Dubai/Abu Dhabi: The legal landscape of the United Arab Emirates is undergoing its most significant transformation in over four decades. Starting June 1, 2026, the newly enacted Federal Decree-Law No. 25 of 2025 (the New Civil Transactions Law or "New Civil Code") officially comes into force, completely repealing and replacing Federal Law No. 5 of 1985, which has governed civil and contractual relations for forty years.
Legal experts are calling this a major modernising overhaul that touches everything from construction disputes and corporate joint ventures to the age of adulthood and personal injury claims. If your business operates in the UAE, or if you enter into contracts from June 2026 onwards, these updates directly affect your risk allocation, bottom line, and legal rights.
Here are the most striking changes and new provisions you need to know about right now.
1. Pre-Contractual Liability: "Good Faith" and Disclosure Are Now Law
Previously, the 1985 code focused heavily on good faith during the execution of a contract, leaving pre-contractual negotiations in a bit of a gray zone. The New Civil Code introduces a massive shift:
Bad Faith Walkouts (Article 121): While parties are not forced to conclude a deal just because they started negotiating, anyone who initiates or abruptly terminates negotiations in bad faith can now be held liable to compensate the other party for actual losses suffered (excluding expected lost profits).
Mandatory Disclosure (Article 122): You are now legally required to disclose information of "decisive importance" to the other party's consent if they are unaware of it or trust you. More importantly, parties cannot contract out of this obligation—any clause attempting to limit or waive this duty of disclosure is legally void.
Confidentiality (Article 123): If you receive confidential information during due diligence or negotiations, unauthorized disclosure now automatically triggers legal liability for damages.
2. The "Fine Print" Just Got Teeth for Contractors
For decades, construction contracts under the old code left notice requirements somewhat subjective, allowing courts room for interpretation over delayed reporting.
Under Article 816(3) of the New Civil Code, contractors and consultants face strict statutory notification rules. The moment an event arises that could impede project performance—whether it is a defective design, supply chain bottleneck, or unexpected site conditions—the contractor is legally obligated to notify the employer immediately.
The Structural Risk: Failure to give immediate notice explicitly exposes the contractor to liability for all consequences of that omission. If you miss a reporting window, you heavily risk waiving your right to an Extension of Time (EOT) or additional costs.
Furthermore, Article 818 introduces a major procedural shortcut for employers: if a contractor defaults or lags behind, the employer can now rescind the contract or pass the remaining work to a third party at the original contractor's expense without needing a prior court order, unless the contract explicitly says otherwise.
3. "Act of God" Gets a Practical Hardship Regime
The 1985 law made it incredibly difficult to escape or modify a contract unless performance became entirely impossible (Force Majeure). The New Civil Code formalizes a highly modern Hardship Regime (Imprévision).
Under Article 224, if "exceptional, general circumstances" arise that were entirely unforeseeable at the time of signing—making performance "excessively onerous" and threatening "grave loss"—courts now have explicit power to reduce obligations, adjust terms, or rescind the contract to restore balance.
For construction and service agreements (Muqawala), Article 829(3) specifically confirms that this hardship safety net applies to lump-sum contracts. If a macro crisis disrupts the contractual equilibrium, a judge can step in to increase remuneration, extend deadlines, or terminate the deal altogether.
4. Rebalancing Liquidated Damages and Post-Termination Claims
The power dynamic regarding delay penalties and liquidated damages has been refined under Article 340:
Downward Adjustment: A debtor (e.g., a contractor) can request a court reduction of pre-agreed delay penalties if they can prove the amount is grossly exaggerated compared to the actual loss suffered, or if the creditor contributed to the fault.
Upward Adjustment Cap: Conversely, a creditor can now only claim more than the agreed liquidated damages if they can prove the debtor committed fraud or gross negligence. This raises the legal threshold significantly for employers looking to squeeze extra penalties out of minor delays.
5. Formal Recognition of Framework Agreements
Reflecting modern corporate supply chains, Article 138 explicitly codifies Framework Agreements for the first time. Businesses can now sign master agreements that lock in core legal and commercial terms, which will automatically govern all subsequent downstream contracts, statements of work, or purchase orders. This significantly reduces transactional friction and downstream litigation risks for long-term commercial partnerships.
6. Debt and Right Assignments No Longer Require Consent
Under the old 1985 regime, assigning a contract right or debt was rigidly structured. Article 405 of the New Civil Code modernizes this for corporate financing, M&A, and factoring:
A creditor may now assign their rights to a third party without requiring the debtor's consent, unless explicitly prohibited by the contract or law.
The assignment is valid upon execution, though the debtor must still be formally notified to ensure payment is directed correctly.
7. Extended Protection for Buyers (Latent Defects)
If you sell or buy commercial goods or real estate, note that consumer and buyer protections have been scaled up.
Article 495 gives a buyer a clear statutory choice when a defect is found: return the item for a full refund, or keep it and demand a price reduction equal to the loss in value. The seller can only deflect this by offering an immediate, defect-free replacement.
Article 496(1) doubles the clock for claims: the standard limitation period to sue for latent (hidden) defects has been extended from six months to one full year from the date of delivery, unless a longer commercial warranty is agreed.
8. Age of Adulthood Lowered to 18 Gregorian Years
Aligning with global commerce standards, the UAE legal age of majority has officially dropped from 21 Lunar years to 18 Gregorian years.
This instantly eliminates capacity-based legal loopholes for young adults entering universities, setting up single-person businesses, taking out telecommunication plans, or signing employment contracts.
9. Fatal Accidents: Blood Money Is No Longer the Compensation Ceiling
In personal injury and fatal accident claims, Diyyah (traditional blood money) was historically treated by many as a practical cap on standard financial recovery. Article 259 completely detaches this cap.
Courts are now explicitly empowered to award additional material and moral damages on top of the standard Diyyah if the victim's family can prove losses (such as future loss of earnings, psychological trauma, or long-term care costs) that the flat Diyyah rate fails to fully cover. Expect corporate insurance liability exposure and premiums to adjust accordingly.
What Businesses and Legal Teams Must Do Immediately
Audit Your Active Tenders: Because pre-contractual negotiation bad faith and mandatory disclosures are now codified, your data rooms, RFP responses, and letters of intent (LOIs) must be carefully vetted. Do not withhold material information that could later be deemed "decisive" to the deal.
Update "Boilerplate" Defect Clauses: Ensure your supply and procurement templates account for the new one-year baseline for latent defect claims.
Review Notice Procedures: Project management teams must be trained on the "immediate notice" requirement of Article 816(3) to protect extensions of time and cost claims.
Check Transitional Timelines: While the New Civil Code generally applies to contracts signed after June 1, 2026, Article 6 specifies that any unexpired statutory limitation periods from old contracts will become instantly subject to the timelines of the new code.
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