The Federal Decree-Law No. 25 of 2025 replaces Federal Law No. 5 of 1985 and has come into effect from June 1, 2026. It is one of the most important reforms to the UAE’s private laws in a decade. The main objectives of this reform are the modernisation of civil law, increased legal certainty, alignment with commercial realities, and support for foreign investment and economic development.

Who Will Be Affected

The law broadly applies to civil transactions, commercial transactions where no special law applies, named and unnamed contracts, and domestic and international arrangements.

Redefining Public Order

The concept of public order was often interpreted broadly before the amendment. After the amendment, public order under Article 3 is limited to the definitive rulings of Islamic Sharia law, mandatory statutory provisions, Muslim personal status rules, and governance-related rules. Article 184 of the law states that if a clause of a contract is against public order, then that invalid clause may be severed, but the entire contract does not automatically become void.

Modernisation of Legal Capacity

The age of majority has changed from 21 lunar years to 18 Gregorian years. A minor may also seek judicial authorisation to manage assets under Article 149 from the age of 15.

Pre-Contractual Duties and Negotiation Liability

The New Civil Transactions Law introduces duties that govern the conduct of parties during the negotiation process and imposes liabilities for breach.

Good Faith Negotiations

Article 121 states that the initiation, conduct, and termination of negotiations should be carried out in good faith. A party may therefore be held liable where its conduct during negotiations causes actual loss to the other party.

Article 121 further introduces a framework for compensation arising from bad-faith negotiations. A party that negotiates or terminates negotiations in bad faith may be required to compensate the actual damage suffered by the other party.

Duty of Disclosure

Article 122 introduces one of the most important innovations under the New CTL by expressly imposing a duty of disclosure on parties in negotiations and contractual dealings. Article 122(4) expressly prohibits parties from excluding, limiting, or waiving this obligation, and any contractual provision attempting to do so is void. The burden of proof lies on the party alleging that material information has been concealed.

The aggrieved party is permitted to seek the annulment of the contract where the failure to disclose essential and decisive information affected its consent.

Duty of Confidentiality

Article 123 lays down an obligation mandating the protection of confidential information exchanged during negotiations.

Recognition of Framework Agreements

In the new law, Article 138 expressly recognises framework agreements. This helps parties agree on overarching terms and conclude future contracts under those terms. This provides greater certainty in long-term relationships.

Choice of Law and Cross-Border Transactions

Article 19 of the law states that parties have the freedom to choose the governing law. If no governing law is not chosen, then the law of the country in which the parties share a common domicile will apply. If the parties do not share a common domicile, then the applicable law will generally be the law of the country where the principal contractual obligation is to be performed. The surrounding circumstances may indicate that another law was intended to apply if the contractual relationship shows a closer connection with a different legal system. It is also provided that if the property is immovable, then regardless of the parties’ choice, contracts relating to immovable property are governed by the law of the place where the property is located.

Contractual Compensation and Judicial Oversight

Under the earlier law, the courts had broader powers to adjust agreed compensation, whereas now the courts may reduce compensation only when it is excessive or where the obligation has been partially performed. Compensation in excess of the agreed amount can only be claimed in cases of fraud or gross negligence.

Reform of Civil Companies

Pursuant to the amendment under Article 606, a clear distinction between civil companies and commercial companies is provided. Another development is the allowance for the establishment of a company by the unilateral will of a single person. The law permits the formation of a company by one natural person or one legal person.Under the amendment in Article 626, a partner’s withdrawal does not lead to dissolution. The company may continue.

Professional Companies

Articles 645–650 of the amended law recognise professional companies established by one or more persons licensed to practise a liberal profession. The amendments permit partnerships with foreign firms, provide greater flexibility, and impose restrictions on multiple professional company memberships.

Mudaraba as a Separate Contract

Mudaraba is no longer considered a company arrangement. It provides a dedicated legal framework governing capital contribution, management authority, profit distribution, loss allocation, and termination. The New Civil Transactions Law enhances certainty for investors, entrepreneurs, financial institutions, and businesses utilising Sharia-compliant investment arrangements.

Construction Contract Reforms

Article 836 expressly recognises the employer’s right to terminate a construction contract before completion for convenience, provided that the contractor is compensated for expenses incurred, works completed, and the profit that would have been earned had the contract been completed. Article 837 further clarifies the allocation of risk where the subject matter of the contract is destroyed before or after delivery, particularly in cases involving force majeure, valid delivery notices, and fault.

Guarantee Reform

The New Civil Transactions Law introduces a more structured and comprehensive framework governing guarantees. One of the most notable reforms is the introduction of the right of excussion, which generally requires a creditor to first pursue the principal debtor’s assets before enforcing against the guarantor, unless the guarantee is solidary or the parties have agreed otherwise. The law also introduces important protections for guarantors, including a six-month limitation requiring creditors to act against the debtor and guarantor within a prescribed period, failing which the guarantor may be discharged from liability.

Limitation Periods

The New Civil Transactions Law largely preserves the existing limitation framework but provides greater clarity on when limitation periods begin to run, particularly in tort claims where knowledge of the damage and the responsible party is relevant.

Enforcement of Judgments

Creditors may enforce final judgments through measures such as attachment of bank accounts, seizure of assets, and judicial sale of property, making enforcement considerations an important aspect of risk management and transaction structuring.

Interaction with DIFC and ADGM

The New Civil Transactions Law applies to onshore UAE transactions, while the DIFC and ADGM continue to operate under separate common-law systems. Businesses involved in cross-border transactions should carefully consider governing law, jurisdiction, dispute resolution, and enforcement issues when choosing between these legal frameworks.

Conclusion

The New Civil Transactions Law marks a significant evolution of the UAE’s civil law framework, balancing traditional legal principles with modern commercial realities. The reforms strengthen the UAE’s position as an attractive destination for investment and cross-border business. As the law comes into force, businesses, investors, and legal practitioners should carefully review their contractual and operational arrangements to ensure compliance with the new legal landscape.