The United Arab Emirates has enacted Federal Decree-Law No. 25 of 2025 on Civil Transactions, which came into force on 1 June 2026, replacing the long-standing Federal Law No. 5 of 1985. This represents one of the most significant reforms to UAE civil law in almost four decades.

The new legislation modernises the legal framework governing contracts, civil liability, property rights, legal capacity, and cross-border transactions. The reforms are designed to align UAE law with modern commercial practices, digital transactions, and international standards while enhancing legal certainty for businesses and individuals.

This article highlights some of the key changes introduced by the new Civil Transactions Law and their practical implications.

The Evolution of UAE Civil Law

For nearly four decades, the Civil Transactions Law of 1985 served as the cornerstone of private law in the United Arab Emirates. However, rapid economic development, digital transformation, and the evolving sophistication of commercial dealings exposed limitations in the previous legislative framework. Several factors prompted this comprehensive reform:

First, the UAE’s position as a global business hub required alignment with international standards and best practices in civil law. Second, digital commerce, online transactions, and technology-driven business models were not adequately addressed in a law written before the internet.

The new law consolidates four decades of legislative amendments, removes outdated concepts, introduces clearer statutory language, and provides more comprehensive guidance for legal interpretation and application across the Emirates. The legislation was issued on December 30, 2025, with a six-month implementation period before taking effect on June 1, 2026, allowing businesses and legal professionals adequate time to prepare for the transition.

A New legal age of Majority

One of the notable reforms is the reduction of the age of majority from 21 lunar years to 18 Gregorian years.

As a result, individuals who have reached the age of 18 now possess full legal capacity to enter into contracts and assume legal obligations without requiring the consent of a guardian. This change aligns the Civil Code with other areas of UAE legislation and reflects modern legal and commercial realities.

For businesses, this expands the range of individuals who can independently engage in commercial transactions and contractual arrangements.

Enhanced Good Faith and Disclosure During Negotiations

The new law significantly expands the principle of good faith.

Under the previous legislation, parties were generally required to act in good faith during the performance of a contract. The new Civil Code extends this obligation to the negotiation stage, requiring parties to act honestly and fairly when initiating, conducting, and terminating negotiations.

A party that negotiates in bad faith or improperly terminates negotiations may be liable for losses suffered by the other party.

The law also introduces a mandatory duty to disclose essential information relevant to the transaction where the other party is reasonably unaware of such information. Any attempt to exclude this disclosure obligation contractually is void.

Additionally, confidential information exchanged during negotiations is expressly protected, and unauthorised use or disclosure may give rise to liability.

These provisions encourage transparency and reduce the likelihood of disputes arising from pre-contractual dealings.

Choice of Governing Law and Cross-Border Transactions

The new Civil Code provides greater certainty for international and cross-border transactions.

Parties are expressly permitted to choose the governing law applicable to their contractual relationship. In the absence of such agreement, the law establishes clear default rules to determine the applicable legal system.

This clarification reduces uncertainty in international transactions and reinforces the UAE’s attractiveness as a global business hub.

Modernising Contract Formation for the Digital Era

The new law updates traditional contract formation principles to reflect contemporary methods of communication.

Consent may now be expressed through:

1. Written or verbal communication.

1. Electronic communications.
2. Conduct indicating agreement.
3. Customary gestures, and
4. Other circumstances demonstrating clear acceptance.

The legislation also recognises contracts concluded through modern communication methods, including emails and other electronic means.

Furthermore, displaying goods or services with a stated price may constitute an offer unless the surrounding circumstances indicate otherwise.

These provisions provide greater flexibility and reflect the realities of modern commercial practice.

Strengthening Authority and Representation Rules

The Civil Code introduces clearer provisions governing representation and authority.

The law recognises three forms of representation:

1. Contractual representation.

1. Legal representation, and
2. Judicial representation.

A representative must act within the limits of the authority granted to them. If a representative enters into a contract within their authority and clearly identifies that they are acting on behalf of a principal, the rights and obligations arising from the contract are attributed to the principal.

However, where a representative fails to disclose their representative capacity, they may become personally liable under the contract.

The law also restricts self-dealing by representatives unless expressly authorised by the principal.

These provisions highlight the importance of verifying authority and ensuring proper execution of contractual documents.

A Refined Framework for Civil Liability and Contract Interpretation

The new Civil Code provides more comprehensive guidance on contract interpretation and civil liability.

Courts are directed to consider factors such as:

1. The intentions of the parties.

1. The wording of the agreement.
2. The nature of the transaction.
3. Relevant commercial customs and practices.

The legislation also introduces clearer rules concerning contributory fault, allowing courts to allocate responsibility between parties according to their respective contribution to the loss or damage suffered.

This approach promotes fairness and provides greater predictability in dispute resolution.

Greater Clarity on Liquidated Damages

The new law clarifies the circumstances in which courts may adjust liquidated damages clauses.

Courts may reduce agreed compensation where:

1. The amount is excessive.

1. The obligation has been partially performed, or
2. The creditor contributed to the loss suffered.

Conversely, a creditor may seek compensation exceeding the agreed amount where fraud or gross fault is established.

These provisions codify principles that had previously developed through judicial decisions and provide greater certainty regarding the enforceability of liquidated damages clauses.

Managing Exceptional Circumstances under the New Civil Code

One of the most significant reforms concerns situations where contractual performance becomes excessively burdensome due to exceptional circumstances.

Under the new law, courts may:

1. Reduce the affected obligation; or
2. Terminate the contract entirely where appropriate.

Importantly, parties cannot contract out of this protection, and any attempt to exclude the court’s powers in this regard will be invalid.

This provision provides greater flexibility when dealing with unforeseen events that fundamentally alter the balance of contractual obligations.

Strengthening the Rights of the Guarantors

The new Civil Code also enhances protections for guarantors.

Creditors may no longer pursue a guarantor independently while disregarding the principal debtor. Instead, claims must generally be brought against the debtor or against both the debtor and guarantor together.

This reform strengthens the legal position of guarantors and may require creditors to reconsider their enforcement strategies.

Conclusion 

The introduction of the New Civil Code is regarded as a positive development and demonstrates the UAE’s ongoing commitment to maintaining a modernized, comprehensive, and cohesive legal framework that regulates civil transactions. While it remains to be seen how the new provisions will be interpreted and applied by the UAE Courts in practice, the reforms are expected to enhance contractual certainty going forward.

At Charter Legal, we assist individuals, businesses, and investors in understanding the implications of the New Civil Code and adapting their contractual arrangements accordingly. Our team of some of the best lawyers provides strategic legal advice on contract drafting, negotiations, compliance, dispute resolution, and risk mitigation, helping clients navigate legal developments with confidence while safeguarding their commercial interests in the UAE’s evolving legal landscape.