On 1 June 2026, Federal Decree-Law No. 25 of 2025 entered into force, replacing the 1985 Civil Transactions Law, which had governed civil and commercial relationships in the UAE for more than 40 years. This replacement reflects the UAE’s sustained legislative effort to modernise its private law framework, enhance legal certainty, and align the law with contemporary commercial practice.
While many of the reforms build upon established legal principles, others address longstanding gaps and ambiguities in the previous legal regime. This article identifies and analyses the most significant developments across the key areas of reform, with particular focus on their impact on how businesses negotiate contracts, allocate risk, and manage commercial relationships.
As organisations adapt to the new regime, it is important to consider whether existing contractual arrangements, negotiation practices, and internal procedures remain aligned with the evolving legal landscape.
Expanded Judicial Discretion in the Application of Islamic Sharia
One of the new reforms lies in the way Islamic Sharia is to be applied. Under the previous Code, judges were required to follow specific schools of Islamic jurisprudence in a prescribed order where legislation was silent. The new code removes that requirement and instead directs courts to apply principles of Sharia by selecting the solution that best serves the public interest (maslaha). Judges are therefore no longer confined to a particular school of jurisprudence.
This provides greater flexibility to resolve modern disputes while preserving the central role Sharia plays within the legal system. The UAE Government has identified this expansion of judicial discretion as one of the principal reforms introduced by the new Code.
Greater Scrutiny of Pre-Contractual Conduct
For the first time, the UAE has codified a statutory framework for the initiation of negotiations, their conduct and termination, which must all be consistent with the requirements of good faith. One of the most significant practical developments is the introduction of express disclosure obligations during negotiations. This impose a mandatory duty to disclose information that is material and decisive to the other party’s consent, particularly where the other party’s ignorance is reasonable or where a fiduciary or trust-based relationship exists. Deliberate non-disclosure of such information constitutes bad faith. Historically, disputes often focused on the wording of the executed contract. The new framework broadens the scope of scrutiny by recognising obligations arising before a contract is concluded. Businesses should therefore ensure that key information exchanged during negotiations is accurate, complete, and appropriately documented.
In practice, negotiation records, term sheets, and correspondence may assume greater evidential significance in future disputes. The disclosure obligation is mandatory and cannot be limited, excluded or waived by agreement. Any clause attempting to restrict or waive this duty is void ab initio, and the aggrieved party may seek rescission of the contract for breach of this statutory duty.
Framework Agreements Gain Legislative Recognition
Many organisations rely on master services agreements, framework supply arrangements, and long-term commercial relationships.
The law’s formal recognition of framework agreements strengthens the enforceability of these arrangements and may reduce uncertainty where future transactions are intended to operate under a broader contractual structure.
A framework agreement is defined as a contract through which the parties determine the principal terms governing the contracts they will conclude between them over time. Those terms automatically form part of each contract concluded under the framework unless the parties expressly or implicitly agree otherwise.
This codification reflects modern commercial practice, particularly in long-term supply, construction, finance, and procurement relationships where parties typically negotiate a master agreement governing numerous future transactions. By providing an explicit statutory foundation for this structure, the Law offers greater legal certainty and a clearer reference point for resolving disputes that arise under individual contracts concluded within a framework. It also reduces transaction costs for parties who have already agreed the essential terms of their commercial relationship and need not negotiate them each time a contract is made.
Businesses should review whether existing framework agreements clearly identify essential commercial terms and mechanisms for future implementation.
Contract Drafting Considerations
The revised treatment of sales, assignments, possession rights, and compensation mechanisms is likely to influence contractual drafting across multiple sectors.
Parties may wish to revisit provisions relating to:
- disclosure obligations;
- representations and warranties;
- assignment rights;
- limitation of liability clauses;
- compensation and damages provisions; and
- dispute resolution mechanisms.
Judicial Rebalancing of Lump Sum Construction Contracts
As a general rule, contractors who agree to a fixed price cannot later demand more money due to cost increases. However the new law creates an important exception where unforeseeable, exceptional public circumstances fundamentally disrupt the contractual balance and destroy the financial basis on which the contract was priced. In such an event, the court may intervene to restore fairness by extending the completion period, increasing or reducing the contract price, or even rescinding the contract after balancing the interests of both parties.
Businesses should account for this departure from absolutely rigid lump sum pricing. Given that the threshold is significantly high, ordinary inflation, poor pricing decisions or foreseeable market fluctuations are fall outside its scope.
Corporate and Succession Planning Implications
The reduction of the age of majority to 18 years and the revised treatment of corporate structures may also have several implications. For family businesses, they may now integrate the next generation into management or plan succession arrangements more rapidly. 18 year olds are also empowered to establish companies with full autonomy and/or independently exercise shareholder rights.
Consequently, businesses operating through closely held entities may wish to review governance documents to ensure consistency with the updated legal framework.
Exploitation
The New Law recognises exploitation as an independent ground for challenging a contract. Exploitation arises where one party takes advantage of another party’s necessity, recklessness, overpowering desire, inexperience, infirmity, or a position of moral influence, and induces that party to enter into a contract involving a gross imbalance between the obligations undertaken and the material or moral benefit received.
The provision is broader and more specific than the previous framework, which addressed similar concerns primarily through the narrower concept of gross lesion. The aggrieved party may seek rescission of the contract or reduction of its obligation. However, the other party may avoid rescission by offering supplementary compensation that the court considers sufficient to remedy the imbalance.
A claim based on exploitation must generally be brought within one year from the date of conclusion of the contract. Where the circumstances giving rise to exploitation are continuing, the one-year period runs from the date those circumstances cease. In all cases, the claim is absolutely time-barred after three years from the date of conclusion of the contract. This is materially shorter than the fifteen-year absolute long-stop period applicable to rescission claims based on mistake, deceit or duress, reflecting a stricter limitation regime for exploitation claims and a legislative preference for commercial certainty.
Practical Considerations for Businesses
The new Civil Transactions Law introduces important developments that may influence contracting practices, dispute management, and corporate governance. Previous grey areas that were uncertain or left to contractual agreement have also been addressed, providing both greater clarity and predictability.
Businesses should take this opportunity to review their contractual documentation, negotiation procedures, governance arrangements, and risk management frameworks to not only ensure they remain aligned with the updated legal landscape, but to also leverage it to the best of their abilities.
The legislation reinforces the UAE’s commitment to maintaining a stable, transparent, and commercially attractive legal environment. As judicial interpretation of the new provisions develop, we may anticipate internationally-abiding outcomes which further the country’s position as a leading legal and business hub in the region.
For advice on reviewing contracts, commercial arrangements, and internal procedures in light of the UAE’s new Civil Transactions Law, please contact Suneer Kumar at suneer@alsuwaidi.ae, Vida Grace Serrano at vida@alsuwaidi.ae or Mamdouh Tawfik at m.tawfik@alsuwaidi.ae.