The United Arab Emirates has enacted the most consequential reform of its civil law in four decades. Federal Decree-Law No. 25 of 2025 promulgating the new Civil Transactions Law came into force on 1 June 2026, repealing the 1985 Civil Code in its entirety. This is not a set of targeted amendments: the Code has been re-drafted and renumbered throughout, and several areas – pre-contractual conduct, civil liability, the assignment of obligations, suretyship and a number of nominate contracts have been substantively rewritten.

This is Part 1 of a two-part briefing. It covers the changes most likely to affect the day-to-day life of a business: how you negotiate, draft, perform and enforce contracts; your exposure to liability for harm; your guarantees and receivables; and the contracts you use most often. Part 2 will cover the more specialised reforms. Where a rule is stated, the governing article of the new Code is given in bold.

DOWNLOAD: UAE Civil Code — Schedule of Key Material Changes

Before You Sign: Negotiations Now Carry Legal Weight

The most significant departure from the old framework is that legal obligations now attach before any contract is signed. Under Articles 121 to 123, parties must conduct negotiations in good faith.

Good faith and bad-faith liability (Article 121).  Negotiating or terminating negotiations in bad faith, for example by withholding material information or engaging in misleading conduct — can give rise to liability even if no contract is ever concluded. Compensation is limited to the actual damage suffered; it does not extend to the profit expected from the contract that was not concluded, or to lost opportunities, unless the parties have agreed otherwise.

Mandatory duty of disclosure (Article 122).  A party holding information of decisive importance to the other party’s consent must disclose it. The duty falls on both parties, it cannot be excluded by agreement, and non-disclosure can ground both a damages claim and annulment of the contract.

Confidential information (Article 123).  A party who uses or discloses confidential information obtained during negotiations, without permission, is liable under the general rules — a useful protection when sharing commercially sensitive material in a deal process.

Practical takeaway: Every tender, negotiation and letter of intent is now legally consequential. Treat the negotiation phase with the rigour you apply to signing: document what is disclosed, mark confidential material as such, and keep records of how and why talks progress or end.

How Contracts Are Classified

A new statutory taxonomy of contracts (Articles 116 to 118).  The Code now expressly classifies contracts as bilateral or unilateral, consensual, formal or real, and negotiated contracts or contract of adhesion.

Practical takeaway – These titles are not merely academic labels; they affect when the contract is formed, how it is interpreted, what remedies are available, and how far a court may intervene in interpreting the relevant contracts.

A general doctrine of representation (Articles 139 to 145).  Representation in contracting is now governed by a free-standing framework — contractual, legal or judicial authority, the scope of a representative’s powers, and a prohibition on self-dealing — rather than being dealt with only through the law of agency. This matters wherever employees, agents or signatories bind your company.

Practical takeaway – For businesses, this means authority to sign and negotiate contracts becomes a more central legal risk. Who signs the contract now matters as much as what the contract says. Companies should clean up their signing authorities, update POAs and board mandates, record approvals properly, and ensure that representatives do not exceed their authority or enter into conflicted transactions without clear authorisation.

Framework agreements (Article 138).  Where parties set principal terms to govern a series of future transactions, those terms are deemed to form part of the subsequent contracts unless the parties agree otherwise, whether expressly or impliedly. Businesses operating with master agreements and purchase orders must be precise about when the framework terms do and do not apply.

Practical takeaway: Business should review their framework agreements, standard terms and purchase order templates to ensure that future contracts do not unintentionally adopt outdated, inconsistent or commercially unsuitable terms.

Governing Law in Cross-Border Deals

Choice of law (Article 19).  Party-chosen law is now the express primary rule for the form and substance of contractual obligations. Failing a choice, the default no longer points to the place the contract was concluded: it falls first to the parties’ common domicile, and then to the law of the place where the main obligation is to be performed. Contracts concerning immovable property remain the exception — they are governed by the law of the place where the property is located.

Practical takeaway: A well-drafted governing-law clause now has stronger statutory footing, so it is worth getting right. Where there is no clause, the fallback can produce a different and less predictable result than under the old law; specify the governing law expressly in any cross-border arrangement.

Performance, Hardship and Agreed Damages

Hardship and unforeseen circumstances (Article 224).  Where exceptional, general circumstances that could not have been foreseen at the time of contracting render performance of an obligation onerous — without making it wholly impossible — a court may reduce the obligation to a reasonable limit or rule for the rescission of the contract. Under the old law the court could only reduce the obligation; the power to rescind is new, and any agreement to the contrary is void.

By contrast, the force majeure rules (now Article 236) — automatic rescission where supervening events make performance wholly or partially impossible — are retained rather than changed; they are noted here only because they are often assumed to be new.

Construction — hardship relief for lump-sum works.  Where unforeseeable general exceptional circumstances disrupt the financial basis of a lump-sum Muqawala contract, the court may now restore the contractual equilibrium — extend the time, increase or reduce the price, or order rescission (Article 829(3)). The old law rigidly barred any increase to a lump-sum price.

Practical takeaway: Businesses should not assume that hardship risk can be completely allocated away by contract: if exceptional and unforeseeable general circumstances make performance seriously onerous, the court may reduce the obligation or rescind the contract. For long-term or fixed-price contracts, parties should build in notice, renegotiation, price-adjustment and termination mechanisms, because “fixed price” no longer always means “fixed risk.”

Liquidated damages (Article 340).  The court’s power to revisit agreed compensation is now a graded regime. A court may reduce the agreed sum where it is excessive or the debtor has partially performed; reduce it where the creditor contributed to the loss by their own fault, and withhold it entirely where the creditor’s fault predominates; and award more than the agreed sum, at the creditor’s request, only on proof of the debtor’s fraud or gross fault. Agreements purporting to exclude these powers are void.

Practical takeaway: Liquidated-damages and exclusion clauses cannot be treated as final: a court retains oversight of the amount, and a claimant’s own contribution to the loss can reduce or eliminate recovery. In long-term contracts, define carefully what counts as the kind of hardship that could trigger judicial intervention.

Your Deadlines to Bring a Claim Have Shortened

This is the correction most likely to catch a business out. The general fifteen-year limitation period is unchanged, but two important periods have been shortened. Under Article 431, the bar on claims for the fees of professionals like doctors, lawyers, engineers, experts, teachers and brokers is cut from five years to three. Under Article 432, a new two-year bar applies to the supplies of merchants and manufacturers sold to non-traders, and to hotel and restaurant charges.

The transitional mechanics on how a new period applies to time that is already running under the old law now sits in the Law’s Preliminary Section at Articles 6 and 7 (not in the promulgating Decree, which has only three articles). In short, a new shorter period runs from the date the new law took effect, but if the time remaining under the old law is shorter, that earlier deadline prevails.

Practical takeaway: Recalculate the limitation period for any live or potential claim now, particularly unpaid professional fees and trade or hospitality invoices. A deadline you assumed was years away may now be much closer, and a valid claim can become time-barred while you wait.

Liability for Harm: A Major Expansion

The law of civil liability for harmful acts has been rewritten, and the changes reach any business with employees, premises or assets under its control.

Employer (vicarious) liability is now mandatory (Article 266).  A principal shall be liable for harm caused by a subordinate’s act committed in, or because of, their duties. Under the old law this was a discretionary power the judge could exercise “if he saw justification”; it is now a direct, mandatory liability. The employer retains a right of recourse against the actual wrongdoer (Article 267).

Moral damage expanded (Article 254).  Compensation for moral harm to a spouse and relatives up to the second degree is extended from the victim’s death only to the victim’s incapacity or death.

Liability of the “guardian of a thing” (Article 268).  Whoever exercises actual control over a thing is its “guardian,” and the owner is presumed to be the guardian unless control is shown to have passed to another — a broad new basis of liability with no general equivalent in 1985.

Animals and buildings (Articles 269 and 270).  Liability for harm caused by an animal, or by the collapse of a building, now rests on a presumption of liability rebuttable only by proof of an external cause — a significant tightening from the old fault-based standard.

Practical takeaway: Vicarious liability is no longer at the court’s discretion: if your staff cause harm in the course of their work, the business is liable. Review your liability insurance, supervision and control arrangements, and your custody of premises, vehicles, plant and equipment.

Guarantees and Receivables

A surety’s liability is now subsidiary (Article 1009).  By default a creditor may not pursue the surety alone before having recourse to the debtor, and may not execute against the surety until the debtor’s assets are exhausted — unless the surety is jointly and severally liable, or law or agreement provides otherwise. Under the old law the creditor could claim freely against debtor, surety, or both.

Discharge now requires suit, not demand (Article 1006).  The surety is released unless the creditor initiates judicial proceedings against both the debtor and the surety within six months of the debt falling due. A mere demand — which sufficed under the old law — no longer preserves the guarantee.

Assignment of rights and debts re-built (Articles 405 to 424).  The old tripartite Hawala is replaced by two modern mechanisms: assignment of a right, which is valid without the debtor’s consent, and assignment of a debt, which requires the creditor’s consent. The Code adds a full apparatus of perfection against the debtor and third parties, priority of the first assignment perfected, and warranties of the right’s existence and the debtor’s solvency (Articles 407 to 417).

Practical takeaway: For business, the new rules make assignments more practical and bankable. Rights such as receivables may be transferred without the debtor’s consent, but proper notice and perfection will be critical to enforceability and priority; debts, however, cannot be shifted to another debtor without the creditor’s consent.

Buying, Selling, Leasing and Building

Sale — stronger buyer protections.  The window to bring a latent-defect (warranty) claim now runs for one year from the day after delivery, double the old six months (Article 510). On a latent defect the buyer may now either return the goods or keep them and claim a proportionate price reduction,  a remedy the old law expressly forbade (Article 495) and a new fitness-for-period (durability) warranty allows the buyer to act on a defect appearing within a guaranteed period, on notice within one month (Article 502).

Lease — consent and renewal traps.  A tenant may not assign the lease or sublet, in whole or in part, except with the lessor’s written consent (Article 729). Where a tenant holds over with the lessor’s knowledge, the lease renews for one year as a new lease — not a mere extension — and, crucially, a guarantor is not bound to the renewed lease without their consent (Article 731).

Practical takeaway: For businesses, the new rules strengthen buyer protection in sale transactions and increase execution discipline in lease arrangements. Sellers should expect longer exposure for latent-defect claims and greater scope for price-reduction remedies, while landlords, tenants and guarantors must pay closer attention to written consent for subletting or assignment, holdover renewals, and whether guarantees expressly extend to any renewed lease.

Property and Real Estate

Musataha — registration and term (Articles 1254 to 1261).  The Musataha right has been tightened and modernised. It must now be created through a registered contract, with any unregistered disposition being void. At the same time, the previous mandatory 50-year maximum term has been removed, giving parties greater flexibility on duration. For open-ended Musataha grants, however, the law shortens the applicable notice or default period from two years to six months, making termination and default management more immediate.

Acquisitive prescription shortened (Article 1219).  Where possession of immovable property is in good faith and based on a valid legal cause, the period to acquire ownership is reduced from seven years to five.

“Pledge by way of security” renamed “mortgage” (Articles 1296 to 1342).  The real-property security is renamed throughout as a mortgage, with the substantive rules largely mapping across; the regime is also extended to movables whose special laws require registration. The change is mainly one of terminology, but it affects how security documents should now be described.

Practical takeaway: Developers and real-estate holders should check that Musataha and similar rights are properly registered, factor the shorter five-year prescription period into how possession of land is monitored, and update security documentation to the new “mortgage” terminology.

10. Insurance — mandatory protection and Takaful. Any term that contravenes the insurance chapter is void unless it operates to the benefit of the insured or beneficiary (Article 954), and cooperative (Takaful) insurance now has an express statutory framework (Article 967).

11. Single-person companies (Article 603). The Code now expressly allows a company to be established or owned by a single person, departing from the old definition that required two or more persons.

Conclusion and What Comes Next

Across the life of a commercial relationship — from the first negotiation to the enforcement of a guarantee — the rules have changed, and several of these reforms (mandatory employer liability, the new suretyship regime, the assignment overhaul and the shortened limitation periods) are as consequential for business owners as the headline contract-law changes. The most efficient response is to audit existing contracts and guarantees, recalculate limitation periods now, update standard templates, and take advice before entering any significant new arrangement.

Part 2 will cover the remaining changes that did not fit this instalment, including:

• sources of law and gap-filling, and compensation reassessment tools;
• set-off, the right of retention, and the creditor’s action against a debtor’s dispositions (Paulian action);
• the necessity defence, the general scoping of liability, and the rules on recovery of undue payments;
• sale of disputed rights, continuation of a lease on sale of a business, Mudaraba, agency, and the residual employment chapter;
• and further real-rights changes — possessory actions, usufruct, revival of unowned land, no-disposition conditions, wills and the removal of the Waqf chapter.

Taken together, the two parts cover the full schedule of key material changes introduced by the new Civil Code.