New UAE Civil Transactions Law Updates Requirements For Corporate Practice And Commercial Transactions

The United Arab Emirates (UAE)’s new Civil Transactions Law came into force on 1 June 2026, replacing legislation that has governed civil and commercial relationships in the country since 1985. Federal Decree Law No. 25 of 2025 (the New Law) replaces Federal Law No. 5 of 1985 (the Old Law) in its entirety and introduces substantial changes to the UAE’s civil law framework.

The New Law forms part of a broader effort to modernise the UAE’s legal infrastructure and align it more closely with current commercial practice. It addresses several areas where the Old Law had become difficult to apply in practice or had not kept pace with the way business is conducted in the UAE today.

One notable development is the introduction of a statutory framework governing pre-contractual conduct, which for the first time establishes clear rules around negotiation behaviour, disclosure obligations, and the consequences of bad faith at the pre-signing stage. The New Law also introduces new concepts relating to contract validity, expands the remedies available to contracting parties, and updates aspects of the framework governing corporate structures and assignments. In several areas, the New Law introduces material changes affecting commercial negotiations, contract documentation, and corporate structures.

This GT Alert addresses the changes relevant to corporate and transactional practice. The analysis focuses on those developments with implications for commercial contracting, transaction structuring, and corporate governance and highlights a number of practical considerations arising in each area.

Key Takeaways

• Pre-contractual obligations: Contractual risk now begins before signature. The New Law introduces a statutory duty to negotiate in good faith and disclose material information during negotiations. This obligation cannot be excluded or limited by Separate liability arises for the unauthorised use or disclosure of confidential information obtained during negotiations.
• Challenging contracts: The New Law reforms the framework for challenging. Contracts that may previously have been treated as invalid may now remain effective unless successfully challenged within defined time limits, giving commercial parties greater certainty over the validity of historic and existing arrangements. At the same time, the New Law introduces new grounds for challenge that did not exist under the Old Law, including the exploitation doctrine, which allows a contract to be challenged within one year of its conclusion where one party has allegedly taken unfair advantage of the other. Where the alleged exploitative circumstances continue after signing, that one-year period is deferred until those circumstances cease, subject in all cases to an absolute three-year longstop running from the date the contract was concluded. The New Law also codifies misrepresentation by omission, providing that deliberate silence on a material fact constitutes misrepresentation where the other party would not have entered into the contract had they known of it.
• Age of majority: The New Law reduces the age of majority from 21 lunar years to 18 Gregorian This is a straightforward but practically important change that is relevant to capacity assessments in transactions, employment contracts, and shareholder agreements involving those in the 18-to-21 age bracket.
• Limitation periods: Limitation periods have Professional services claims fall from five to three years. The warranty period for latent defects in sale contracts extends from six months to one year. Employment claims now carry a two-year tail. These changes applied to unexpired periods running on 1 June 2026.
• Framework agreements: Framework agreements are now expressly recognised and codified under the New Law and are deemed to automatically form part of each subsequent contract concluded under them. This may provide greater certainty around the incorporation of framework terms into individual transaction documents in arrangements that are already widely used in practice but previously lacked a specific statutory basis.
• Contract performance and judicial intervention: The court’s powers to intervene in contracts where performance becomes oppressive have been Courts may now order rescission as well as modification where exceptional unforeseen circumstances make performance onerous, and this jurisdiction cannot be excluded by agreement.
• Assignment: The assignment regime has been Assignment of rights no longer requires debtor consent, and an assignment of rights carries with it any securities attached to the right, including guarantees and pledges. In debt assignments, where a creditor is given a reasonable period to respond to a proposed assignment and does not do so, their silence is treated as refusal rather than acceptance, meaning the original debtor remains bound.
• Agency and authority: The New Law introduces a more structured framework for agency and authority to A general power of attorney now authorises only management and preservation acts. A special agency is required for sales, mortgages, settlements, and similar acts, meaning that parties may wish to review the authority documents they use in transactions to confirm they are sufficient for the specific acts being authorised.
• Corporate structures: The New Law introduces several changes relevant to corporate structuring, including express recognition of single-member companies, a new dedicated framework for professional companies, non-waivable inspection rights for non-managing partners, and a revised dissolution test that is triggered only where continuation of the company serves no purpose rather than on any loss of capital.

Pre-Contractual Good Faith and Disclosure

What Has Changed

Articles 121 to 123 of the New Law introduce, for the first time, a statutory framework governing conduct during negotiations:

• Parties must conduct negotiations in accordance with the requirements of good
• A party who negotiates or terminates negotiations in bad faith is liable to compensate the other party for actual damage suffered, but this does not extend to expected profits from a contract that was not
• Parties are under a positive obligation to disclose information of decisive importance to the other party's consent.
• This disclosure obligation is mandatory and non-excludable. Any contractual provision seeking to limit, waive, or exclude it is void, and the aggrieved party may seek annulment of the contract.
• Separate liability arises for the unauthorised use or disclosure of confidential information obtained during negotiations.

Under the Old Law, pre-contractual conduct sat in a grey area governed by general principles. The New Law creates a structured statutory regime with real consequences. Key implications include:

• Entire agreement clauses and boilerplate protections: Entire agreement clauses and non-reliance wording remain useful tools, but they cannot override mandatory statutory disclosure obligations. Accordingly, stakeholders may wish to review standard boilerplate protections that were previously relied upon to exclude pre-contractual exposure.
• Disclosure standards: In transaction processes, the obligation to disclose information of decisive importance raises questions about the standard of disclosure required prior to signing, the adequacy of vendor due diligence, and the interaction between this statutory obligation and contractual disclosure letter mechanics. Parties cannot contract out of the statutory duty.
• Documentation of negotiations: Documentation of negotiations takes on greater legal significance. Where concealment is alleged, the party claiming non-disclosure must prove it; the other party must prove that disclosure was made. This means that contemporaneous records of what was shared, when, and in what form will matter.

Practical Implications

The New Law’s pre-contractual disclosure obligations apply from the moment negotiations begin and cannot be excluded by contract. Parties may wish to review non-disclosure agreements (NDAs), term sheets, and heads of terms templates to confirm they do not purport to limit obligations that can no longer be limited. Entire agreement clauses and non-reliance wording remain useful but may not protect a party that has withheld information of decisive importance to the other side. In transaction contexts, parties should consider whether existing disclosure processes and disclosure letter mechanics are adequate in light of the new statutory standard and may wish to ensure that negotiation conduct is clearly documented, given that the burden of proving disclosure falls on the party who gave it.

The Sanctity of Contract, Framework Agreements, and Choice of Law

What Has Changed

The following three developments may strengthen the contractual framework for commercial parties:

• Binding nature of contracts: Article 113 of the New Law expressly states that a contract constitutes the law governing the contracting parties and may not be rescinded or amended except by mutual agreement or by operation of law. While this reflects existing practice, its codification reinforces the binding nature of negotiated commercial terms.
• Framework agreements: Article 138 of the New Law formally recognises framework agreements as contracts that determine the principal terms governing future contracts between the same parties and deems them to form part of those subsequent contracts unless otherwise agreed. This may provide legal certainty to master agreements, framework supply contracts, and similar commercial structures that were widely used in practice but lacked a specific statutory footing under the Old Law.
• Choice of law: Article 19 of the New Law expressly recognises party autonomy in the choice of governing Where the parties have agreed on an applicable law, that law will govern. In the absence of agreement, the law of the parties’ common domicile applies; where domiciles differ, the law of the place of main performance applies. This replaces the previous rule, which looked primarily to the place of contracting, and aligns UAE conflict of laws rules more closely with international practice.
• Liquidated damages: Under Article 340 of the New Law, courts may now reduce or refuse agreed compensation where the creditor’s own fault contributed to the loss. Conversely, the creditor may claim above an agreed cap where the debtor has committed fraud or gross Any agreement to the contrary is void.

Practical Implications

When drafting framework agreements and master contracts stakeholders should consider clearly stating that the documents are intended to operate as such and may wish to expressly address how their terms apply to individual contracts concluded under them. Where commercial contracts contain liquidated damages or penalty provisions, parties should consider whether the creditor’s own conduct might contribute to triggering those provisions. This is a factor worth considering when the drafting liquidated damages provisions, rather than leaving it to be resolved in dispute.

Challenging Contracts: Void to Voidable, Misrepresentation, and Exploitation

What Has Changed

The New Law introduces a more commercially sophisticated framework for contract challenges. In particular, the New Law introduces three notable changes:

• Void to voidable: Under the Old Law, certain defects rendered a contract automatically void and incapable of being saved. The New Law recategorises a number of those defects, including mistake, duress, and contracts concluded by persons of limited legal capacity, so that they give rise to a voidable contract A voidable contract remains valid and effective unless successfully challenged within the applicable time limit and may be ratified by the party entitled to challenge it. This is a meaningful improvement in commercial certainty, as it reduces the risk of historic contracts being treated as having no legal effect. Where a contract is defective but contains the elements of a different valid contract, the court may now treat it as that valid contract provided that reflects the parties’ intention, offering a further mechanism for preserving commercial arrangements that would previously have failed entirely.
• Misrepresentation by omission: Article 171 of the New Law expressly provides that deliberate silence regarding a material fact constitutes misrepresentation, where the other party would not have entered into the contract had they been aware of it. Silence is no longer a safe harbour.
• Exploitation: Article 179 of the New Law introduces exploitation as a standalone ground for challenging a contract. A contract may be challenged where one party has taken advantage of the other’s vulnerable position — for example, by exploiting their urgent need, lack of experience, or the influence the exploiting party holds over them, resulting in a seriously unbalanced The remedy is cancellation of the contract or adjustment of its terms to remove the imbalance, and the other party may avoid cancellation by offering to remedy it. The claim must be brought within one year of the contract being concluded, with an absolute cut-off of three years.
• Longstop on nullity claims: Under Article 187 of the New Law, a claim that a contract is void cannot be brought more than 15 years after the contract was concluded. This limit did not exist under the Old It provides finality for historic transactions and may reduce the risk of earlier contracts in a chain of title being challenged long after the event, which is particularly relevant in asset acquisitions and property transactions where title may pass through multiple parties over time.

Practical Implications

For due diligence purposes, the shift from void to voidable contracts means material agreements within a target business may be less likely to be characterised as having no legal effect. Instead, the focus may be on whether a contract remains capable of challenge and whether the applicable limitation period has expired. Due diligence processes may need to evolve accordingly.

The new exploitation doctrine is particularly relevant in transactions involving distressed sellers, urgent exits, or significant information asymmetry. The one-year challenge period following signing creates a defined post-completion risk window that may need to be reflected in deal structuring, escrow

arrangements, and warranty and indemnity provisions. Parties may also wish to consider whether arm’s length negotiation recitals are appropriate in transactions involving any element of distress or imbalance.

The New Law’s treatment of misrepresentation by omission further reinforces the importance of comprehensive disclosure processes. A seller that fails to disclose information material to the buyer’s decision may now face statutory exposure in addition to contractual warranty liability.

More broadly, the introduction of a 15-year longstop for nullity claims reduces the scope for historic contracts to be challenged long after completion, which may be particularly relevant in asset acquisitions and transactions involving assets that have changed hands multiple times.

Limitation Periods and Buyer Remedies

The New Law makes several targeted changes to limitation periods that are directly relevant to commercial transactions:

The reduction in the limitation period for professional services claims from five years to three years is relevant both to professional services businesses assessing their own liability exposure and to parties considering potential claims against advisers. The extended limitation period for latent defects may

benefit buyers in asset transactions, while correspondingly increasing sellers’ post-completion exposure. The new two-year employment tail may also be relevant when assessing workforce liabilities in transactions and may warrant consideration in the drafting of employment-related indemnity provisions.

The New Law expands the remedies available to a buyer where goods are found to be defective. Under Article 495, a buyer may now choose between returning the defective item or retaining it and claiming a reduction in the purchase price reflecting the diminution in value caused by the defect. Where a buyer seeks a price reduction, the seller may instead offer to replace the defective item with a non-defective

equivalent. Under the Old Law, by contrast, the buyer’s primary remedy was limited to returning the item.

The New Law applies to limitation periods that remain unexpired as of 1 June 2026. Where the new limitation period is shorter than the equivalent period under the Old Law, time began to run from 1 June 2026. However, where the remaining period under the Old Law would expire sooner, the existing period will continue to apply.

Contract Performance and Judicial Intervention

What Has Changed

The New Law expands the judicial toolkit available where performance becomes more burdensome due to unforeseen circumstances:

• Changed circumstances: Under Article 224 of the New Law, where exceptional and unforeseeable general circumstances make performance oppressive, the court may now order rescission of the contract in addition to modification of the Under the Old Law, the court could only reduce the obligation. Any contractual agreement to the contrary is void.
• Force majeure: Article 236 expands the options available to parties in bilateral contracts where a force majeure event occurs. Where performance becomes partially impossible, either party may treat the corresponding obligation of the other party as extinguished, or request rescission of the contract. Where performance is temporarily impossible in a continuing contract, either party may seek modification of the contract to reflect the changed circumstances, or request rescission if modification is not practical.

Practical Implications

The court’s expanded powers to modify or rescind contracts on hardship grounds apply regardless of what the contract says, as any provision purporting to exclude that jurisdiction is void. Parties to long-term commercial contracts should consider whether their existing provisions dealing with material changes in circumstances, price adjustment, and force majeure adequately address the risk of judicial intervention, and whether those provisions are drafted in a way that minimises uncertainty if hardship or force majeure is invoked. This may be particularly relevant in infrastructure, supply, and services arrangements where contractual performance obligations extend over a significant period, and circumstances may change materially over the life of the contract.

Assignment of Rights and Debt

What Has Changed

The New Law restructures the assignment regime in two important respects.

• Assignment of rights (Articles 405 to 417): A party owed money or performance under a contract may now transfer that right to another person without needing the debtor’s consent, unless the contract restricts assignment or the nature of the obligation makes it non-transferable. The assignment takes effect against the debtor once they are notified of it or accept it. For the assignment to be effective against third parties, the debtor’s acceptance must be formally The party making the assignment warrants only that the right exists at the time of transfer, not that the debtor will pay, unless specifically agreed. Any security attached to the right, such as a guarantee or pledge, transfers with it automatically.
• Assignment of debt (Articles 418 to 424): A debtor may transfer their obligation to another person, but only with the consent of both the person taking on the obligation and the creditor. If the creditor is given a reasonable period to respond to a proposed transfer and does not do so, their silence is treated as refusal, meaning the original debtor remains This is an important change from the Old Law’s position. Under the New Law, once the creditor consents, the original debtor is released from the obligation. Any guarantees supporting the original debt do not automatically extend to the new arrangement unless the guarantor has separately consented.

Practical Implications

In asset deals involving the transfer of contractual rights, notification requirements should be met and third-party effectiveness properly documented, given that a formally dated acceptance is required for the assignment to bind third parties. In debt restructurings and novations, creditor consent must be actively obtained and recorded, as silence can no longer be treated as acceptance of a proposed debt transfer.

Where rights are being assigned as part of a financing or security arrangement, parties should consider confirming that the securities attached to those rights transfer automatically without requiring separate steps, subject to any specific consent requirements that may apply to particular security types.

Agency and Authority to Contract

What Has Changed

The New Law introduces a more structured framework for agency, with direct implications for corporate authorisations. Agency is now expressly divided into three types:

• Contractual agency: This is the most common form in a commercial context. It arises where one person formally appoints another to act on their behalf, most commonly by way of a power of The agent’s authority is determined by the terms of that appointment and may not be exceeded.
• Legal agency: This arises by operation of law rather than by formal Common examples include a parent acting on behalf of a minor child or a liquidator acting on behalf of a company in liquidation. The representative’s authority is determined by the relevant legislation.
• Judicial agency: This arises where a court appoints someone to act on behalf of another, for example a guardian appointed to manage the affairs of a person lacking mental capacity. The representative’s authority is determined by the relevant court order.

In each case, the representative may not exceed the powers conferred on them. For acts beyond ordinary management and administration, including sales, mortgages, settlements, donations, acknowledgements, arbitration, and court proceedings, a special agency is required under Article 870. A general power of attorney authorises only management and preservation acts and will not be sufficient for these purposes.

Article 141 also clarifies that where a contract is concluded through a representative, it is generally the knowledge and state of mind of the representative, rather than the principal, that is relevant when assessing defects of consent. However, where the representative acts pursuant to specific instructions from the principal, the principal’s own knowledge becomes relevant.

Under Article 145 of the New Law, a representative may not contract with themselves on behalf of the principal, whether for their own benefit or for the benefit of a third party, unless the principal has specifically authorised the transaction.

Practical Implications

The New Law’s more structured approach to agency may have direct consequences on how authority is documented and verified in transactions. A general power of attorney will not be sufficient to authorise a sale, mortgage, settlement, or any other act beyond ordinary management, and parties should consider reviewing board resolutions and powers of attorney used in transactions to confirm they confer the correct type and scope of authority for the specific acts being authorised. In management buyouts and related-party transactions where a director or manager is on both sides of a deal, specific authorisation for self-dealing will be required.

Corporate Structures

What Has Changed

• Single-member companies: Article 603 of the New Law expressly recognises that a company may be established or owned by a single person in accordance with applicable legislation. While single-member companies were already permitted under the UAE’s Commercial Companies Law, the Civil Code previously defined a company as requiring two or more persons. The New Law resolves that inconsistency, putting the civil law position beyond doubt.
• Professional companies: Articles 645 to 654 of the New Law introduce a dedicated framework for companies established by licensed professionals to practise a licensed Key features include personal liability of partners for their own professional faults; company liability for partner faults in relation to third parties; restrictions on concurrent partnerships; and automatic withdrawal on permanent loss of licence. This framework is directly relevant to law firms, medical practices, engineering consultancies, and other professional service businesses operating onshore.
• Partner inspection rights: Article 617 of the New Law provides that non-managing partners in a civil company, including those in joint venture structures, have the right to inspect the company’s books, records, and This right is non-delegable and any agreement to exclude or restrict it is void.
• Dissolution test: Under Article 623 of the New Law, dissolution is triggered where assets are lost to the extent that there is no benefit in continuation, rather than on the loss of all capital. This may reduce the risk of inadvertent technical dissolution.
• Business continuity on partner withdrawal: Article 626 provides that where a two-partner company loses one partner through withdrawal, the remaining partner may continue the company alone and convert it to the appropriate legal form.

Practical Implications

The recognition of single-member companies resolves a longstanding inconsistency between the UAE Civil Code and the UAE Commercial Companies Law. The new professional company framework introduces a dedicated statutory regime for professional service businesses operating onshore, covering matters including liability, licensing, and partner governance. The non-managing partner inspection right in civil companies cannot be excluded or restricted by agreement, which may be worth bearing in mind when reviewing information rights provisions in civil company joint venture and partnership documents. Under the revised dissolution test, a civil company is no longer at risk of technical dissolution simply because it has lost capital; dissolution is now triggered only where there is no benefit in the company continuing. The express ability for a surviving partner to continue a two-partner civil company alone following the withdrawal of the other partner may also be a relevant consideration in succession and exit planning.

Transitional Provisions

The New Law applies prospectively from 1 June 2026. Pre-existing contracts and transactions will continue to be governed by the Old Law. Limitation periods that remained unexpired as of 1 June 2026 will be subject to the new periods where the revised period is shorter. However, where the remaining period under the Old Law would expire sooner, the existing period will continue to apply.

Conclusion

The New Law make important updates to the UAE’s civil legal framework. It introduces new obligations, new risks, and new tools across a broad range of commercial and corporate contexts. The pre-contractual disclosure regime, exploitation doctrine, restructured assignment framework, professional company provisions, and changes to limitation periods and buyer remedies are among the developments that may have the greatest practical impact.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.