TRW & Co · Commercial contracts
The New UAE Civil Transactions Law (Decree-Law 25 of 2025): What Changes for Business
The new UAE Civil Transactions Law, Federal Decree-Law No. 25 of 2025, took effect on 1 June 2026 and replaced the 1985 code. It imposes good-faith and disclosure duties before signature, strengthens judicial power over hardship, protects guarantors, lowers the age of majority and changes time bars. Here is what it means for business contracts.
Key pointTwo clauses many UAE templates still contain, an exclusion of the court's hardship power and a limit on pre-contract disclosure, are now void as a matter of law, so they give false comfort rather than protection.
At a glance
In force since June 2026
Federal Decree-Law No. 25 of 2025 was issued on 1 October 2025 and took effect on 1 June 2026, replacing the 1985 Civil Transactions Law in full.
Duties before signature
Parties must negotiate in good faith and disclose essential information; any clause limiting that disclosure duty is void, and bad-faith withdrawal attracts liability for actual loss.
Hardship cannot be excluded
Courts may reduce an onerous obligation or rescind the contract after exceptional unforeseen events, and any agreement excluding that power is void.
Guarantors better protected
A guarantor who is not jointly liable can require the creditor to pursue the principal debtor first, so guarantees need express joint-liability and waiver wording.
Majority at eighteen
The age of majority falls from 21 lunar years to 18 Gregorian years, changing capacity checks for signatories, shareholders and guarantors across onshore transactions.
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As of October 2026, the new UAE Civil Transactions Law has been in force for several months. Federal Decree-Law No. 25 of 2025 was issued on 1 October 2025, published in the Official Gazette on 14 October 2025 and took effect on 1 June 2026, replacing the Civil Transactions Law of 1985 in its entirety. For businesses, it is the most significant rewrite of UAE contract rules in a generation.
This guide explains what actually changed for commercial parties, where the old drafting habits now create risk, and what to update in your contract templates, guarantees, powers of attorney and claims diary. It focuses on onshore UAE law; the DIFC and ADGM apply their own common-law regimes, which we flag where the answer differs.
The short answer: what the new law changes for business
The new code keeps the civil-law architecture UAE lawyers know, but moves the emphasis towards good faith, transparency and judicial supervision of contractual balance. Five shifts matter most to commercial parties.
- Obligations start before signature. Parties must negotiate in good faith and disclose essential and decisive information. A clause that tries to limit that disclosure duty is void.
- Hardship has sharper teeth. Where exceptional, unforeseeable general circumstances make performance onerous, a court may reduce the obligation to a reasonable limit or rescind the contract, and parties cannot contract out of that power.
- Capacity rules changed. The age of majority is now 18 Gregorian years, down from 21 lunar years, which affects who can sign, guarantee and hold shares.
- Guarantors and buyers gained protection. Guarantors who are not jointly liable can insist that the creditor looks to the principal debtor first, and the period for latent-defect claims in sales has been extended.
- Time bars moved. Transitional rules decide whether old or new limitation periods apply to claims that were already running on 1 June 2026.
None of these changes is exotic. Together, though, they mean templates drafted under the 1985 law can now misfire, especially on disclosure, hardship, guarantees and authority to sign.
Where the new UAE Civil Transactions Law sits in the legal framework
The Civil Transactions Law is the UAE's general law of obligations: contract formation, interpretation, performance, damages, tort, property rights, nominate contracts such as sale, lease, works and agency, and guarantees. Specialist statutes sit on top of it and prevail within their own fields.
The most relevant of those for business are the Commercial Transactions Law, which governs commercial contracts between traders, the Commercial Companies Law, which governs onshore companies, and the law on securing rights in movables, which governs security over movable assets. Where one of these specialist laws addresses an issue, it applies first; the new UAE Civil Transactions Law fills the gaps and supplies the general principles.
The hierarchy of sources
The new code reorganises how courts fill gaps. The legislative text applies first. Where it is silent, a court may draw on principles of Islamic Sharia most suited to the interests involved, without being bound to a single school of jurisprudence, and then on custom and principles of natural law and justice. In practice this gives judges more latitude and makes clear drafting more, not less, valuable.
Free zones, the DIFC and ADGM
Companies licensed in ordinary free zones remain subject to federal civil and commercial law for their contracts, so the new code applies to them. The DIFC and ADGM are different: each has its own contract and obligations legislation, and contracts governed by DIFC or ADGM law are not governed by the federal code. If you contract with counterparties across these jurisdictions, see our guide to governing law and jurisdiction clauses.
Contract formation, negotiation and disclosure
The most practical change for deal teams is pre-contractual liability. Good faith now applies at every stage of negotiation, and deliberately withholding material information is treated as bad faith. A party that breaks off negotiations in bad faith is liable for the other side's actual loss, though not for lost expected profits unless agreed.
The law also imposes a mutual duty to provide essential and decisive information. Crucially, the parties cannot agree to limit that duty, and any clause purporting to do so is void. Standard "no reliance" and "entire agreement" language therefore needs re-reading: it may still help on interpretation, but it will not cut down a statutory disclosure obligation.
Framework agreements
The code expressly recognises framework agreements for recurring or long-term relationships. Essential terms agreed in the framework form part of each later contract made under it unless the parties agree otherwise. That is helpful for supply and distribution programmes, but it also means outdated framework terms can silently govern every new order.
Offers and conduct
Consent may be expressed by conduct and, in limited circumstances supported by prior dealings or custom, by silence. A priced display of goods or services is generally treated as an offer. Online sellers and businesses that publish price lists should check their terms make clear what is, and is not, a binding offer. Our page on commercial contracts in the UAE covers template design in more depth.
Performance, hardship and damages
The old code already allowed a court to reduce an onerous obligation when exceptional circumstances struck. The new code goes further: the court may reduce the obligation to a reasonable limit or rule for rescission of the contract, and any agreement to the contrary is void. That last point is significant, because many UAE contracts tried to exclude or narrow judicial rebalancing.
Hardship is distinct from force majeure. Force majeure concerns performance that becomes impossible; hardship concerns performance that remains possible but becomes excessively burdensome. Long-term supply, construction and energy contracts are most exposed. Our guide to force majeure and hardship under UAE law explains how to draft around both.
Damages and agreed compensation
UAE courts have long been able to adjust pre-agreed compensation so that it reflects the actual loss suffered, and that supervisory approach continues. The practical lesson is unchanged but sharper: liquidated damages and caps should be evidenced as a genuine pre-estimate, with the commercial reasoning recorded at signing, because a court may scrutinise them against the loss proved.
Limitation and exclusion clauses also need care. They must sit alongside mandatory rules on disclosure, hardship and abuse of rights, and a court may refuse to apply a term that operates to shield deliberate misconduct. See our analysis of limitation of liability, indemnities and warranties.
Do not assume an "exclusion of hardship" or "no disclosure obligation" clause still works. Under the new UAE Civil Transactions Law, both are void as a matter of law. Replace them with clauses that allocate risk transparently, define notification steps, and set out how price or scope will be renegotiated if circumstances change.
Guarantees, sales, property rights and civil companies
Guarantees
Guarantee rules have been reorganised to protect guarantors. A guarantor who is not jointly liable may now require the creditor to pursue the principal debtor before turning to the guarantor, and may require the creditor to look to the debtor's assets first where the guarantor points to them. These protections do not apply where the guarantor has accepted joint liability with the debtor.
For lenders, landlords and suppliers, the fix is simple but essential: guarantees taken from shareholders and parent companies should state expressly that the guarantor is jointly liable with the debtor and waives any right to require prior recourse. Our team on secured lending in the UAE reviews guarantee packages against the new rules.
Sales and latent defects
The period to bring a latent-defect claim in a sale has been extended from six months to one year from delivery, unless a longer guarantee is agreed. Buyers may reject defective goods, keep them with a price reduction or, in some cases, require a defect-free substitute. Sellers should revisit warranty periods and returns processes; buyers should calendar the new window.
Property rights
Usufructuary building rights over another's land, known as musataha, must now be registered with the competent authority; an unregistered right is void. Developers, landlords and project companies relying on unregistered musataha arrangements should treat registration as urgent. A new preventive action also allows a possessor to seek suspension of new works that threaten their possession.
Civil and professional companies
The code updates the rules on civil companies, which are separate from commercial companies under the Commercial Companies Law. A single person may now establish a civil company, the withdrawal of a partner no longer automatically dissolves the company if the remaining partners agree, and a new framework governs professional companies. Consultancies and professional practices structured as civil companies should check their constitutional documents.
Old law vs new law at a glance
| Topic | Position under the 1985 law | Position under the new law | Action for business |
|---|---|---|---|
| Age of majority | 21 lunar years | 18 Gregorian years | Update KYC, signatory and shareholder capacity checks |
| Pre-contract conduct | Limited express duties | Good faith at every stage; disclosure duty cannot be limited | Record disclosures; revise "no reliance" wording |
| Hardship | Court could reduce onerous obligation | Court may reduce or rescind; contrary agreement void | Replace exclusion clauses with renegotiation mechanics |
| Framework agreements | Not expressly regulated | Recognised; terms flow into later contracts | Audit master agreements for outdated terms |
| Guarantees | Creditor could pursue guarantor or debtor | Non-joint guarantor may require recourse to debtor first | Take joint-liability wording and waivers |
| Latent defects in sales | Six months from delivery | One year from delivery unless longer agreed | Align warranty terms and claims handling |
| Musataha rights | Registration practice varied | Registration mandatory; unregistered right void | Register existing rights |
Transitional rules: which law governs existing contracts?
The new UAE Civil Transactions Law is not retrospective unless legislation provides otherwise. Contracts concluded before 1 June 2026 generally remain governed by the law in force when they were made as to their validity, but the picture is more nuanced for continuing performance, new amendments and disputes arising after commencement.
Limitation periods have specific transitional rules. New provisions on time bars apply from commencement. Where the new law shortens a period, the shorter period runs from 1 June 2026, unless the time remaining under the old law would expire sooner, in which case the old remainder applies. Some specific limitation periods, including for certain professional claims, have changed, so claims diaries should be re-run claim by claim.
Amending or restating a legacy contract after commencement may bring it under the new rules. Before you sign a variation, consider whether you are importing new mandatory duties into an older bargain. Our article on limitation periods in the UAE explains the wider landscape.
Illustrative scenario: a distributor, a guarantee and a price shock
This scenario is illustrative only; the parties are generic and no real matter is described.
A mainland trading company signed a five-year master supply agreement with an overseas manufacturer in 2024, supported by a guarantee from the distributor's shareholder. In mid-2026 the parties agree a variation extending the term. Shortly after, an unforeseen general market disruption sharply increases the manufacturer's input costs.
Three questions arise. First, did the variation bring the agreement within the new UAE Civil Transactions Law, and with it the non-excludable hardship power? Second, can the manufacturer call the shareholder guarantee directly, or can the guarantor insist the distributor is pursued first, given the guarantee did not state joint liability? Third, does the master agreement operate as a framework agreement whose old pricing terms flow into each new order?
The answers depend on the drafting and the facts, but the lesson is general: a variation signed without a legal review can change the governing rules, weaken security and lock in outdated terms in a single step.
Risks and common mistakes under the new UAE Civil Transactions Law
Relying on clauses that are now void
The most common error is keeping boilerplate that tries to exclude the disclosure duty or the court's hardship power. Under the new code these clauses are void, so they give false comfort. Worse, their presence may suggest a party knew of a risk and tried to hide behind contract wording.
Replace them with transparent risk allocation: disclosure schedules, price-review and renegotiation clauses, clear notice procedures and, where appropriate, arbitration for disputes about rebalancing.
Taking guarantees without joint-liability wording
Guarantees drafted on the assumption that a creditor may pursue the guarantor at will may now be met with a demand that the debtor be pursued first. That costs time and money, and in insolvency scenarios can be decisive.
Lenders, landlords and suppliers should ensure each guarantee states that the guarantor is jointly liable with the principal debtor and expressly waives prior recourse, and should re-paper key existing guarantees where commercially feasible.
Overlooking capacity and authority
The lower age of majority widens who may contract, but authority remains a separate issue. A general power of attorney covers acts of management and preservation; sales, mortgages, settlements and gifts require specific authority.
Review powers of attorney held by managers and family members, and check that signatories on major transactions hold a specific mandate. Our page on directors' duties and liability covers related governance controls.
Missing the new limitation windows
Transitional rules mean some claims that were comfortably in time under the old law may now expire earlier, while others gain time. Assuming the old periods still apply is a classic and avoidable error.
Run a claims-diary review across live disputes and receivables, and diarise both the old and new expiry dates until the position is confirmed.
The cross-border angle
The code clarifies that the law expressly chosen by the parties governs the form and substance of contractual obligations, subject to mandatory rules and public order. That helps foreign parties who prefer English, Singapore or other governing law. But onshore courts may still apply UAE mandatory provisions, and contracts over UAE real property are governed by the law of the place where the property is located.
For groups operating between the UAE and Bangladesh, the UK, Singapore, India or China, the practical approach is to choose governing law and forum deliberately, and to check that the chosen forum's judgments or awards can be enforced against UAE assets. Our pages on cross-border contracting in the UAE and arbitration explain the options. Where representation before UAE onshore courts or the DIFC/ADGM Courts is required, we work alongside locally licensed advocates and registered practitioners.
What to do now: a compliance checklist
- Inventory your templates. List the standard terms, master agreements, NDAs, guarantees and powers of attorney you use onshore, and identify which are governed by UAE federal law.
- Strip out void clauses. Remove or rewrite exclusions of the disclosure duty and the hardship power, and replace them with workable renegotiation and notice mechanics.
- Re-paper security. Add joint-liability and waiver language to guarantees and consider refreshing key existing guarantees.
- Update capacity and authority checks. Align KYC, onboarding and board processes with the new age of majority, and audit powers of attorney for specific authority.
- Re-run the claims diary. Recalculate limitation dates for live claims under the transitional rules and flag any that may have shortened.
- Register property rights. Confirm that musataha and similar usufructuary rights are registered with the competent authority.
- Brief deal teams. Train commercial staff on good-faith negotiation, disclosure records and the risks of informal variations.
TRW & Co reviews contract portfolios against the new UAE Civil Transactions Law and prioritises the changes that carry real exposure. To discuss a review, contact our Dubai team at info@trw.co. You can also read our wider guide to contract law in the UAE.
Frequently asked questions
01When did the new UAE Civil Transactions Law come into force?
Federal Decree-Law No. 25 of 2025 was issued on 1 October 2025, published in the Official Gazette on 14 October 2025 and entered into force on 1 June 2026. It repeals and replaces the Civil Transactions Law of 1985 in its entirety. The law is not generally retrospective, but transitional provisions govern limitation periods that were already running on commencement, and variations signed after 1 June 2026 may bring older contracts within the new rules.
02Does the new Civil Transactions Law apply in free zones?
Yes, for ordinary free zones. Companies licensed in free zones such as those in Dubai, Sharjah or Ras Al Khaimah remain subject to federal civil and commercial law for their contracts, so the new code applies unless the parties validly choose another law. The DIFC and ADGM are different: each has its own contract and obligations legislation and its own courts, so contracts governed by DIFC or ADGM law are not governed by the federal code.
03Can we still exclude hardship in a UAE contract?
No. Under the new law, where exceptional, general and unforeseeable circumstances make performance excessively onerous, a court may reduce the obligation to a reasonable limit or rescind the contract, and any agreement to the contrary is void. Parties can still allocate risk transparently, for example with price-adjustment formulas, renegotiation steps and notice procedures, which give a court a clear commercial framework to apply rather than leaving rebalancing entirely to its discretion.
04What does the new law change for personal and corporate guarantees?
Guarantee rules were reorganised to protect guarantors. A guarantor who is not jointly liable with the debtor may require the creditor to pursue the principal debtor first and to look to the debtor's assets where the guarantor identifies them. These defences do not apply where the guarantor has accepted joint liability. Creditors should therefore ensure guarantees state joint liability and expressly waive prior recourse, and consider refreshing important existing guarantees.
05Do existing contracts need to be rewritten?
Not wholesale, but they need triage. Contracts made before 1 June 2026 are generally governed by the law in force when made, yet continuing obligations, variations and limitation periods can be affected. Prioritise master and framework agreements, guarantees, powers of attorney and contracts you expect to amend. Remove clauses that are now void, add joint-liability wording to security, and recalculate limitation dates for live claims under the transitional rules.
06How does the lower age of majority affect business?
A person now reaches majority on completing 18 Gregorian years rather than 21 lunar years, so 18 to 21-year-olds can contract, hold shares and give guarantees in their own right, subject to full mental capacity and no interdiction. Businesses should update onboarding, KYC and board processes. Family businesses should revisit shareholder agreements and succession arrangements that assumed younger family members would act through guardians until 21.
Sources and official materials
- Federal Decree-Law No. 25 of 2025 Promulgating the Civil Transactions Law — Official text, issue date, gazette and effective date
- Federal Decree-Law No. 32 of 2021 on Commercial Companies — Onshore company law that sits alongside the civil code
- Federal Decree-Law Promulgating the Commercial Transactions Law — Specialist rules for commercial contracts between traders
- Federal Law Regarding Securing the Rights in Movables — Security interests over movable assets
- UAE Legislation portal — Official federal legislation database
General information only, current as at 27 October 2026. It is not legal advice and does not create a lawyer–client relationship. UAE law differs between the onshore jurisdiction, the DIFC, ADGM and the free zones, and changes frequently; check current official sources and take advice on the facts of your matter.
