In less than one week, Federal Decree-Law No. 25 of 2025 — the UAE’s new Civil Transactions Law — comes into force. Enacted on 1 October 2025 and scheduled for implementation on 1 June 2026, this law replaces Federal Law No. 5 of 1985, the civil code that has governed private legal relations in the UAE for over four decades.

The new law restructures foundational rules on civil capacity, contractual liability, good faith obligations, disclosure duties, inheritance, limitation periods, and governing law. For businesses, investors, property owners, and residents, the transition demands immediate attention.

Below are the five most consequential changes under the new law.

1. Good Faith Is Now a Legally Enforceable Obligation — From the First Conversation

The Old Position

Under Federal Law No. 5 of 1985, good faith was primarily a standard of contractual performance. Article 246 of the old law provided that “a contract must be performed in accordance with its contents and in a manner consistent with the requirements of good faith” — but this obligation attached only once a contract had been formed. The pre-contractual phase was largely unregulated, and parties who withdrew from negotiations, however abruptly, faced limited civil exposure.

The New Position

The new law introduces a dedicated sub-section — “Negotiations and the Disclosure Obligation” — that fundamentally changes the legal landscape of deal-making in the UAE.

Article 121 of the new law states:

“The proposal, conduct, and termination of pre-contractual negotiations must conform to the requirements of good faith. The fact that negotiations have taken place does not obligate the parties to conclude the contract. However, a party who negotiates or terminates negotiations in bad faith shall be liable to compensate the other party for actual damage suffered. Such compensation does not extend to expected profits from the unexecuted contract, or to lost opportunities to realise such profits, unless otherwise agreed. Deliberately failing to disclose a material fact that affects the validity of the contract is considered an act of bad faith.”

Article 221 preserves and reinforces the performance standard, confirming that contracts must be executed “in a manner consistent with the requirements of good faith,” and that contractual obligations extend beyond the written text to include what is required by law, custom, and the nature of the obligation.

What This Means in Practice

A party that engages in advanced negotiations — whether for a real estate transaction, a joint venture, a franchise agreement, or a major commercial contract — and then withdraws without legitimate reason, or that deliberately withholds information that the other side would have considered decisive, may now face a civil liability claim before any contract is signed.

Critically, Article 121 limits recoverable damages in pre-contractual bad faith claims to actual loss — not lost profits or anticipated gains from the unexecuted contract. This is a deliberate legislative calibration: the law discourages dishonest dealing without creating unlimited liability for commercial negotiations that do not ultimately conclude.

Businesses should immediately brief commercial and legal teams on the new pre-contractual obligations. All negotiation processes — including due diligence exchanges, term sheets, letters of intent, and preliminary discussions — now carry legal weight.

2. The Duty of Disclosure Has Become a Non-Waivable Legal Obligation

The New Position

Article 122 of the new law goes further than any previous provision in UAE civil law:

“Any party who, during negotiations or contractual dealings, is aware of information of decisive importance to the other party’s consent, must disclose it — where the other party’s ignorance of such information may be presumed, or where that party has placed trust in the disclosing party. Information is considered material and decisive where it has a direct and necessary connection to the content of the contract or the characteristics of the parties.”

Most significantly, Article 122 provides that parties cannot contractually exclude or limit this disclosure obligation. Any clause purporting to do so is void. A party who suffers loss as a result of a breach of this obligation may seek rescission of the contract.

Article 123 adds a parallel duty of confidentiality: any party who uses or discloses without authorisation information obtained during negotiations or under a contract is liable under the general rules of civil liability.

Why This Matters

In real estate, financial services, franchising, and M&A transactions, the new disclosure framework significantly increases the risk exposure of parties who fail to share material information — whether deliberately or through insufficient due diligence processes. The prohibition on contracting out of this obligation means that standard non-reliance clauses and entire agreement clauses must now be reviewed carefully for their continued enforceability under UAE law.

Action point: Review all template contracts, term sheets, letters of intent, and non-disclosure agreements. Consider whether existing due diligence and disclosure protocols are adequate under the elevated standard imposed by Articles 121 and 122.

3. The Age of Majority Has Changed

The Old Position

Under Article 85 of Federal Law No. 5 of 1985, a person reached civil majority upon completing 21 lunar years. This created a practical gap: individuals who were considered adults under other UAE laws — including employment and criminal legislation — remained civil minors for the purposes of contracting, property ownership, and financial transactions.

The New Position

Article 84 of the new law reduces the civil age of majority to 18 Gregorian years.

This brings the UAE into alignment with the majority of international legal systems and removes the inconsistency between civil law and other areas of UAE legislation.

The new law also introduces a notable forward-looking provision: from the age of 15, a minor may seek judicial authorisation to independently manage their own assets — a deliberate legislative move to support youth entrepreneurship under court supervision.

4. A Critical Development for the Construction Industry – Three Changes Under Articles 818, 821, 822, and 829 That Every Developer, Contractor, and Engineer Must Understand

The new law introduces a substantially restructured chapter on construction contracts (عقد المقاولة), spanning Articles 812 to 839. Three changes are transformative.

The 10-Year Structural Warranty — Direction of Departure Reversed, Engineer Liability Redrawn (Articles 821–824)

The ten-year joint and several liability of contractor and engineer for structural collapse and integrity-threatening defects is preserved under Article 821 — but with a critical reversal. The old law (Article 880) allowed parties to extend beyond ten years by agreement. The new law allows them only to reduce below ten years, and only where the structure was genuinely intended to be temporary. The contractual mechanism previously available to employers seeking enhanced long-term protection is gone.

Article 821(4) adds a new express clarification: the ten-year warranty does not affect the contractor’s separate right of recourse against subcontractors — an important ring-fencing of liability chains on complex projects.

Article 822 significantly expands engineer liability. The old Article 881 addressed only the design-only scenario. The new law explicitly adds the supervision-only scenario: where the engineer’s role was limited to supervising execution, he is jointly liable with the contractor for execution defects occurring under his watch. This will reshape how engineers structure their appointments and limit their scope of services.

Article 823 preserves the absolute prohibition on contractual exclusion or limitation of the warranty. Article 824 preserves the three-year limitation period running from the date of collapse or discovery of the defect.

Expanded Grounds for Immediate Termination by the Employer (Article 818)

Under the old law (Article 877), the employer could only terminate without a rectification period where correction of defective work was impossible. In all other cases, notice and a reasonable rectification period were required.

Article 818 of the new law adds four grounds for immediate termination without notice or rectification period: (i) correction is impossible or inconsistent with the contract; (ii) the contractor’s delay makes timely completion wholly unlikely; (iii) the contractor’s conduct indicates an intention not to perform; or (iv) the contractor has taken action rendering performance impossible. The addition of conduct-based grounds — effectively codifying an anticipatory breach doctrine — is a materially more powerful termination toolkit for employers on time-critical projects.

The Hardship Doctrine for Lump Sum Contracts — Entirely New and Industry-Changing (Article 829)

This is the most significant development in UAE construction law in a generation.

The old law (Article 887) was rigid: on lump sum contracts, the contractor bore all cost escalation risk. No statutory mechanism existed for judicial intervention where unforeseen external events destroyed the financial basis of the contract.

Article 829(3) changes that entirely:

“Where the contractual balance collapses due to exceptional general circumstances that could not have been foreseen at the time of contracting, and the financial foundation of the contract’s pricing is thereby undermined, the court may — after balancing the interests of both parties — order restoration of contractual balance, including by extending the execution period, increasing or decreasing the remuneration, or terminating the contract.”

Four points require immediate attention:

• Threshold: The circumstances must be exceptional and general — systemic external events, not ordinary commercial risk or contractor underpricing. Inflation alone will not suffice.
• Scope of judicial power: The court may extend time, revise the price upward or downward, or terminate. The outcome cannot be predicted in advance.
• Retroactive relevance: Any lump sum contract currently in execution whose financial balance has been disrupted by unforeseen events may be subject to an Article 829 claim from 1 June 2026. Contractors with ongoing cost escalation disputes should take advice immediately.
• FIDIC and bespoke contracts: Standard force majeure and hardship clauses in FIDIC-based contracts must be reassessed in light of this new statutory doctrine, which operates independently of what the parties have agreed.

Action Points for the Construction Sector

Developers and employers should review lump sum contracts currently in negotiation or execution and assess their exposure to judicial price revision under Article 829. Contractors should document any exceptional cost escalation events and seek advice on whether a hardship claim is now available. Engineers must review appointment terms in light of the expanded supervision liability under Article 822. All parties should audit FIDIC and bespoke contracts for consistency with the new statutory framework before 1 June 2026.

5. Limitation Periods Have Been Restructured — Know Your Deadlines

The Framework Under the New Law

The new law consolidates and modernises the limitation period framework. The key provisions are:

• Article 429: General limitation period — 15 years from the date a right becomes due. Rights do not expire by limitation, but claims become time-barred.
• Article 430: Periodic and recurring claims (such as rent arrears, instalment payments) — 5 years.
• Article 431: Professional fees — claims by lawyers, doctors, engineers, pharmacists, consultants, and educators for professional services — 3 years.
• Article 432: Commercial and labour claims — claims by traders, hotel and restaurant operators, and workers for daily wages and service charges — 2 years.
• Article 258: Tort claims (liability for unlawful acts) — 3 years from the date on which the injured party became aware of the damage and the identity of the responsible party, with an absolute long-stop of 15 years from the date of the harmful act.

Suspension and Interruption

Article 437 provides that limitation periods are suspended where a person lacks legal capacity, is absent, or is missing — provided they have no legal representative. Article 439 confirms that an express or implied acknowledgment of a debt by the debtor interrupts the running of time. Article 440 provides that judicial proceedings also interrupt limitation.

The Transitional Position

Articles 6 and 7 of the decree-law (the promulgating instrument) set out transitional provisions. The new limitation rules apply from 1 June 2026 to any period that had not yet fully elapsed under the old law. Where the new period is shorter than the old, the new period runs from 1 June 2026. Where the remaining old period is shorter than the new period, the old period continues to govern.

The practical consequence is that the transition itself creates uncertainty for existing disputes and unresolved claims. Parties who have been deferring litigation or who have ongoing claims should seek urgent legal advice to confirm which limitation framework applies and whether any deadlines are approaching.

Action point: If you have an existing dispute, an unresolved contractual claim, or a potential tort claim that has not yet been filed, obtain legal advice immediately. Do not allow the transition to create inadvertent time-bar exposure.

Transitional Provisions: What Happens to Existing Contracts?

A question every business is asking is whether contracts signed under the old law remain governed by the old law after 1 June 2026. The answer is: it depends.

As a general rule, the new law governs transactions and disputes arising after 1 June 2026. Contracts entered into before that date may continue to be interpreted under the principles of the old law in certain respects — particularly where vested rights have already accrued. However, the interaction between transitional rules, the new good faith and disclosure obligations, and the restructured limitation periods is nuanced and will be developed by the courts over time.

What is clear is that any contract currently being negotiated — and any contract that is expected to be performed or disputed after 1 June 2026 — should be reviewed in light of the new law before execution.

How Our Firm Can Help

Our team has been engaged in the detailed analysis of Federal Decree-Law No. 25 of 2025 since its enactment. We are ready to assist with:

• Contract audits and redrafting — reviewing existing templates and long-term agreements for compliance and adequacy under the new law, with particular attention to disclosure clauses, governing law provisions, and limitation periods
• Transaction advisory — applying the enhanced good faith and disclosure standards of Articles 121 and 122 to current and upcoming deals
• Limitation period analysis — identifying time-bar exposure under the transitional framework and advising on the urgency of filing existing claims
• Training for commercial and legal teams — practical workshops on the new pre-contractual obligations and their implications for daily deal-making

This article is intended as general legal commentary and does not constitute legal advice. It reflects the law as at May 2026. For further information on how the new Civil Law may affect your business, including restructuring, governance, and investment considerations, please contact

Ahmed Hadeed
a.hadeed@hadeedpartners.ae

© Hadeed & Partners 2026