Introduction
Federal Decree-Law No. 25 of 2025, promulgating the Civil Transactions Law, was issued on 1 October 2025 and is effective from 1 June 2026. It repealed Federal Law No. 5 of 1985 and introduced a recodified framework for civil rights, contractual obligations, property matters and civil liability in the United Arab Emirates.
The new law retains many established principles of UAE civil law while clarifying their application and introducing provisions that respond to modern contracting practices. Its most significant practical changes concern pre-contractual conduct, disclosure, legal capacity, governing law, contractual hardship, force majeure and the assessment of compensation.
Application of the Law and the Role of Special Legislation
Article 1 lays down the hierarchy to be followed in the resolution of civil matters. Courts must first interpret the relevant legislative text. In the absence of a legislative provision, the court applies the Islamic Sharia and chooses the most appropriate solution to the interests involved. In the absence of any applicable rule of Sharia, the court may apply custom, provided that it is not against public order or public morality. In the absence of any applicable custom, the question is determined by the principles of natural law and the rules of justice.
Article 4 regulates the temporal application of the law. As a general rule, the new law applies from its effective date and does not operate retrospectively unless legislation provides otherwise. Article 4 also confirms that a later general provision does not repeal or amend an existing special provision unless this is expressly stated. Accordingly, specialised legislation, including commercial, labour, real estate, consumer protection and corporate laws, continues to apply within its own field.
Governing Law in Cross-Border Contracts
Article 19 permits party autonomy in cross-border contracts. They may expressly agree which law governs the form and substance of their contractual duties. If they don’t choose, the law of the habitual residence of the parties will apply. If the parties are domiciled in different countries, the law applicable is the law of the country where the major obligation of the contract is to be performed, unless circumstances indicate otherwise.
Real property contracts are governed by the laws of the jurisdiction where the property is located. Article 29 also states that foreign law may not be applied if its provisions conflict with the public order or morals of the UAE. As such, parties to international transactions should be careful in drafting choice of law clauses and should not assume that foreign law will prevail over mandatory UAE legislation.
Good Faith, Disclosure and Confidentiality during Negotiations
Articles 121 to 123 introduce a detailed statutory framework for pre-contractual negotiations. Article 121 requires the proposal, conduct and termination of negotiations to comply with good faith. Negotiations do not oblige the parties to conclude a contract, but a party that negotiates or terminates negotiations in bad faith may be liable for the actual loss suffered by the other party. Unless otherwise agreed, compensation does not include the expected benefit of the contract that was never concluded or the lost opportunity to obtain that benefit.
Article 122 provides that a party is obliged to disclose information which is decisive for the consent of the other party if the other party may reasonably be expected to know of the information or has relied on the contracting party. This obligation is owed to both parties and cannot be limited, excluded or waived by agreement. If a party suffers harm caused by a breach, it may seek to have the contract terminated. Article 123 separately regulates the use or disclosure of confidential information obtained during negotiations or in connection with a contract that is used or disclosed without authorisation.
These provisions make the negotiation record increasingly important. Businesses should preserve material correspondence, identify information that may affect the other party’s decision and use appropriate confidentiality arrangements when sensitive information is exchanged.
Contract Formation, Framework Agreements and Legal Capacity
The law provides for a number of ways to manifest contractual consent. Under Article 126, consent may be given orally or in writing, by a recognised sign, by conduct indicating agreement or by any other conduct that clearly indicates consent. Consent may also be given by implication unless a statute or the parties require an express form. These rules are read alongside the UAE Law on electronic transactions and trust services.
Article 138 expressly recognises framework agreements. The basic terms contained in a framework agreement form part of the subsequent contracts concluded under it unless the parties agree otherwise, expressly or by implication. This provision is particularly relevant to master services agreements, supply arrangements and continuing commercial relationships.
Article 84 provides that a person who has reached the age of majority, has full mental capacity and is not subject to interdiction has full legal capacity to exercise civil rights. Under the new law, a person reaches the age of majority upon completing 18 Gregorian years. The law also reinforces protection in contracts of adhesion. Article 223 gives the court the power to amend unfair terms or free the adhering party from their terms , and any agreement excluding this judicial power is void.
Abuse of Rights and Contract Performance
Article 106 strengthens the prohibition of abuse of right. The exercise of a right is prohibited when it is intended to commit an offence, when the interest pursued is contrary to public order or morality, when the benefit is disproportionate to the harm done to others or when the action is contrary to established tradition and practice.
The principle is relevant not only to litigation but also to termination rights, contractual discretion, enforcement of securities and other remedies. A contractual right should therefore be exercised for its proper purpose and in a manner proportionate to the legitimate interest being protected.
Exceptional Circumstances and Force Majeure
Article 224 deals with general-purpose unusual circumstances that could not be foreseen at the time of signing the contract. Such conditions may be onerous and may threaten the debtor with severe loss. The court may balance the interests of the parties and may reduce the onerous requirement to a reasonable level or may cancel the contract. All contracts that exclude this judicial power are void.
Construction contracts receive additional treatment under Article 829. In a lump-sum construction contract, an increase in material, labour or other costs does not by itself entitle the contractor to a higher price. However, where unforeseen general exceptional circumstances destroy the contractual balance and undermine the financial basis of the contract, the court may restore that balance by extending the performance period, increasing or reducing the price, or cancelling the contract.
Article 236 deals with force majeure, if the execution of an obligation under a bilateral contract becomes impossible because of force majeure, the obligation shall be terminated and the contract shall be automatically canceled. Should the impossibility be partial, the part of the obligation which is impossible can be canceled or the court may be asked to annul the agreement. In a continuous contract, a temporary impossibility may also be grounds for modification or cancelation, depending on the circumstances.
Compensation and Agreed Damages
If the compensation is not provided by law or contract, the court shall determine the compensation according to the actual damage suffered as per article 339. Article 340 allows the parties to agree on the amount of the compensation in advance, but leaves room for the court to review the amount.
The court may reduce the agreed compensation if the debtor proves that it is excessive or that the principal obligation was partially performed. It may also reduce or refuse compensation if the damage was caused by the creditor. The creditor, however, can claim more than that agreed upon if he is able to prove fraud or gross negligence on the part of the debtor. Any agreement which removes these statutory controls is void.
Limitation Rules and Enforcement of Civil Rights
Articles 6 and 7 contain transitional provisions for periods of time-barring claims. The new limitation provisions apply to periods which had not been completed when the law came into force. If the new law provides a shorter period, that period will generally start on 1 June 2026, unless the remaining period under the previous law would end sooner. However, any special law governing the particular claim must be checked against the applicable period of limitation.
The substantive rights and obligations are set out in the Civil Transactions Law, while court proceedings and execution are mainly regulated by Federal Decree-Law No. 42 of 2022 Promulgating the Civil Procedure Code, as amended. Where the statutory conditions for a written, due and specific right are fulfilled, a creditor may use the payment-order procedure. Other claims are handled through the usual court process.
Once an enforceable judgment or other execution writ has been obtained, execution is pursued through the competent execution court. The debtor is generally required to comply within seven days of service of the execution writ. Subject to the statutory conditions and judicial supervision, enforcement may include attachment of bank accounts, movable property, real property and other assets. Travel bans, detention and measures against representatives of legal persons are not automatic and may be ordered only where the requirements of the Civil Procedure Code are met.
Conclusion
The new Federal Decree-Law No. 25 of 2025 is a major reform of the UAE’s civil code, but it still preserves many of the concepts that have traditionally governed contractual and civil relationships. It clarifies contractual and pre-contractual conduct and disclosure obligations, contractual formation, legal capacity, exceptional circumstances, force majeure and assessment of compensation, while recognising the importance of special legislation in regulated areas.
The practical effect of the new Civil Transactions Law for businesses and individuals is beyond what is set forth in existing contracts. The new provisions should be borne in mind in evaluating negotiation practices, disclosure procedures, standard terms, governing-law clauses and contractual remedies. At the same time, enforcement of civil rights is subject to the procedural requirements of the Civil Procedure Code and any special legislation that is in force. The new framework thus points to the need to make sure that contractual arrangements are drafted and implemented in a way that is consistent with both the substantive Civil Transactions Law and the broader UAE legal framework.
