Federal Decree-Law No. 25 of 2025, the new UAE Civil Transactions Law, entered into force on 1 June 2026 and repealed Federal Law No. 5 of 1985 in its entirety. The 1985 Civil Code had governed civil and commercial relationships across the UAE for more than four decades. Every contract executed on or after 1 June 2026 is now governed by the new legal framework. Contracts signed before that date generally remain subject to the old law, although limitation periods that were already running transitioned to the new regime and may now expire sooner than many businesses expect.
The most significant practical change is the introduction of statutory pre-contractual obligations. For the first time, UAE law expressly requires parties to negotiate in good faith and disclose material information during negotiations. Businesses can now face liability before a contract is signed if their conduct during negotiations causes loss to the other party.
For founders, investors, procurement teams, HR departments, legal counsel, and commercial managers, the UAE Civil Transactions Law 2026 is not simply a legal update. It fundamentally changes how contracts are negotiated, drafted, interpreted, and enforced across the UAE mainland.
Key Points
- Federal Decree-Law No. 25 of 2025 came into force on 1 June 2026 and replaced Federal Law No. 5 of 1985.
- The new law applies to contracts and civil transactions executed from 1 June 2026 onwards.
- Article 121 introduces a statutory duty of good faith during negotiations.
- Article 122 creates a mandatory obligation to disclose material information before a contract is signed.
- Contractual clauses attempting to waive disclosure obligations are unenforceable.
- The age of full contractual capacity has been reduced from 21 lunar years to 18 Gregorian years.
- Courts have expanded powers to intervene where contracts produce manifest unfairness.
- Limitation periods have changed and may be shorter than under the previous law.
- Existing claims and disputes should be reviewed immediately to assess limitation risks.
- DIFC and ADGM continue to operate under separate legal frameworks.
UAE Civil Transactions Law 2026 vs UAE Civil Code 1985
| Topic | Federal Law No. 5 of 1985 | Federal Decree-Law No. 25 of 2025 |
|---|---|---|
| Pre-contractual obligations | Limited statutory guidance | Good-faith negotiation expressly required |
| Disclosure requirements | Not expressly codified | Mandatory disclosure of material information |
| Contractual capacity | 21 lunar years | 18 Gregorian years |
| Hardship provisions | More limited judicial intervention | Expanded judicial powers |
| Limitation periods | Longer in several categories | Shorter limitation periods in many cases |
| Judicial fairness review | Narrower scope | Broader authority to address unfairness |
Why This Law Matters to Every Business Operating in the UAE
The previous Civil Code was drafted in a vastly different commercial environment. It predated the modern digital economy, sophisticated cross-border investment structures, large-scale free zone ecosystems, and today’s highly developed arbitration and litigation market.
Over the past four decades, UAE courts developed extensive judicial interpretations to fill gaps in the legislation. The new Civil Transactions Law incorporates many of those principles directly into the statute while introducing entirely new concepts that significantly affect commercial relationships.
For businesses, the most important change is that negotiations themselves now have legal consequences. Once parties enter serious commercial discussions, legal obligations arise even before a contract is signed. This represents one of the most substantial shifts in UAE contract law in decades.
Who Needs to Review Contracts Immediately?
The businesses most likely to be affected include:
- UAE mainland companies entering new commercial agreements.
- Real estate developers and property investors.
- Construction contractors and subcontractors.
- Professional services firms.
- Family offices and investment holding companies.
- Manufacturers and distributors.
- Technology businesses negotiating licensing agreements.
- Employers recruiting young professionals.
- Businesses involved in ongoing disputes or potential litigation.
For these organisations, reviewing contract templates should be considered an immediate priority rather than a future compliance exercise.
The Four Biggest Changes Introduced by the New Law
Although the legislation contains hundreds of provisions, four reforms will likely affect businesses more than any others.
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1
Negotiations Now Create Legal Obligations Parties must negotiate in good faith and can be liable for losses caused by bad-faith conduct during negotiations.
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2
Disclosure Is No Longer Optional Material information that could influence the other party’s decision to contract must be disclosed.
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3
Courts Have Greater Powers to Address Unfairness Judges have broader authority to intervene where contractual outcomes become excessively unfair or disproportionate.
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4
Limitation Periods Require Immediate Attention Many claims may now be subject to shorter deadlines than under the previous legal framework.
Pre-Contractual Obligations: The New Liability Framework
One of the most transformative aspects of the new law is the recognition of pre-contractual liability.
Under the previous Civil Code, the duty of good faith primarily applied once a contract existed. The negotiation process itself was largely governed by judicial principles rather than explicit statutory provisions.
The new law changes this position fundamentally.
Article 121 requires parties to negotiate in good faith throughout the negotiation process. Deliberate bad-faith conduct may result in liability for actual losses suffered by the other party.
Examples of Potential Bad-Faith Negotiation
The following situations could potentially create legal exposure:
- Entering negotiations without a genuine intention to complete the transaction.
- Deliberately concealing known issues affecting the value of the deal.
- Encouraging another party to incur substantial costs while intending to withdraw.
- Using negotiations solely to obtain commercially sensitive information.
- Misrepresenting internal approvals, funding availability, or decision-making authority.
- Abruptly terminating advanced negotiations without legitimate justification.
The law does not prohibit parties from abandoning transactions that no longer serve their interests. What it regulates is the manner in which negotiations are conducted.
Mandatory Disclosure Obligations
Article 122 introduces an affirmative duty to disclose information that is material to the other party’s decision to enter into a contract.
This represents a significant departure from traditional assumptions that parties are primarily responsible for conducting their own due diligence.
What Information May Need to Be Disclosed?
Depending on the transaction, disclosure may include:
- Existing litigation.
- Regulatory investigations.
- Insolvency risks.
- Material defects in assets being sold.
- Significant environmental liabilities.
- Intellectual property disputes.
- Existing contractual restrictions.
- Regulatory approvals that have not yet been obtained.
- Material facts affecting the economic value of the transaction.
Failure to disclose such information may give the other party grounds to seek annulment of the contract and potentially pursue compensation.
Impact on UAE Businesses
The new law affects almost every business function.
Legal Teams
Contract templates should be reviewed to ensure compliance with disclosure, hardship, and limitation provisions.
Sales and Commercial Teams
Negotiation practices should be updated to reflect good-faith obligations.
Procurement Departments
Commercial discussions should be documented more carefully than before.
Human Resources Teams
Employment documentation should reflect the revised age of contractual capacity.
Founders and Directors
Ongoing disputes, claims, and negotiation procedures should be reviewed from a governance and risk-management perspective.
How Contracts Must Now Be Drafted Differently
Businesses should review all standard templates used after 1 June 2026.
Representations and Warranties
Representations now carry greater significance because disclosure obligations begin before the contract is executed.
Non-Reliance and Entire Agreement Clauses
These provisions remain useful but cannot eliminate statutory disclosure obligations.
Termination Rights
Broad walk-away provisions should be reviewed carefully because contractual termination rights do not automatically eliminate exposure arising from bad-faith conduct.
Hardship Clauses
The new law provides clearer mechanisms for dealing with unforeseen events that substantially increase contractual burdens.
Force Majeure Provisions
Businesses should reassess whether existing force majeure clauses align with the revised hardship framework.
Liquidated Damages Clauses
Courts retain authority to adjust damages that are manifestly disproportionate to actual losses.
Limitation of Liability Clauses
Businesses should verify that existing liability caps remain effective under the new framework.
Contract Review Checklist for 2026
Before signing any contract governed by UAE mainland law, businesses should confirm:
- All material information has been disclosed.
- Negotiation records have been retained.
- Representations and warranties are accurate.
- Limitation of liability provisions remain enforceable.
- Hardship provisions have been reviewed.
- Force majeure clauses are updated.
- Termination rights are clearly documented.
- Liquidated damages remain commercially reasonable.
- Governing law clauses are appropriate.
- Dispute resolution provisions align with business objectives.
Limitation Periods: A Practical Warning
The new law significantly changes the limitation framework.
Many contractual claims that previously benefited from longer limitation periods may now face shorter deadlines. Importantly, limitation periods that were already running on 1 June 2026 became subject to the new regime.
Immediate Action Required for Existing Claims
Businesses should immediately review:
- Unpaid invoices.
- Debt recovery matters.
- Consultancy fee disputes.
- Construction disputes.
- Warranty claims.
- Shareholder disagreements.
- Breach of contract claims.
- Commercial negligence matters.
A claim that appeared comfortably within time under the previous Civil Code may now have a much shorter remaining limitation window.
The Age of Majority Change and Its Business Impact
The reduction in contractual capacity from 21 lunar years to 18 Gregorian years creates important commercial consequences.
Anyone aged 18 or older can now generally enter legally binding contracts without requiring parental consent.
Impact on Employment and Human Resources
Businesses should review:
- Employment agreements.
- Graduate trainee contracts.
- Internship programmes.
- Confidentiality agreements.
- Non-disclosure agreements.
- Independent contractor arrangements.
Employers recruiting graduates and young professionals should ensure onboarding documentation reflects the new legal position.
Why DIFC and ADGM Remain Different
The new Civil Transactions Law applies to UAE mainland transactions.
It does not replace the legal frameworks operating within DIFC or ADGM.
Both financial free zones maintain separate legal systems influenced by English common law principles and continue to apply their own contract laws and court structures.
When negotiating major transactions, businesses should carefully consider whether UAE mainland law, DIFC law, or ADGM law is the most appropriate governing law for the agreement.
What the New Law Does Not Change
The core foundations of UAE contract law remain intact.
The principles of offer and acceptance continue to apply. Property rights, agency relationships, sales contracts, leases, and service agreements continue to operate within familiar legal structures.
The new legislation modernises and clarifies the framework rather than replacing the fundamental architecture of UAE private law.
Final Thoughts
The UAE Civil Transactions Law 2026 represents the most significant reform of UAE private law in more than forty years. By introducing statutory duties of good-faith negotiation, mandatory disclosure obligations, revised limitation periods, expanded hardship protections, and a lower age of contractual capacity, the law changes how contracts are negotiated, drafted, interpreted, and enforced across the UAE mainland.
Businesses that proactively review their contract templates, negotiation procedures, dispute-management strategies, and compliance frameworks will be better positioned to reduce legal risk and operate confidently under the new legal environment. The organisations that adapt early are likely to gain greater certainty, stronger governance, and improved protection in their commercial relationships.
Review Your Contracts Before the New Rules Create New Risks
Speak with an IncHub advisor today to review your contracts, strengthen compliance, and reduce legal risk under the UAE Civil Transactions Law.
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