UAE Replaces 40-Year-Old Civil Code: What the New Civil Transactions Law Means for Every Contract Signed After 1 June 2026

Insight Advisory — insightadvisory.ae — 2 April 2026

Background

Federal Decree-Law No. 25 of 2025 promulgates an entirely new Civil Transactions Law, replacing Federal Law No. 5 of 1985 — the UAE’s foundational civil code — in its entirety. The new law takes effect on 1 June 2026. Contracts concluded before that date remain subject to the 1985 Civil Code. Contracts concluded on or after 1 June 2026 will be governed by the new framework. The reform is described by the UAE government as a pivotal legislative milestone and a wholesale re-codification — not incremental amendment — of UAE civil law.

Pre-Contractual Obligations and Disclosure

The single most significant change for commercial practice is the introduction of formal pre-contractual obligations. The new law establishes good faith as a mandatory principle in contract negotiations. Parties that negotiate or exit negotiations in bad faith face liability for damages (though compensation is limited to actual loss, not lost profit from the intended contract). Parties are also required to disclose any information that is critically important to the counterparty’s decision-making, where the counterparty is unaware of it. Deliberate withholding of material information during negotiations is treated as bad faith and gives rise to liability. Confidential information received during negotiations must be kept confidential — disclosure attracts damages. These provisions align UAE civil law with contemporary international practice and are particularly significant for M&A, joint ventures, and complex commercial negotiations where due diligence disclosures are central to deal-making.

Freedom to Choose Governing Law

Article 19 of the new law expressly prioritises the parties’ freedom to choose the governing law of their contract. Contractual obligations in both form and substance are governed by the law agreed between the parties. Only in the absence of such agreement does the law default to the jurisdiction of the parties’ common domicile or, failing that, the place of performance of the principal obligation. This provides materially greater predictability for cross-border transactions involving UAE elements and reduces the scope for jurisdictional disputes.

Framework Agreements

The new law formally introduces the concept of a framework agreement — an arrangement that predefines the essential terms governing a series of recurring or long-term contracts. This reduces transaction costs for businesses engaged in repeat commercial arrangements and provides a consistent legal reference for subsequent individual contracts. The concept has long been used in practice under DIFC and common law frameworks; its codification in onshore UAE law brings the mainland regime into alignment.

Latent Defects and Buyer Protections

The limitation period for claims relating to latent defects has been extended from six months to one year from the date of delivery, unless a longer guarantee is contractually agreed. Buyers are granted the option to reject defective goods, accept them at a reduced price, or require the seller to provide a defect-free substitute. These changes affect all sale contracts concluded after 1 June 2026 and will require sellers, developers, and manufacturers to review their standard terms and warranty provisions.

Expatriate Asset and Succession Rules

Under the new framework, financial assets in the UAE belonging to a foreign national who dies without a will and without legal heirs will be treated as a charitable endowment and placed under supervision of the relevant authority. This provision provides greater clarity than the previous framework, where outcomes were less defined, and reinforces the importance of proactive estate planning — including the preparation of a UAE will — for expatriates with UAE-based assets.

Construction Contracts

Muqawala contracts — which include construction contracts — move from Articles 872–896 of the old Civil Code to Articles 812–839 of the new law. Key developments include a new entitlement for contractors to additional payment where a scope change is due to the employer’s fault; clearer termination for convenience provisions; and new notice requirements. Parties to construction contracts should review template agreements before 1 June 2026 to ensure their terms address the new framework’s requirements explicitly.

Age of Majority

The age of majority is reduced from 21 Hijri years to 18 Gregorian years. The age at which a minor may seek judicial authorisation to manage their own assets is lowered from 18 Hijri years to 15 Gregorian years. This has practical implications for corporate documents, employment contracts, and financial account opening processes where age verification is required.

Action Steps Before 1 June 2026

Review template commercial agreements. Standard contracts, terms of business, and long-form agreements should be reviewed against the new pre-contractual disclosure and framework agreement provisions before June 2026. Update construction contracts. Developers and contractors should revise their standard forms and FIDIC adaptations to reflect the new muqawala provisions. Update succession documentation. Expatriates with UAE-sited assets should confirm or establish a UAE will before the new law takes effect, given the changes to treatment of assets with no heirs. Sales and warranty terms. Any business selling goods in the UAE should review warranty periods and defect-claim procedures in light of the extended latent defect limitation period.

Sources

Book a free consultation

Get a clear view of the right setup, structure, and compliance steps for your case.

Speak to an expert

Want a quick estimate?

Use our tools to get a high-level idea before you commit.

Try our calculators