All posts by : Legal Counsel

On 1 June 2026, the United Arab Emirates brought into force Federal Decree-Law No. 25 of 2025, promulgating a new Civil Transactions Law. It replaces Federal Law No. 5 of 1985, the Civil Code that governed contracts, property and civil liability in the UAE for more than four decades. For businesses, investors and individuals across Dubai and the wider UAE, this changes how contracts are formed, interpreted and enforced – and how disputes are resolved when something goes wrong. This guide explains the practical impact of the UAE Civil Transactions Law 2026 and what businesses should do to stay protected.

Does the New Law Apply to Existing Contracts?

As a general rule, no. The new law took effect on 1 June 2026 and does not reopen contracts already concluded under the 1985 Code – their formation and validity remain governed by the old law. There is one important exception: any limitation period that had not yet expired on 1 June 2026 is now measured under the new law. Businesses should therefore review not only new agreements, but the time limits on any claims they may still want to bring under older contracts.

Good Faith During Negotiations

One of the clearest new features is a codified duty to negotiate in good faith, including disclosing information material to the other party’s decision to contract. UAE contract law traditionally focused on the concluded contract; the new law extends legal expectations to the negotiation stage itself. Businesses negotiating legal consultation in Dubai matters or drafting term sheets should ensure pre-contract communications don’t misrepresent material facts – a breach can now form the basis of liability before a contract is even signed.

Contractual Compensation and Liquidated Damages

UAE contract law has long allowed parties to agree liquidated damages for breach, subject to the court’s power to adjust an amount that is manifestly excessive compared to the actual loss. The new Civil Code carries this established principle forward. Businesses relying on liquidated-damages clauses in commercial contracts should have them reviewed to confirm they remain enforceable and proportionate.

Limitation Periods

The general limitation period for civil claims remains 15 years, though many claims are subject to shorter specific periods. The key change is the transitional rule: any limitation period not yet expired on 1 June 2026 is recalculated under the new law. Separately, the limitation period for latent-defect claims has been extended from six months to one year from delivery. This has a direct, practical impact on anyone considering bringing or defending a contract dispute in 2026.

Latent Defects

For sale contracts and delivered works, the buyer’s window to claim compensation for hidden defects has doubled – from six months to one year from delivery – unless the contract sets a longer period or the seller fraudulently concealed the defect. Buyers gain more time to discover and act on defects; sellers and contractors carry that exposure for longer, so defect-notification and acceptance clauses are worth revisiting.

Construction Contracts

The provisions governing “contracts for work” (muqawala) have been renumbered but their core structure is preserved. The decennial liability principle continues: contractors and supervising engineers remain jointly liable for ten years for defects threatening a building’s structural safety, with a three-year limitation period to bring a claim after collapse or discovery. Notably, the new law introduces an express right for employers to terminate a construction contract for convenience, subject to fair compensation for costs incurred, the value of completed work, and lost profit, with a duty to mitigate. Contractors and employers should revisit termination and defect-notification clauses accordingly.

What UAE Businesses Should Do Now

• Review standard-form contracts and templates against the new provisions
• Reassess limitation periods on any outstanding or potential claims
• Strengthen disclosure and due-diligence practices during negotiations
• For construction contracts: review termination and defect-notification clauses
• Seek legal advice before signing significant new agreements

Contract Disputes

When a dispute arises under a contract governed wholly or partly by the new Civil Code, correctly identifying which provisions and limitation periods apply is often decisive. Where the Code is silent, courts apply a set hierarchy: the legislative text first, then Sharia principles, then custom, then natural justice. Special legislation – labour, real estate, corporate law – continues to apply within its own field. Early legal consultation in Dubai on how to frame a claim makes a real difference.

How Our Lawyers Can Assist

Mohamed Saeed Al Shamsi Advocates & Legal Consultants advises individuals and companies across Dubai and the UAE on commercial and corporate contract drafting, review, and disputes under Federal Decree-Law No. 25 of 2025. Our team reviews existing agreements for exposure under the new law, drafts and negotiates contracts that reflect the updated Civil Code, and represents clients in negotiation or before the courts.

FAQs

When did the new UAE Civil Transactions Law come into force?
1 June 2026, under Federal Decree-Law No. 25 of 2025, replacing Federal Law No. 5 of 1985.

Does it apply to contracts signed before 1 June 2026?
Formation and validity of pre-existing contracts stay under the 1985 law, but unexpired limitation periods and ongoing obligations are affected by the new law’s transitional rules.

How long do I have to claim for a hidden defect?
Generally one year from delivery (up from six months), unless a longer contractual guarantee applies or the defect was fraudulently concealed.

Does the new law change liability for building defects?
No – the ten-year decennial liability for structural defects continues, along with the three-year limitation period to claim after collapse or discovery.

Speak to Our Lawyers

Need advice on how the UAE Civil Transactions Law 2026 affects your contracts, claims or business? Contact Mohamed Saeed Al Shamsi Advocates & Legal Consultants for a legal consultation in Dubai and across the UAE.