material information is treated as bad faith.

This obligation has immediate practical consequences for M&A transactions, joint ventures, real estate acquisitions, and project finance — any deal type where information asymmetries exist between the parties.

Confidentiality Protection (Article 123)

Article 123 introduces statutory confidentiality protection in the pre-contractual phase. Any party who, without permission, uses or discloses confidential information obtained during negotiations is liable for the resulting loss. This codifies protection that parties previously had to establish exclusively through non-disclosure agreements (NDAs). NDAs remain best practice, but the statutory baseline now exists regardless.

Practical implication: Any term sheet, heads of terms, or preliminary agreement that includes a clause limiting or excluding the duty to disclose material information is now void under UAE law. All disclosure exercises in M&A, real estate, and commercial transactions must be reviewed against this mandatory framework.

2. Contract Formation: Digital Contracting, Framework Agreements and Standard Forms

The new law modernises contract formation in several important ways.

Digital and Implied Acceptance

The new law expressly recognises electronic communications, conduct, and implied acceptance as valid means of contract formation. It also clarifies when advertisements and public displays of goods constitute binding offers as opposed to mere invitations to treat — addressing an area where the old law created significant commercial uncertainty, particularly for digital platforms and e-commerce businesses.

Framework Agreements — Now Expressly Recognised

Framework agreements — long-term or recurring commercial arrangements under which individual contracts are placed — are now expressly codified. Under the new law, a framework agreement is deemed to automatically form part of each subsequent contract concluded under it. This provides greater certainty around the incorporation of framework terms into individual transaction documents, particularly for supply chains, outsourcing arrangements, long-term service relationships, and franchise models.

Standard Form Contracts and Adhesion Agreements

Courts now have a non-waivable power to modify or exempt a party from unfair terms in standard form or adhesion contracts. This is particularly relevant for consumer-facing businesses and businesses that contract with parties in a significantly weaker bargaining position.

3. Hardship, Force Majeure and Court Intervention — Expanded Powers

The new law materially expands the grounds on which courts can intervene in contracts, and clarifies when a contract may be modified or rescinded due to changed circumstances.

Hardship (Article 224)

Where unforeseen, exceptional circumstances arise after a contract is concluded — circumstances that could not reasonably have been anticipated at the time of contracting — and those circumstances make performance excessively onerous, courts may now:

Reduce or adjust the obligations of the affected party
Extend the time for performance
Modify the contract price or terms
Order rescission of the contract

This expanded hardship doctrine is particularly relevant for long-term real estate development agreements, construction contracts, and supply arrangements where performance may be disrupted by events such as commodity price shocks, currency movements, or geopolitical disruption. The provision was introduced in direct response to lessons from the COVID-19 pandemic and inflationary pressures.

Critically, this is a mandatory protection — it cannot be contracted out of. Parties should review existing force majeure and hardship clauses in contracts entered into from 1 June 2026 onwards to ensure they interact correctly with this statutory framework.

Force Majeure (Article 236)

The new law reinforces force majeure as a codified concept and expressly identifies circumstances — including conflict — where unforeseen events render performance so onerous as to justify rescission. Where performance becomes fully impossible, reciprocal obligations are extinguished and the contract is automatically rescinded. Where impossibility is only partial or temporary, courts have the flexibility to modify the arrangement rather than rescind it outright.

Liquidated Damages (Article 340)

Courts have always had the power to adjust agreed liquidated damages to reflect actual loss. The new law expands this and creates a structured framework. Courts may now:

Reduce agreed compensation if the debtor proves it was excessive or that part of the obligation has been performed
Reduce or prohibit agreed compensation if the creditor caused or contributed to the breach
Increase agreed compensation where actual loss exceeds the agreed amount, provided this was contemplated

Businesses with standard liquidated damages clauses in their contracts — particularly in real estate, construction, and long-term service agreements — should review those clauses against this expanded framework.

4. Changes to Limitation Periods

Several key limitation periods have changed. These changes applied immediately to periods that had not yet expired on 1 June 2026.

Claim Type	Old Period (1985 Law)	New Period (2025 Law)
Professional services claims	5 years	3 years
Latent defect warranty — sale contracts	6 months from delivery	1 year from delivery
Employment claims	1 year	2 years
General civil claims	15 years (general)	Subject to specific provisions

Important: For limitation periods that were already running on 1 June 2026, the new periods apply from that date — not from the original start of the period. Where the new law shortens a period, parties with existing claims should assess urgency immediately.

5. Civil Liability — Clearer Rules on Causation and Damages

The new law refines civil liability in several important ways:

Contributory fault: Clearer rules on how liability is allocated where both parties contributed to the harm.
Joint liability: Updated provisions on when multiple parties are jointly and severally liable.
Moral damages: Explicit recognition of moral (non-financial) damages beyond the narrow categories previously available — broadening the types of harm for which compensation may be claimed.
Duty to mitigate: Codified obligation to take reasonable steps to limit loss following a breach.
Abuse of rights (Article 106): An objective proportionality test is introduced for the exercise of contractual and proprietary rights. Having a legal right to act is no longer the end of the analysis — the way that right is exercised must be proportionate and commercially reasonable.

6. Real Estate and Property Law Changes

Several provisions have direct implications for real estate clients.

Usufructuary Construction Rights — Mandatory Registration

Usufructuary construction rights must now be registered with the competent authority. Failure to register results in nullity of the arrangement. This is a critical compliance requirement for structures involving ground leases, development rights, and usufruct-based real estate arrangements.

Preventive Actions to Protect Possession

The new law enables rights holders to take preventive action to halt encroachments before harm occurs, rather than being limited to post-damage remedies. This is a significant enhancement for landlords and property owners dealing with boundary disputes or unlawful occupation.

Hardship in Real Estate and Construction Contracts

As noted above, Articles 224 and 829 of the new law expressly apply hardship provisions to long-term real estate and construction agreements. Courts can now extend performance timelines, adjust prices, or rescind contracts where exceptional circumstances disrupt the contractual equilibrium — even in lump sum contracts.

Expatriate Estate Planning — Assets Without Heirs

A notable provision for expatriates: financial assets in the UAE belonging to a foreign national who dies without a will and without legal heirs will now be treated as a charitable endowment under the supervision of the relevant authority. This replaces a previously unclear framework and underlines the importance of proactive will drafting for expatriates with UAE assets.

7. What Businesses Should Do Now

Classify your contracts by date. Pre-June 2026 contracts are governed by the 1985 law; post-June 2026 contracts fall under the new law. Long-term contracts that span the transition date require particular attention.
Review and update contract templates. Standard templates built for the 1985 framework should be reviewed and updated. Pay particular attention to pre-contractual disclosure language, governing law clauses, hardship and force majeure provisions, liquidated damages clauses, and limitation periods.
Formalise your negotiation and disclosure processes. The pre-contractual obligation to disclose material information cannot be excluded. Due diligence processes, data room procedures, and negotiation records should be structured accordingly. Heads of terms and term sheets should be reviewed to remove any clause that attempts to waive the disclosure obligation.
Review NDA frameworks. While Article 123 now provides a statutory confidentiality baseline, bespoke NDAs remain best practice for tailored protection in specific transaction types.
Assess real estate structures for usufruct registration. Any arrangement involving usufructuary construction rights should be reviewed for compliance with the mandatory registration requirement.
Check outstanding limitation periods. Where claims may be approaching limitation under the old law, the change in periods from 1 June 2026 should be assessed urgently.
Review expatriate estate planning arrangements. Clients with UAE assets and no UAE will should reassess their estate planning position in light of the new provisions on heirless foreign estates.

Frequently Asked Questions

Does the new law apply to contracts signed before 1 June 2026?

Generally no. Contracts concluded before 1 June 2026 remain governed by the 1985 Civil Code for matters of formation, performance, and liability. However, the new limitation periods apply immediately to periods that had not yet expired on that date, and courts may apply new law principles as persuasive guidance in interpreting older contracts in some circumstances.

Can parties choose not to apply the new pre-contractual obligations?

No. The pre-contractual good faith and disclosure obligations under Articles 121 and 122 are mandatory and non-excludable. Any clause in a term sheet, heads of terms, or contract that purports to limit or waive these obligations is void as a matter of UAE law.

Does the new law apply to contracts governed by DIFC or ADGM law?

No. The new Civil Transactions Law applies to onshore UAE civil transactions. The DIFC and ADGM are financial free zones with their own independent legal frameworks based on common law. For contracts expressly governed by DIFC or ADGM law, the new UAE Civil Code does not apply directly. Parties transacting across these jurisdictions must carefully specify their governing law.

How does the hardship provision interact with existing force majeure clauses?

The hardship protection under Article 224 is mandatory and cannot be contracted out of. If a contract concluded after 1 June 2026 contains a force majeure clause, courts will consider both the contractual clause and the statutory hardship framework. The statutory hardship provision provides a floor — parties cannot exclude court intervention in cases of genuine, unforeseeable exceptional circumstances that fundamentally disrupt the contractual equilibrium.

What happens to liquidated damages clauses in existing contracts?

Contracts concluded before 1 June 2026 remain governed by the old Article 390 on liquidated damages. New contracts, however, fall under Article 340 of the new law, which gives courts expanded powers to adjust agreed damages upward or downward. Businesses with standard liquidated damages provisions should review these in new contracts and negotiations.

Are there any implications for employment contracts?

Employment contracts are primarily governed by Federal Decree-Law No. 33 of 2021 (the Employment Law). The new Civil Transactions Law provides a residual framework for civil matters not covered by specialist legislation. Notably, the limitation period for employment claims has changed from one to two years. Employers and employees with outstanding claims should assess the impact of this change.

How TME Legal Can Assist

TME Legal advises businesses, investors, and individuals on the practical implications of the new Civil Transactions Law across all areas of commercial and private law. Our work in this area includes:

Review and updating of standard contract templates to reflect the new pre-contractual obligations, limitation periods, and liability rules
Advice on the pre-contractual disclosure framework and its application to M&A, real estate, and joint venture transactions
Guidance on hardship and force majeure clause drafting in light of the new mandatory provisions
Assessment of real estate structures for usufruct registration compliance
Review of outstanding limitation periods and urgent claim assessment
Expatriate estate planning advice in light of the new framework for heirless foreign estates
Advice on the interaction between the new Civil Code and DIFC or ADGM governing law in cross-jurisdictional transactions

If you would like to discuss how the new Civil Transactions Law affects your business, your contracts, or your existing arrangements, we would be glad to assist.

UAE New Civil Transactions Law: What Changes for Contracts and Businesses in 2026