An Overview of Construction Disputes in the UAE

Introduction

The United Arab Emirates has established itself as a top destination for ambitious construction and real estate development because it keeps investing in infrastructure, tourism, and mixed-use developments. This also made it more likely that there would be problems during the project’s duration. Disagreements about construction in the UAE often happen because of vague contract terms, project delays, changes to the scope of work, payment disputes, and the difficulties of dealing with many different parties. Given the technical and commercial complexity of these projects, disputes are rarely straightforward. In light of this, effective dispute management requires legal expertise and a practical understanding of construction works and practices.

Legal Framework of Construction Disputes

1. Civil Law

UAE’s legal framework for construction is transitioning from the Federal Law No.5 of 1985 Concerning the Civil Transactions Law to the Federal Decree-Law No. 25 of 2025, which comes into force on June 1, 2026. Both laws regulate construction via “Muqawala” in Old Law or “Contracts for Work,” in New Law, but the New Law adds more detailed responsibilities and judicial powers to ensure fairness in contracts. Under the Old Law, a Muqawala contract says that one party must do work in exchange for money from the employer and the contractor is usually responsible for any losses that happen because of their work. The New Law keeps this basic concept but changes the words to “Contract for Work” between a “contractor” and a “client.” One of the differences in the New Law is the contractor’s duty to disclose the truth. The Old Law says that contractors must follow technical requirements while using materials provided by the employer. New Law, on the other hand, says that the contractor has the duty to disclose the client right away if they find any problems with the materials or any other issues. If the contractor doesn’t give such notification, they are responsible for all the problems that come up. The New Law gives the client stronger options for dealing with performance breaches. Under Article 818, a client can issue a notice to remedy a breach if a contractor’s work is defective. The New Law significantly strengthens the client’s position by explicitly allowing them to hire a third-party contractor to finish or fix the defective work, with the original contractor covering the costs, if the contractor doesn’t respond to a request for repairs. Furthermore, the New Law includes a provision for contractual equilibrium. This allows courts to adjust payments or extend deadlines if unexpected and unforeseeable events significantly disrupt the contracts.

Decennial Liability

Under the Old Law, specifically Articles 880 to 883, contractors and architects are held jointly liable for a period of 10 years for the total or partial collapse of buildings or any defect threatening structural stability or safety, upon delivery of the work. Any agreement attempting to exempt or limit this liability is void. Legal claims must be filed within three years of either the building’s failure or the moment the flaw is found. The New Law largely preserves this 10-year decennial liability framework under Articles 821 to 824, but clarifies the joint and several nature of the obligation between the contractor and the engineer (the term now used instead of architect). It says that this liability still stands even if the collapse was caused by a defect in the ground or if the employer gave permission for the work to be done incorrectly. The New Law also preserves the rule that any provision attempting to exclude or limit this liability is void. The three-year limitation period to bring an action following a collapse or discovery remains unchanged.

The Limitation Period

Both laws stipulate a three-year limitation period for certain defined types of legal actions. Although the standard limitation period for civil claims generally extends to 15 years, a 3-year rule applies to construction projects involving the collapse of buildings or major safety defects. Contractors and engineers are responsible for structural integrity for 10 years. As a result, any claim for compensation based on this responsibility has to be made within three years of the collapse or finding. Beyond the decennial liability and limitation periods, several other critical provisions govern construction disputes in the UAE.

Contractual Equilibrium

One of the most essential things that might cause problems on construction sites is changing the price and time. Under the Old Law, contractors who had a lump sum contract usually couldn’t ask for additional funds because of rising costs of materials or labor. This was only possible if the employer agreed to adjustments under Article 887(1). However, the New Law introduces a “contractual equilibrium” clause (Article 829). This clause allows the court to change the payment or give the parties more time to conclude the contract if something happens that they didn’t expect and that has significant impacts on the contract’s financial basis. The objective is to find a balance between the interests of both parties.

Right of Retention & Subcontracting

Construction disputes often involve a contractor withholding the work due to non-payment. Both frameworks permit a contractor to exercise a right of retention over property where their work has produced a beneficial effect, allowing them to keep the item until the agreed consideration is paid under Article 879 (Old Law) and Article 820 (New Law). Regarding subcontractors, the general rule remains consistent, a main contractor may delegate work unless prohibited by contract or the work’s nature requires personal performance. Crucially, a subcontractor has no direct claim against the employer for payment unless the main contractor has formally assigned that right to them.

Priority Rights (Lien for Payments)

For construction disputes involving insolvency or non-payment, both laws provide contractors and architects (engineers) with a special priority right (privilege). This right is connected to the buildings or structures that were built or repaired, but only to the extent that their work increased the property’s value. To be valid against other parties, this right must be registered in the land registry, and its priority is determined by the date of registration. When the law doesn’t directly deal with a certain construction issue, UAE courts follow an arrangement of sources. The Old Law says that Sharia comes first, then custom. The New Law makes this clearer by adding a last step, if there is no rule in Sharia or tradition, the court will determine based on natural law and the norms of justice.

2. Dubai Law No. 7 of 2025 concerning the Regulation of Contracting Activities

The law was published in the official Gazette on July 8, 2025 and came into force on January 8, 2026, sets up a complete legal system to control contracts in the Dubai Emirate. The law’s primary objectives are to advance the contracting sector, ensure the proper execution of projects according to urban planning standards, and establish clear foundations for the classification of contractors. Under Article 4, the scope of this law is expansive, applying to all contractors and contracting activities throughout Dubai, including special development zones, free zones, and the Dubai International Financial Centre (DIFC). Contractors’ responsibilities are specified in Article 15, mandating adherence to building, safety, and environmental regulations, while also prohibiting the execution of “sham projects” designed for unlawful profit. Article 22 stipulates administrative penalties for those who violate the rules with fines of 1,000 to 100,000 AED (which can be doubled for repeated violations), having suspension of their activity, or having their classification lowered. Finally, Article 26 sets a time limit for correcting a status. All contractors who are now working must follow the rules of the law within a year of it being passed. Given the law becomes effective six months after its July 2025 publication (January 2026), contractors have until January 2027 to finalize their registration and classification.

3. FIDIC Contracts

In the UAE construction industry, FIDIC contracts are very common, especially for large and complicated projects. This is because they provide a clear way to define roles, responsibilities, and how risks are shared among everyone involved in the project. Standard forms such as the Red, Yellow, and Silver Books are commonly adopted, but they are often tailored through particular conditions to reflect local legal requirements and commercial practices, sometimes altering the intended balance of risk. In these contracts, the importance of proper contract administration is underscored, which includes the function of the Engineer, strict notice provisions, and structured processes for managing variations and claims. As a result, it is essential that everyone involved has a good understanding of how FIDIC works in the UAE, both practically and legally.

Dispute Resolution

There are many ways to settle disputes in the United Arab Emirates, and the parties can choose the one that works best for them.

Mediation & Negotiation

Mediation and negotiation are informal, voluntary ways to settle disagreements that do not involve court. In negotiation, the two parties negotiate with each other directly, but in mediation, a neutral third person helps them reach a solution that works for both sides. These ways are cheaper, more private, and faster than other alternatives.

Arbitration

Arbitration is the preferred method for resolving disputes within the UAE’s construction sector. The UAE Arbitration Law (Federal Law No. 6 of 2018, amended by Federal Decree Law No. 15 of 2023) provides the legal framework. This approach offers a private and adaptable setting, allowing parties to select arbitrators possessing the requisite technical expertise to adjudicate the dispute.

Litigation

Litigation involves resolving disputes through the UAE judicial system, particularly when arbitration has not been agreed upon. Litigation is a strong way to enforce the law, although it is usually more formal and takes longer than other ways to settle disputes.

Dispute Adjudication Boards & Expert Determination

Dispute Adjudication Boards or DABs, are designed to address the inevitable disagreements that crop up during a project’s life. DABs are made up of neutral specialists who arrive at decisions or suggestions which helps keep disagreements from getting worse. Expert determination is a means to settle technical or financial issues by employing an outside expert when specific knowledge is required.

Conclusion

The UAE has a well-established legal and institutional setup to handle these issues. This framework provides several avenues for resolving disputes, such as court proceedings, arbitration, and other alternative methods. Therefore, choosing the best route is crucial for preserving business ties, avoiding unnecessary hold-ups, and getting results quickly and affordably.