The UAE’s new Civil Transactions Law entered into force on 1 June 2026. Federal Decree-Law No. 25 of 2025 replaces Federal Law No. 5 of 1985 and now forms the principal legislative framework governing civil legal relationships in the UAE.
The new law addresses a broad range of matters relevant to commercial activity, including contractual negotiations, legal capacity, governing law, civil liability and the exercise of legal rights. While many established principles remain familiar, the legislation introduces a number of provisions that businesses should consider when reviewing contractual arrangements and transaction processes.
Set out below are several developments that are likely to be of particular relevance to businesses operating in the UAE.
Pre-Contractual Obligations
Among the more significant developments are the provisions governing conduct during contractual negotiations.
Articles 121 and 122 establish obligations relating to good faith and disclosure during the pre-contractual stage. While parties remain free to decide whether or not to proceed with a transaction, the law recognizes that conduct during negotiations may have legal consequences in certain circumstances.
The legislation also addresses situations where information material to a party’s decision to enter into a contract is not disclosed. Depending on the circumstances, such conduct may give rise to remedies under the law, including challenges to the validity of the contract.
These provisions are likely to be particularly relevant in transactions involving extensive due diligence, information exchange and prolonged negotiations, including mergers and acquisitions, joint ventures, real estate transactions and strategic commercial arrangements.
Governing Law and Contract Formation
The new law contains provisions dealing with the law applicable to contractual and non-contractual obligations.
Parties remain free to choose the governing law of their contractual relationships. Where no express choice has been made, the legislation establishes rules for determining the applicable law.
For businesses involved in cross-border transactions, governing law and dispute resolution provisions should be reviewed carefully to ensure that they accurately reflect the parties’ intentions and the commercial structure of the transaction.
The law also expressly recognizes electronic communications and conduct as valid means of contract formation. In addition, framework agreements and similar long-term contractual arrangements receive express statutory recognition.
Abuse of Rights and the Exercise of Contractual Rights
Articles 105 to 111 address the exercise of legal rights and circumstances in which the exercise of a right may give rise to liability.
From a commercial perspective, these provisions are relevant when exercising contractual rights such as termination, suspension, enforcement measures and discretionary powers.
The exercise of contractual rights should be assessed in light of both the contractual provisions agreed by the parties and the principles reflected in the legislation. Businesses should ensure that decisions involving the exercise of significant contractual rights are appropriately documented and implemented in accordance with the relevant contractual and legal framework.
Age of Legal Capacity
Article 84 reduces the age of majority to 18 Gregorian years.
Individuals who have reached the age of 18 generally possess full civil capacity to enter into contracts, manage their affairs and undertake legal obligations independently.
The law also permits minors who have reached the age of 15 to apply for judicial authorization to manage their assets, subject to the applicable legal requirements.
Businesses, financial institutions and families may wish to review arrangements that were structured by reference to the previous age threshold.
Defective Consent and Exploitation
The legislation introduces provisions addressing circumstances in which one party obtains a significant advantage through the exploitation of another party’s vulnerability, dependence, need or lack of experience.
In appropriate circumstances, courts may annul a contract or amend its terms.
The law also provides greater clarity regarding the limitation periods applicable to claims arising from defects in consent.
These provisions may be relevant in transactions where particular vulnerabilities exist or where questions arise regarding the circumstances in which contractual consent was obtained.
Hardship and Force Majeure
The law distinguishes between force majeure and hardship.
Force majeure generally concerns circumstances in which contractual performance becomes impossible due to events beyond the parties’ control. Hardship applies where performance remains possible but has become exceptionally burdensome as a result of unforeseen circumstances.
Where hardship is established, the courts may grant relief in accordance with the provisions of the law and the circumstances of the case.
For businesses entering into long-term contractual arrangements, carefully drafted hardship and force majeure provisions remain important tools for allocating risk and addressing unforeseen events.
This is particularly relevant in sectors where projects and contractual relationships extend over lengthy periods, including construction, infrastructure, manufacturing and long-term supply arrangements.
Civil Liability
The new law contains a number of provisions relevant to civil claims and dispute resolution.
It expressly recognizes contributory fault, allowing the conduct of the injured party to be taken into account when assessing compensation.
The legislation also addresses compensation for non-material harm, including circumstances involving damage to reputation, honour, social standing, freedom or financial status.
In addition, the law provides greater certainty regarding limitation periods applicable to civil claims.
These provisions should be considered when assessing litigation risk, contractual liability provisions and claims management strategies.
Transitional Provisions
The law contains transitional provisions governing its application to legal relationships and contractual arrangements.
Businesses should review those provisions carefully when assessing existing agreements and ongoing contractual relationships. Particular attention may be warranted in relation to long-term contracts, framework arrangements and transactions that continue beyond the law’s entry into force.
The application of the transitional provisions will depend on the facts of each case and should be considered on a case-by-case basis where significant rights or obligations are involved.
Practical Considerations for Businesses
In light of the new legislation, businesses may wish to review:
- standard contractual documentation;
- negotiation and disclosure procedures;
- governing law and dispute resolution provisions;
- hardship and force majeure clauses;
- internal procedures relating to the exercise of contractual rights;
- due diligence and transaction management processes; and
- long-term contractual arrangements that remain in force following the implementation of the new law.
A review of existing documentation and procedures can assist in ensuring alignment with the current legal framework and reducing the risk of future disputes.
Conclusion
Federal Decree-Law No. 25 of 2025 represents an important development in the UAE’s legislative framework and will be relevant to businesses across a broad range of sectors.
Several of the law’s provisions are likely to receive judicial consideration in the coming years. In the meantime, businesses should consider whether their contractual documentation, transaction procedures and internal governance processes adequately reflect the requirements of the new framework.
Early review and appropriate legal guidance can assist in identifying areas where contractual practices may require adjustment and in reducing potential legal and commercial risk.
This article is intended as general information only and does not constitute legal advice. For guidance on how Federal Decree Law No. 25 of 2025 applies to specific contracts or transactions, legal advice should be sought.