The UAE’s new Civil Transactions Law is no longer an upcoming reform. It is now in effect, and businesses entering new agreements should understand what it means for their contractual rights and obligations.
Federal Decree-Law No. (25) of 2025, which took effect on 1 June 2026, replaced the UAE’s previous Civil Transactions Law of 1985.
The legislation updates several important areas of civil law, including contractual negotiations, legal capacity, agreements for recurring business relationships, compensation and certain rules affecting contracts for work.
For business owners, contractors, suppliers, consultants and investors, the practical question is straightforward:
Does your next contract adequately protect your business under the current legal framework?
The answer depends on what the agreement says, how it was negotiated and what happens if one party fails to perform.
What Is the UAE’s New Civil Transactions Law?
The Civil Transactions Law provides the general legal framework governing many civil rights and obligations in the UAE.
It addresses matters such as:
- Contract formation and interpretation
- Civil legal capacity
- Performance of contractual obligations
- Compensation and liability
- Property rights
- Sale agreements
- Contracts for work
- Certain corporate and partnership arrangements
The new law modernises this framework while retaining several established legal principles.
It is important to distinguish between a completely new rule and an existing principle that has been clarified, reorganised or expressly incorporated into the revised legislation.
Not every provision represents a fundamental departure from the previous law.
Businesses should also remember that specialised legislation, mandatory rules and particular jurisdictional arrangements may affect individual transactions.
Why Does the New Law Matter for Business Contracts?
A contract is often reviewed only when something goes wrong.
A customer refuses to pay. A contractor misses a deadline. A supplier fails to deliver. One party wants to terminate an agreement early.
At that point, the business must consider both the wording of its agreement and the law governing the dispute.
The revised Civil Transactions Law makes it especially important to review how businesses negotiate, document and perform their obligations.
Several developments deserve attention before signing a new agreement.
Key Changes to Understand Before Signing
1. Contractual Good Faith and Fair Dealing
Good faith is an established principle of UAE contract law.
The revised framework continues to recognise its importance in contractual relationships.
For businesses, this means that the written agreement should not be viewed in isolation from the parties’ conduct and applicable legal duties.
For example, a party may encounter legal difficulties if it attempts to exercise contractual rights in a manner inconsistent with applicable good-faith requirements.
However, good faith does not mean that a party can simply ignore a clear contractual obligation because performance has become inconvenient.
What businesses should do: Draft clear obligations and ensure that commercial conduct remains consistent with the agreement.
2. Pre-Contractual Negotiations and Disclosure
One of the notable developments is the express regulation of pre-contractual negotiations.
The new framework addresses good faith during negotiations and the disclosure of fundamental information relevant to informed contractual decision-making.
This matters because negotiations can involve significant commercial expenditure before a contract is signed.
Consider a business that spends money preparing for a major project based on representations made during negotiations.
If the negotiations involve legally relevant bad-faith conduct, questions of pre-contractual responsibility may arise, depending on the circumstances.
However, unsuccessful negotiations do not automatically create liability. Parties generally remain free to negotiate, and the existence of a legal claim depends on the applicable requirements and evidence.
Before signing, businesses should:
- Avoid making representations they cannot substantiate.
- Disclose fundamental information where legally required.
- Keep records of important negotiations.
- Identify which statements are contractual commitments.
- Clearly document any conditions that must be satisfied before the agreement becomes binding.
3. Contract Interpretation and Unclear Clauses
Ambiguous wording remains a major source of commercial disputes.
Consider an agreement requiring a contractor to complete a project within a “reasonable timeframe.”
The customer may expect completion within 30 days, while the contractor considers 90 days acceptable.
A dispute may arise because the agreement never established a specific deadline.
The revised law maintains a framework for interpreting contractual obligations, but businesses should not rely on a court to resolve wording that could have been clarified before signing.
What businesses should do: Use measurable deadlines, specific deliverables, clear payment milestones and documented approval procedures.
Where technical specifications are important, include them in the agreement or an expressly incorporated schedule.
4. Changed Circumstances and Contractual Hardship
Long-term agreements can be affected by unexpected developments.
For example, a construction contractor may encounter exceptional circumstances that substantially increase the cost of performing its obligations.
The revised Civil Transactions Law updates rules relevant to contractual hardship and contracts for work.
Depending on the circumstances, the legal framework may permit judicial intervention where the relevant statutory conditions are satisfied.
However, businesses should distinguish between:
- Ordinary commercial risk
- Increased costs
- Exceptional hardship
- Actual impossibility of performance
These situations are not legally interchangeable.
A supplier cannot necessarily avoid its obligations simply because the agreed price has become less profitable.
What businesses should do: Review force majeure, hardship, price-adjustment, notice and renegotiation provisions carefully.
Contracts should explain how the parties will respond to foreseeable commercial disruption while recognising that mandatory legal rules may also apply.
5. Compensation and Agreed Damages
Many UAE business contracts include provisions specifying compensation for delay or non-performance.
These may be described as agreed damages, delay damages or liquidated damages.
The new law updates aspects of the compensation framework, making it important to review how contractual damages provisions interact with applicable statutory rules.
A business should not automatically assume that the amount written into a compensation clause will always be awarded without examination.
The treatment of agreed compensation depends on the relevant legal provisions and the circumstances of the dispute.
For example, a contract might specify AED 100,000 in compensation for delayed performance.
Whether that amount is recoverable as written requires consideration of the agreement, applicable law and relevant facts.
What businesses should do: Ensure compensation provisions are carefully drafted and commercially justifiable. Keep evidence of actual losses and the consequences of non-performance.
6. Digital Transactions and Electronic Evidence
Modern businesses negotiate and perform contracts through email, electronic platforms and messaging applications.
These communications can become important evidence in a contractual dispute.
However, the legal framework governing electronic transactions and evidence also includes separate UAE legislation.
Businesses should therefore avoid assuming that the new Civil Transactions Law alone determines whether an electronic signature or digital record is legally valid.
In practice, organisations should maintain reliable records of:
- Electronic approvals
- Signed agreements
- Purchase orders
- Contract amendments
- Payment confirmations
- Delivery acknowledgements
- Customer instructions
What businesses should do: Establish a consistent system for recording contractual decisions and ensure that electronic execution methods meet applicable requirements.
7. Legal Capacity to Enter Contracts
A particularly clear reform concerns the age of civil majority.
The new law reduces the general age of majority from 21 lunar years to 18 Gregorian years.
An individual who has reached that age, has full mental capacity and is not subject to a relevant legal restriction can generally exercise civil rights independently.
This has implications for individuals entering contracts, managing assets and participating in certain commercial transactions.
However, specific activities may remain subject to separate licensing, regulatory or eligibility requirements.
For businesses contracting with young adults, the reform makes it important to distinguish general civil capacity from special requirements applicable to particular transactions.
Does the New Law Automatically Change Existing Contracts?
This is one of the most important questions for businesses with long-term agreements.
The new law came into force on 1 June 2026, but that does not mean every agreement signed before that date has automatically been rewritten or cancelled.
The legal treatment of an existing contract depends on factors including:
- When the agreement was concluded
- When the relevant events occurred
- Whether the agreement was amended or renewed
- Applicable transitional provisions
- Whether mandatory statutory rules are involved
- The nature of the contractual dispute
Some mandatory provisions may affect ongoing relationships, while the legal consequences of earlier acts may require assessment under the law applicable at the relevant time.
Businesses should therefore avoid blanket assumptions about either the continued application of the old law or the automatic application of every new provision.
A legal review is particularly advisable for agreements extending over several years.
Which Contract Clauses Should UAE Businesses Review?
The introduction of the revised Civil Transactions Law provides a useful opportunity to examine existing contract templates.
| Contract clause | What businesses should check |
|---|---|
| Scope of work | Are deliverables and responsibilities clearly defined? |
| Payment terms | Are amounts, deadlines and payment triggers specific? |
| Representations | Are important statements made during negotiations accurately documented? |
| Variations | How are changes and additional costs approved? |
| Force majeure | What happens if performance becomes impossible? |
| Hardship | How are exceptional changes in circumstances addressed? |
| Liability | Are risk allocations consistent with applicable law? |
| Compensation | Are agreed damages provisions properly drafted? |
| Termination | When and how can either party end the agreement? |
| Dispute resolution | Which law, court or arbitral forum applies? |
The appropriate wording will vary according to the industry and transaction.
A construction agreement, consultancy contract and software development agreement should not automatically use identical provisions.
What Should You Do Before Signing a New Agreement?
Businesses should approach contract review as a commercial risk-management exercise.
Review the Actual Obligations
Do not focus exclusively on the contract price.
Identify what your business must deliver, when performance is required and what happens if deadlines are missed.
Check the Other Party’s Responsibilities
A contract should not impose detailed obligations on one party while leaving the other’s responsibilities unclear.
For example, a service provider may require timely access to information, approvals or customer-supplied materials.
Understand the Exit Provisions
Review termination rights before the relationship begins.
An agreement with unclear exit arrangements can become expensive when circumstances change.
Assess Financial Exposure
Consider whether the contract exposes your business to substantial compensation claims, open-ended indemnities or other financial obligations.
Obtain Legal Review for Significant Agreements
The greater the commercial value or potential liability, the stronger the case for obtaining professional advice before signing.
Why Legal Advice Matters
The revised Civil Transactions Law creates important considerations for businesses negotiating and performing agreements in the UAE.
However, applying the law requires more than identifying a new legislative provision.
A proper legal assessment should consider:
- The type of contract
- The relevant jurisdiction
- The applicable statutory provisions
- The parties’ contractual obligations
- The circumstances surrounding negotiations
- Any mandatory rules
- The commercial consequences of breach
At Precedential Law, we advise UAE businesses on commercial contracts, contractual risk, breach of contract claims, compensation disputes and contract enforcement.
Our legal team can assist companies in reviewing agreements, identifying potentially problematic clauses and assessing how the revised Civil Transactions Law may affect their contractual position.
Conclusion
The UAE’s new Civil Transactions Law is now in effect, and businesses should understand its implications before entering significant contractual commitments.
The changes are particularly relevant to pre-contractual negotiations, legal capacity, certain contractual remedies and the treatment of particular commercial arrangements.
At the same time, several familiar principles remain important, including good faith, clear contractual obligations and proper documentation.
For businesses, the practical lesson is straightforward:
Do not wait until a contract is breached to discover what its clauses mean.
Review your obligations, understand the applicable legal framework and ensure that the agreement reflects the commercial relationship you actually intend to create.
Precedential Law can assist UAE businesses with contract reviews, commercial agreements and disputes arising from contractual obligations.
Frequently Asked Questions (FAQs)
When did the UAE’s new Civil Transactions Law come into effect?
Federal Decree-Law No. (25) of 2025 came into force on 1 June 2026, replacing Federal Law No. (5) of 1985 on Civil Transactions.
Does the new law apply to all UAE business contracts?
The law provides the general civil framework for many contractual relationships. However, specialised legislation, governing-law arrangements and jurisdiction-specific rules may affect particular agreements.
Are negotiations legally important before a contract is signed?
Yes. The new framework expressly addresses good faith during pre-contractual negotiations and disclosure of fundamental information. Whether liability arises depends on the specific circumstances and statutory requirements.
Can a business claim compensation if the other party breaches a contract?
Potentially. The availability and amount of compensation depend on the contractual obligations, breach, damage, causation, applicable law and evidence.
Does the new law automatically cancel contracts signed before June 2026?
No. Existing contracts are not automatically cancelled merely because the new law has taken effect. Their legal treatment depends on the applicable provisions, timing and circumstances.
Can a business terminate a contract if performance becomes more expensive?
Not automatically. Increased costs alone do not necessarily establish a right to terminate. The contract and applicable hardship or other legal provisions must be examined.
Can an 18-year-old sign a contract in the UAE?
Generally, an individual who has reached 18 Gregorian years and meets the relevant legal capacity requirements can enter civil contracts independently. Certain transactions remain subject to additional legal conditions.
Should UAE SMEs update their standard contracts in 2026?
Reviewing standard agreements is advisable, particularly where they contain outdated wording, unclear liability provisions, inadequate termination clauses or arrangements that may be affected by the revised legislation.