Civil Transactions Law– The UAE has evolved and reformed its old civil law of 1985 legal framework to Federal Decree-Law No. 25 of 2025, promulgating the Civil Transactions Law (New Civil Transactions Law) published in the official gazette No. 809.
The law came into force on 01st June, 2026, replacing the long-standing Federal Law No. 5 of 1985. It governs the everyday legal relationships between individuals and entities, from the contracts they sign to the obligations they owe one another and the property they own.
In relation to companies in the UAE or any individual dealing with contracts, property or litigation, a familiarity and workable knowledge of this legislation becomes a necessity. As it dictates how agreements are interpreted, how liability is assessed, and how compensation is determined when something goes wrong.
Klay Legal offers a detailed insight into the UAE Civil Transactions Law, its scope, its guiding principles, and why it continues to matter in a rapidly evolving legal landscape.
What You Need to Know About the UAE Civil Transactions Law UAE
The Civil Transactions Law covers the multitude of private relations which can arise between individuals and entities. It establishes general principles concerning rights, obligations, contracts, property, liability, and other civil matters.
Civil law deals with significant issues which arise from a transaction:
- What is each party’s legal duty?
- When is an agreement legally enforceable?
- What is the consequence of a default on the part of a contracting party?
- Can a damaged party recover compensation from another party who causes them harm?
- What legal remedies might exist following an infringement of a right?
Civil Transactions Law forms a comprehensive set of rules, covering every event that might constitute a transaction; specific areas of law may have their own particular legislation. Such as commercial activities, employment relationships, companies, evidence, civil procedure, financial services, and other areas that may be subject to separate laws and regulations. Under the Civil Transactions Law, written law applies first, followed by Islamic sharia, custom, and then natural law.
Key Principles of the UAE Civil Transactions Law
The Civil Transactions Law contains general principles, which ensure a higher degree of legal certainty and predictability in relation to civil relations. An important aspect of this civil transactions law is civil capacity. It addresses the provisions relating to the ability to perform a transaction in law.
| Topic | Details |
|---|---|
| Age of Capacity | Decreased to 18 Gregorian years, departing from the old age of 21 lunar years. |
| Emphasis of Law | Focuses on the relationship of the parties and the context of their legal relationships. |
| Contract Clarity | Contracts must clearly define the obligations parties agree to and the effects of those obligations. |
| Negotiation Phase | Includes negotiation and disclosure of key issues between parties. |
| Relevance to Substantial Agreements | Key principles are relevant for substantial arrangements where negotiations may last weeks or months. |
| Importance of Early Legal Advice | Crucial for parties in important relationships to seek early legal advice to resolve issues during negotiations. |
| Risk of Unresolved Issues | Unresolved legal issues during negotiation may cause problems at the contract stage. |
The reduced age threshold affects all market participants in the UAE, not only young individuals entering contracts.
Civil Transactions Covered by the Law in the UAE
Civil transactions are diverse in nature and vary with what is agreed between parties; there can be many types of civil transactions with associated provisions:
Contracts Transactions
Contracts cover arguably the most common forms of civil transactions. Civil transactions can provide legal grounds for payment, delivery, providing a service, taking actions, etc. One can agree upon rights and liabilities arising out of the contract.
Property transactions
Real property involves property rights (i.e., ownership of real property) and any transactions related to it. Certain real estate rights may require registration with the competent authority to be valid, and civil transactions involving real estate may require specific formalities or registrations under the new law.
Leasing of Real Property
Leasing allows a landlord and a tenant to acquire rights and responsibilities for the duration of the lease. These include payments by the tenant to the landlord and responsibilities, such as the maintenance and use of the property.
If there are additional specific tenancy regulations provided by the appropriate emirate, this must also be taken into account.
Loans and Financial Obligations
Loan agreements create obligations regarding the provision and repayment of funds. The parties may also agree on aspects such as repayment schedules, security measures, defaults, and other contractual terms.
The legal treatment of a specific financial arrangement can vary depending on the parties involved and the nature of the transaction, especially in cases involving regulated financial activities.
Transfer and Assignment of Rights
Civil transactions may also encompass the transfer of rights from one party to another. It is essential that assignment agreements are properly documented to ensure all parties clearly understand the rights being transferred and any accompanying obligations.
The new Civil Transactions Law includes specific provisions that address assignments and the related legal relationships.
Clearer, Stronger Rules about Authority to Act and to Sign
According to Article 84, the law distinguishes between full civil capacity at the age of majority and the position of minors below that age, provided the person is mentally sound and not under guardianship or legally interdicted by a court. So, what makes this amendment significant is the reduction of the ages from 21 down to 18 years of age, aligning UAE civil law to most of the jurisdictions in the world. The law lowers the threshold for minors to seek judicial authorisation over their assets to 15 Gregorian years.
| Aspect | Description |
|---|---|
| Representative Authority | The new law introduces clearer, more robust rules governing situations where one person signs a contract on behalf of another. A representative cannot perform legal acts beyond the scope of authority they’ve actually been given. |
| Personal Liability | If someone signs an agreement without making clear that they’re doing so on behalf of another party, the contract will bind them personally rather than the party they intended to represent. |
| Self-Dealing Prohibition | A representative may not sign an agreement with themselves and must obtain specific authorisation from the person or persons intended to be bound unless the representative is one such person. |
| Documentation Requirement | Individuals signing agreements for a company or as individuals acting for others must have their authority properly and clearly documented before they link. |
What is the real implication of the new civil law?
The law sends a message to businesses: The bar for due diligence in negotiations is higher, and courts retain broader judicial discretion on damages and liability. Contracts, disclosure practices, and internal sign-off procedures may all need a fresh look to ensure they hold up under the new rules. It also conveys the same message for anyone taking on an employment agreement, a lease or personal loan.
Additionally, the concept of “negotiating” a loan or rental with the creditor of the finance provider begins with an obligation of good faith; standard-form terms are viewed in fairness terms, and compensation may extend to moral as well as material harm.
But the court still will have scope to intervene where a penalty clause in an employment agreement is unreasonable: it may review the penalty, reduce it under Article 340, or set it aside if excessive, in the interests of justice.
Framework Agreements Given Legal Enshrinement
The law will, for the first time, formally define and recognise a framework agreement as a mechanism for governing long-term contractual relationships, where parties set out the essential terms that will govern future contracts between them, without necessarily finalising every detail upfront.
Unless the parties agree otherwise, those terms are treated as automatically forming part of the contracts that follow where the parties had the contractual capacity to agree the essential terms in advance for later call-off or implementing contracts.
This will have practical implications for parties who rely on preliminary documents like letters of intent and memorandums of understanding as preceding actual agreements. Parties will now need to be careful to expressly, consciously and unambiguously supersede such agreements in an executed final, overarching agreement.
Enhanced Certainty in Determining Applicable Law
In relation to contracts with parties based in different territories, the new civil law also confirms the presumption that the choice of law of the parties themselves will prevail about both the form and substance.
Such a contract, wherein, in the absence thereof, the contract shall be governed by the law of the domicile common to the parties and, failing such, by the law of the country of the place where the most essential part of the obligation arising from the contract is to be performed. This is a welcome clarity in cross-border transactions and reiterates the benefit of including an express and defined governing law clause.
That said, certain matters, including commercial agency, employment, and rights relating to real property located in the UAE, remain governed by mandatory UAE law despite a foreign governing law clause.
Good Faith Obligations Before Contract Formation
Likely the most comprehensive change made by the new law is its extension of the duty of good faith back into pre-contractual negotiations, a legally relevant stage before any contract is concluded. Prior law placed emphasis only on good faith in the performance of an actual contract.
It now recognises a right to claim compensation where one party abandons negotiations in a manner considered to be in bad faith. This includes situations where a party deliberately withholds a material piece of information that would have had a real bearing on whether the other side would have agreed to the deal at all.
Neither party to negotiations is forced to reach a contract, and it remains legitimate to withdraw from negotiations. Where that withdrawal, however, happens in bad faith, it can form the basis of liability for wasted expenditure and reliance losses of the non-withdrawing party. In practice, disputes may arise even where no final valid contract is ever signed.
Contracts signed before 1 June 2026 remain governed by the 1985 Code.
| Aspect | Description |
|---|---|
| Duty of Full Disclosure | There is now a mandatory duty of full disclosure of information to the other party that would materially influence their decision to enter into or finalise a contract. This duty is non-contractual and cannot be excluded. |
| Confidentiality Duty | A confidentiality duty applies to information disclosed during contract negotiations, with liability for unlawful disclosure of such information. |
| Impact on Negotiators | Negotiators, especially in serious transactions, must exercise greater care in documenting disclosure, managing early documents like letters of intent, and handling confidential information before contract conclusion. |
| Concept of Bad Faith | Although “bad faith” is not precisely defined yet and will evolve through judicial interpretation, it signals a new era requiring more deliberation, document retention, and careful communication during negotiations. |
Conclusion
The UAE’s Civil Transactions Law constitutes a significant update in how civil and commercial engagements between parties will be handled. From the earlier point at which good faith obligations attach to strengthened court discretion over compensation, added guidance on choice of law and the updated scope of contractual representations.
Each amendment has immediate and practical repercussions. Parties, both individuals and entities, can do well not only to take notice of but also act on these developments, as opposed to the assumption that nothing much has changed with respect to existing or new contractual and transactional undertakings.
Those individuals and companies that actively familiarise themselves with these changes stand a higher chance of avoiding a dispute, as well as dealing with it more effectively if it arises.
How Klay Legal Supports Businesses Under the New Civil Law
Moving into this important legal regime requires more than just a quick read of your contract; it involves reviewing agreements, customary practices, and internal processes to understand if risk allocation has shifted.
At Klay Legal, we take a proactive role in helping clients navigate these changes by reviewing contracts and offering legal advice on how the Civil Transactions Law affects current and future relationships, allowing our clients to move forward with confidence instead of uncertainty.
Frequently Asked Questions (FAQs)
What are the latest updates on the UAE civil transactions law?
The UAE replaced its 1985 Civil Code with Federal Decree-Law No. 25 of 2025, effective 1 June 2026. Key updates include pre-contractual good-faith duties, a lower age of majority (18), refined compensation rules, formal recognition of framework agreements, and strengthened choice-of-law provisions for cross-border contracts.
What is civil law in the UAE?
The private interactions between people and companies fall under the jurisdiction of UAE civil law, where it governs relations related to contracts and obligations, ownership and other property, as well as civil responsibility.
This area of law is a combination of the civil law tradition with elements of Islamic Sharia and applies when other law is not applicable, but it is also the basis for all other kinds of law (commercial law, labour law, and personal status law). It is distinct from the commercial transactions law and the commercial companies law, which govern separate commercial and corporate matters, including professional companies.
What is the time limit to file a civil case in the UAE?
The limitation period applicable to a specific claim is different under the various categories. For contractual claims, there is typically a time limit of 15 years. A considerable proportion of commercial claims are subject to a 5-year or even shorter limitation period.
The applicable time period will, however, vary depending on the type of obligation; therefore, specific advice from a legal professional should always be sought.
What is article 249 of the UAE civil code?
In the old legislation of 1985, Article 249 dealt with cases of hardship, providing the courts with powers to modify onerous obligations. In the new law of 2025 (effective 2026), Article 249 has turned over the topic of liability exemption due to external factors, and hardship can now be found in Article 224.
Under the updated scheme, exceptional circumstances and force majeure are addressed within the modern framework for liability and contract termination.
