Most contracts that run into difficulty do not end in court. They end in a renegotiation — or they should. The businesses that preserve value in a downturn are not those with the strongest legal position on paper, but those that engage their counterparties early, frame the conversation well, and document the process properly. This article sets out a practical framework for renegotiating contracts under pressure in the UAE. For the legal framework governing force majeure and hardship under UAE law, see our companion article, Force Majeure in an Age of Conflict.
Renegotiation Is Not a Sign of Weakness
There is a persistent assumption — particularly in cross-border commercial relationships — that approaching a counterparty to renegotiate is an admission of failure, or that it signals vulnerability. In practice, the opposite is true. A party that identifies a problem, proposes a structured adjustment, and engages proactively is demonstrating commercial competence. A party that goes silent, misses payments, and forces the counterparty to initiate formal proceedings is demonstrating the opposite.
Under UAE law, this instinct is supported by the duty of good faith under Article 246 of the Civil Code, which requires parties to perform their contracts honestly and cooperatively. Courts have applied this principle broadly, and a party that refuses to engage in reasonable renegotiation when circumstances have materially changed may find its own position weakened if the matter proceeds to litigation or arbitration.
The new Civil Transactions Law (Federal Decree-Law No. 25 of 2025), which takes effect on 1 June 2026, reinforces this direction. It introduces formal pre-contractual disclosure obligations and strengthens the good faith framework. Businesses that engage transparently in renegotiations are positioning themselves on the right side of both the current and incoming legal regimes.
When to Renegotiate vs. When to Invoke
The decision between informal renegotiation and formal invocation of a contractual or statutory remedy — force majeure, hardship, or a MAC clause — is one of the most consequential choices a business makes during a period of disruption. It is also one of the most frequently misjudged.
Formal invocation has real consequences. A force majeure notice, once issued, creates a documentary record that the counterparty will use to assess its own position. It may trigger cross-default provisions in other agreements. It may entitle the counterparty to terminate. And under UAE onshore law, a successful force majeure claim doesn’t suspend the contract — it terminates it. If the objective is to preserve the relationship and adjust the terms, formal invocation may be the worst available tool. Accordingly, where the commercial objective is to preserve the relationship and recalibrate obligations, formal invocation is often counterproductive. It can accelerate breakdown rather than facilitate resolution. Force majeure should therefore be treated not as a routine protective step, but as a high-impact strategic decision.
Renegotiation, by contrast, keeps options open. It allows the parties to explore revised payment schedules, adjusted delivery timelines, partial performance, or interim arrangements without triggering the legal machinery of termination. It is, in most cases, the commercially superior path — provided it is conducted with the same discipline and documentation that a formal process would require.
The question is not whether to renegotiate, but when formal invocation becomes necessary. The answer is usually: when renegotiation has been attempted in good faith and has failed, or when the counterparty’s conduct makes clear that voluntary adjustment is not forthcoming. At that point, the documentation of the renegotiation attempt itself becomes evidence of good faith and reasonableness — which strengthens the party’s position in any subsequent proceedings.
Structuring the Renegotiation
A renegotiation conducted under pressure is not a casual conversation. It is a structured commercial process, and the quality of the preparation determines the outcome. The following framework reflects what we see work in practice.
Map Your Exposure Before You Reach Out
Before contacting a counterparty, conduct a full review of the affected agreement. Identify every obligation at risk — not just the one that triggered the concern. Understand the notice provisions, the termination triggers, and whether any cross-default or MAC clauses exist in related agreements. In multi-jurisdictional structures — common for businesses operating across onshore UAE, DIFC, and ADGM — the same underlying disruption may affect contracts governed by different legal regimes, each with different remedies and different risks. Equally important is understanding your contractual levers. Analyse notice provisions, termination triggers, cure periods, and whether any cross-default or MAC clauses exist in related agreements. These provisions often determine who has negotiating leverage before discussions even begin. Beyond the legal position, map the commercial exposure. Assess the financial impact of breach scenarios, the importance of the relationship, and whether the counterparty has viable alternatives. This helps define your walk-away point and informs how aggressively or collaboratively you should approach the renegotiation.
Lead with the Proposal, Not the Problem
The most common renegotiation mistake is opening the conversation with a description of your difficulty rather than a proposal for resolution. A counterparty who receives a message explaining how badly your business has been affected, without a concrete proposal attached, will draw one of two conclusions: either you are preparing to default, or you are hoping they will make the first offer. Neither is productive.
The opening communication should present a specific, realistic proposal — a revised payment schedule, a partial delivery arrangement, an interim pricing adjustment, a temporary scope reduction — that demonstrates you have thought carefully about how to meet your obligations in a modified form. The proposal does not need to be final. It is an opening position. But it needs to be credible and specific. The proposal does not need to be final, but it must be internally consistent, commercially viable, and capable of implementation. A vague or aspirational position undermines credibility and invites the counterparty to challenge assumptions rather than engage constructively. Finally, tone matters. The communication should project control and continuity, not distress. The goal is to frame the situation as a managed adjustment, not a breakdown.
Frame the Alternative
A counterparty is more likely to accept a renegotiated arrangement if they understand that the alternative — formal proceedings, a force majeure claim, protracted non-performance — produces a worse outcome for both parties. This does not mean making threats. It means presenting the renegotiation as the commercially rational path, in a tone that is transparent and constructive. For guidance on how communications during this period carry legal weight, see our article on communications risk during commercial difficulty.
Document Everything Contemporaneously
Every communication, every proposal, every response — and every silence — should be documented in writing and retained. If the renegotiation succeeds, the documentation forms the basis of the amended arrangement. If it fails, it becomes the evidence of good faith and reasonableness that will define your position in any subsequent dispute. UAE courts and arbitral tribunals give significant weight to contemporaneous records, and the absence of documentation is treated as a vulnerability, not a neutral fact.
Formalise the Outcome
If the renegotiation produces an agreed adjustment, that adjustment must be recorded in a binding written instrument — a side letter, an addendum, or a restated agreement. A verbal understanding or an email exchange confirming a “general agreement” is not sufficient. Under UAE law, the terms of the original contract continue to apply unless formally varied, and a counterparty who later reverts to the original terms will be on strong ground if the variation was never properly documented.
Common Renegotiation Structures
The form of the renegotiated arrangement depends on the nature of the disruption and the commercial relationship. The most common structures we see in practice include:
- Payment deferrals and revised schedules. The existing obligation remains, but the timeline is extended or instalments are restructured. This is the most frequent adjustment and is particularly relevant where the disruption affects cashflow rather than the ability to perform.
- Partial performance arrangements. The scope of work or delivery is reduced to what is currently achievable, with a mechanism for restoring full performance when conditions allow. Common in construction, supply, and services contracts.
- Price adjustment mechanisms. Where the cost of performance has increased materially due to external factors — currency movements, supply chain disruption, increased insurance or shipping costs — an interim or permanent price adjustment may be agreed. The key is to tie the adjustment to an objective, verifiable benchmark.
- Standstill agreements. Both parties agree to pause performance and enforcement for a defined period while a longer-term solution is negotiated. Standstills are particularly useful where the situation is still evolving and a permanent adjustment is premature. They should always be documented with clear terms on duration, conditions, and what happens when the standstill expires.
- Consensual termination with settlement. Where the commercial relationship is no longer viable, a negotiated exit — with agreed compensation, return of deposits, or mutual release — is almost always preferable to a contested termination. The costs of formal proceedings, both financial and reputational, are often material enough to make a negotiated exit the rational choice for both sides.
What to Avoid
Renegotiations under pressure produce their own category of mistakes. The most consequential ones we see are:
- Continuing to perform while negotiating, without reserving rights. If you continue to perform on the original terms while negotiating a variation, you may be taken to have affirmed the contract and waived the right to claim relief. Any communication proposing a renegotiation should include a clear reservation of rights.
- Making unilateral adjustments without agreement. Reducing your own performance — delivering less, paying less, slowing down — without the counterparty’s agreement is a breach, regardless of how reasonable the adjustment may seem. Renegotiation requires consent.
- Relying on verbal agreements. A counterparty who verbally agrees to a deferral and then later claims non-payment is in a stronger position than a party whose only evidence is a recollection of what was said. Everything in writing.
- Neglecting related agreements. A renegotiation of one contract may trigger cross-default, notification, or consent provisions in other agreements — including financing arrangements, guarantees, or related commercial contracts. The review must be holistic.
We advise businesses across the UAE on contract renegotiations, payment restructuring, and counterparty risk management. Our work spans drafting renegotiation correspondence, preparing and reviewing variation agreements, and advising on the interaction between renegotiation and formal remedies — including force majeure, hardship, and MAC clauses. Where agreements span onshore UAE, DIFC, and ADGM, we provide coordinated advice that reflects the different frameworks applicable to each relationship.
This article is part of our series on managing commercial risk. For the legal framework governing force majeure and hardship, see Force Majeure in an Age of Conflict: What UAE Contracts Actually Say vs. What Parties Expect. See also our articles on communications risk during commercial difficulty and pre-litigation strategy as leverage. Contact us at office@atblegal.com for a non-obligatory initial consultation.
