UAE Civil Transactions Law: How the New Civil Code Reshapes Civil and Commercial Deal-Making in the UAE

UAE Civil Transactions Law: How the New Civil Code Reshapes Civil and Commercial Deal-Making in the UAE

Estimated reading time: 25 minutes

Key Takeaways

• The New UAE Civil Transactions Law (Federal Decree-Law No. 25 of 2025) comes into force on 1 June 2026, repealing the 1985 Civil Code and reshaping onshore civil and commercial transactions across the UAE.
• Major innovations include: explicit pre-contractual duties of good faith and disclosure, a reduced age of majority, modernized conflict-of-laws rules, and clarification of civil liability and limitation periods.
• Contract drafting in the UAE must now address statutory duties, precise governing law, robust disclosure frameworks, refined liquidated damages, and mandatory law overlays on standard terms.
• DIFC vs UAE Civil Law: Parties must carefully select and differentiate governing law, jurisdiction, and enforcement routes for onshore and free zone transactions.
• Risk management and dispute strategy: Enhanced clarity on civil liability, duty to mitigate, limitation, and enforcement to inform litigation/arbitration under UAE law.

Overview of the New UAE Civil Transactions Law and Its Scope of Application

The enactment of the new UAE civil transactions law, promulgated by Federal Decree-Law No. 25 of 2025 on the Civil Transactions Law (the “New Civil Transactions Law” or “New Civil Code”), constitutes the most far-reaching reform of the UAE civil code since the promulgation of Federal Law No. 5 of 1985 Concerning the Issuance of the Civil Transactions Law of the United Arab Emirates (the “1985 Civil Code”). The New Civil Transactions Law comprehensively recodifies onshore civil law, expressly repeals the 1985 Civil Code as of its effective date, and introduces a clearer and more predictable framework governing contracts, civil liability, property rights, and cross-border obligations across the United Arab Emirates. According to the official text and published legal analyses, Federal Decree-Law No. 25 of 2025 was issued on 30 December 2025 and is scheduled to enter into force on 1 June 2026, at which point it will replace the 1985 Civil Code in its entirety for onshore civil transactions, subject to specified transitional provisions. The New Civil Transactions Law is expressly intended to align core civil law principles with sector-specific legislation and with the economic, investment and regulatory policies articulated by the United Arab Emirates Government in recent Official Gazette publications and federal legislative communications concerning this recodification. These reforms carry immediate strategic implications for contract drafting in the United Arab Emirates, the assessment of civil liability in the UAE, the enforcement of civil judgments in the UAE, and the interaction between the onshore UAE civil transactions law and the legal regimes of the Dubai International Financial Centre and other financial free zones.

For corporate clients, small and medium enterprises, expatriate investors and property owners, and legal practitioners across Dubai and the wider United Arab Emirates, a detailed understanding of the structure and policy choices embedded in the new civil transactions law, and of how it departs from and builds upon Federal Law No. 5 of 1985, is now indispensable. From 1 June 2026 onwards, effective risk allocation, dispute management, transaction structuring and cross-border contractual planning in the onshore environment will require careful application of the New Civil Transactions Law’s provisions on governing law, pre-contractual duties, liability, remedies and limitation periods.

Core Principles and Key Provisions of the New UAE Civil Code

At the heart of the new civil transactions law lie codified principles that have long guided judicial reasoning under the 1985 Civil Code but are now more clearly articulated and, in several respects, expanded. For corporate clients and investors, three themes are particularly salient: a more robust recognition of party autonomy within a structured choice-of-law regime, the express codification of pre-contractual duties of good faith and disclosure, and a carefully calibrated hierarchy between mandatory legal rules, contractual stipulation and custom.

First, the New Civil Transactions Law refines the conflict-of-laws regime in a manner that significantly enhances party autonomy. Provisions corresponding to Article 19 confirm that contracting parties may choose the governing law applicable to both the form and the substance of their obligations, subject to overriding mandatory rules, public order and morality as defined under United Arab Emirates law. Where the parties have not made an express selection, the New Civil Code introduces a structured cascade of connecting factors: the law of the parties’ common domicile, failing which the law of the place where the contract is principally performed, with specific rules for certain types of obligations, such as real rights over immovable property, which are generally governed by the law of the situs. This regime, which modernises and consolidates the previously fragmented approach under the 1985 Civil Code, offers greater predictability for cross-border contractual obligations under the UAE Civil Code, particularly in multi-jurisdictional financing, construction and joint venture structures.

Secondly, the UAE civil transactions law places the principle of good faith and the duty of disclosure at the centre not only of contractual performance but also of pre-contractual conduct. While the 1985 Civil Code already required contracts to be performed in accordance with their terms and in a manner consistent with good faith, the New Civil Transactions Law goes further by introducing specific articles – notably Article 121 and Article 122 – which regulate the initiation, conduct and termination of negotiations. Under Article 121, parties are obliged to conduct negotiations in good faith; a party who engages in bad faith, for example by breaking off discussions abruptly after inducing reasonable reliance or by concealing decisive information, may incur liability for actual damage suffered by the other party. This liability is generally confined to the negative interest (reliance loss), with lost profit from the unrealised contract excluded unless the parties have agreed otherwise. Article 122 imposes a non-waivable duty to disclose material and decisive information that would have influenced the other party’s decision to contract or the conditions under which it contracted. Contractual clauses attempting to exclude or unduly limit this disclosure obligation are deemed void, and the injured party may seek rescission or annulment of the contract in addition to damages where the statutory criteria are satisfied. These provisions codify and strengthen judicial approaches to fraudulent misrepresentation and deception, and they provide a transparent regime that foreign investors and counterparties can understand and build into their negotiating strategies.

Thirdly, the New Civil Transactions Law confirms and refines the hierarchical relationship between mandatory statutory rules, contractual terms and custom. The New Civil Code affirms that mandatory statutory norms contained in the civil code itself or in other applicable federal or local legislation prevail over any conflicting contractual stipulation. Parties cannot contract out of imperative provisions designed to protect public order, morality, weaker parties or third-party interests. At the same time, custom – whether general or particular – remains a binding source of law where the parties have not expressly excluded it and where it does not conflict with statutory provisions or public order. This has particular importance in standardised industries such as construction, shipping and commodities trading, where well-established trade usages can, in the absence of specific drafting, fill gaps in contracts and inform the interpretation of ambiguous clauses under the UAE civil code.

The New Civil Transactions Law also preserves the classical civil law classification of sources of obligations: contract, unilateral act, tort (civil wrong), beneficial act (including the voluntary management of another’s affairs, or negotiorum gestio) and the law itself. This structure underpins the entire code and guides the courts in determining the applicable chapter in disputes. In parallel, the New Civil Code restates the legal personality and capacity of juridical persons, including companies, associations and waqfs (Islamic endowments), confirming their separate financial liability, ability to sue and be sued in their own name, and a defined domicile at the location of their administrative centre. These concepts are fundamental for conflict-of-laws determinations, for service of process, and for the recognition and enforcement of judgments and arbitral awards, particularly in structures where corporate groups operate simultaneously onshore and within free-zone or financial free-zone jurisdictions.

Collectively, these core provisions of the UAE civil transactions law provide an explicit and integrated statutory backbone for contractual and non-contractual obligations in the onshore United Arab Emirates. They require all market participants – from multinational investors and government-related entities to entrepreneurs and expatriate property owners – to recalibrate how they negotiate, document and perform civil transactions, with particular attention to pre-contractual behaviour, choice-of-law drafting and the alignment of contractual terms with mandatory statutory norms and trade customs.

Contract Drafting under the New UAE Civil Transactions Law

The entry into force of Federal Decree-Law No. 25 of 2025 will materially elevate the standard expected in contract drafting in UAE for all civil contracts governed by onshore United Arab Emirates law. Matters that were previously developed primarily through case law and doctrinal inference under the 1985 Civil Code are now expressly regulated in statutory provisions, compelling contracting parties and their counsel to address key duties and risk-allocation mechanisms directly in their documentation. For practitioners, this means that standard templates built around the 1985 Civil Code must undergo a systematic review and, where necessary, a substantial redrafting if they are to remain enforceable and commercially effective under the new civil transactions law.

First, every onshore contract governed by the UAE civil transactions law should be drafted with explicit cognisance of the duty of good faith in negotiations and performance. While the law will imply this duty irrespective of the parties’ wording, experienced counsel will typically wish to include provisions that acknowledge the statutory framework and, within its parameters, manage expectations regarding the scope of pre-contractual obligations. For example, negotiation protocols, letters of intent and term sheets should address exclusivity periods, the allocation of negotiation costs, confidentiality arrangements, and the conditions under which a party may legitimately withdraw from negotiations without incurring liability under Article 121. Drafting should make clear that the parties do not intend to waive non-waivable statutory duties, thereby reducing the risk that poorly drafted disclaimers of responsibility might be construed as attempts to circumvent the UAE civil code.

Secondly, contract drafting in the United Arab Emirates must now incorporate the statutory duty of disclosure in a deliberate and structured fashion. Given that clauses attempting to exclude or unduly limit disclosure of material and decisive information are ineffective under Article 122, drafters should focus on defining robust processes for information exchange, due diligence and disclosure. In merger and acquisition documents, shareholders’ agreements, joint venture contracts, long-term supply contracts and sale and purchase agreements for real property, the parties should identify categories of information that are presumed material, establish procedures for disclosure (including data room protocols, disclosure letters and update obligations), and provide evidentiary mechanisms (such as acknowledgement schedules) to demonstrate that disclosure has occurred. These contractual processes should be closely aligned with sectoral regulatory disclosure duties (for example, those applicable to regulated financial institutions, listed companies or real estate developers) so that adherence to regulatory standards supports, rather than conflicts with, compliance under the UAE civil transactions law.

Thirdly, the New Civil Transactions Law’s conflict-of-laws provisions make it particularly important that contracts contain precise governing law and jurisdiction clauses. If the parties do not wish onshore United Arab Emirates law to govern their agreement, they should state their choice of foreign or free-zone law in clear and unambiguous terms; conversely, where UAE law is intended, the drafting should distinguish between onshore federal civil law and, for example, the law of the Dubai International Financial Centre (which constitutes a distinct legal system). In the absence of clarity, courts may revert to the default connecting factors in Article 19, potentially resulting in the application of an unintended law or disputes over the applicable legal system. For onshore contracts with foreign elements, practitioners must also consider how the chosen governing law will interact with mandatory UAE public order rules, property law constraints, consumer-protection legislation and Shari’a-based restrictions in relation to interest and speculative transactions.

Fourthly, particular attention must be given to liquidated damages clauses and limitation-of-liability provisions, which are of central importance for civil liability UAE risk management. Under the New Civil Transactions Law, pre-agreed damages remain in principle enforceable but are subject to judicial control. If the debtor proves that the creditor has not suffered damage, or that the agreed sum is manifestly disproportionate to the harm incurred, the court may reduce the amount to an equitable level. Conversely, recent analyses of the New Civil Code indicate that upward adjustments beyond the agreed amount are now generally confined to circumstances where the creditor proves fraud, gross negligence or other limited statutory grounds. This approach is reflected, for example, in commentary on Article 340(4) of the New Civil Code in the context of construction contracts, where courts retain the power to review contractual penalty clauses. Parties should therefore revisit standard delay-damages provisions, performance penalties, early-termination fees and exclusivity payments to ensure that they reflect a genuine pre-estimate of loss and that their operation following termination is clearly specified, bearing in mind that, under United Arab Emirates case law, termination may extinguish associated penalty provisions unless the parties have lawfully agreed otherwise.

Fifthly, for muqawala (construction and works) contracts, the New Civil Transactions Law maintains and reorganises the specialised regime governing contractors’ and employers’ obligations, defects liability, variations, risk allocation and termination. The numbering and structure differ from the 1985 Civil Code (where these provisions were found in Articles 872–896), but the New Civil Code continues to address issues such as responsibility for design and execution, latent defects, decennial liability and the consequences of employer interference or contractor default. Commentary on the New Civil Transactions Law indicates that the construction chapter now cross-refers more explicitly to specialised legislation dealing with project registration, safety and decennial liability. Standard forms based on the FIDIC suite and similar models must therefore be carefully mapped against the re-ordered statutory framework, with special attention to the interaction between contractual risk-allocation mechanisms (such as extension-of-time clauses, variation procedures and caps on liability) and the New Civil Code’s mandatory provisions which cannot be waived by agreement under UAE civil transactions law.

Sixthly, drafting must ensure that unlawful or impossible terms are scrupulously avoided and that the contract as a whole complies with the New Civil Code’s requirements for validity. Consistently with the general validity rules of the prior code, the New Civil Transactions Law maintains that contracts are void where their subject matter is unlawful, impossible, or contrary to public order or morals. If only specific clauses are unlawful or void, the remainder of the contract may survive provided it can stand independently and severance accords with the parties’ intentions and the structure of their agreement. Counsel must therefore remain vigilant in identifying sector-specific prohibitions – including unauthorised practice of regulated activities, impermissible transfers of rights, or structures that contravene Shari’a-driven prohibitions on riba in particular contexts – that could render essential contractual provisions invalid and thereby jeopardise enforceability of the entire transaction under the UAE civil code.

In addition, contracts should contain carefully drafted dispute-resolution mechanisms, whether providing for the jurisdiction of onshore United Arab Emirates courts under Federal Decree-Law No. 42 of 2022 or for arbitration under the applicable arbitration statute. For arbitration clauses, particular attention must be paid to the capacity and authority of the signatory, the breadth of the clause, the chosen seat of arbitration (which may be onshore or within a financial free zone), and the compatibility of the intended arbitral process with the mandatory provisions of the UAE civil transactions law that onshore courts will apply at the recognition and enforcement stage. Overall, contract drafting in the United Arab Emirates after 1 June 2026 calls for a holistic reassessment of standard documents to embed statutory good-faith and disclosure duties, to refine liquidated damages and limitation clauses, and to ensure full compliance with the code’s re-engineered conflict-of-laws and validity rules.

Civil Liability and Damages under the New UAE Civil Code

The UAE civil transactions law maintains the classical distinction between contractual liability, tortious (delictual) liability and liability arising from unilateral acts or beneficial interventions, while refining rules on causation, contributory fault and the assessment of compensable damages. These refinements will materially affect how parties evaluate civil liability UAE, document risk, and formulate litigation or arbitration strategies in disputes governed by onshore law.

In the field of tort (civil wrong), the New Civil Transactions Law preserves the core principle, long associated with former Article 292 of the 1985 Civil Code, that compensation is intended to restore the injured party, so far as money can do so, to the position they would have been in had the wrongful act not occurred. As under the prior code, damages may extend to both the actual loss suffered and the loss of profit that constitutes a normal, direct and foreseeable consequence of the wrongful act, provided a sufficient causal link exists. The New Civil Code, however, provides greater structural clarity regarding the causal nexus between the wrongful act and the claimed damage, and it reiterates that speculative, remote or indirect losses will not ordinarily be recoverable. This continuity ensures that established jurisprudence relating to professional negligence, product liability, traffic accidents and other delictual claims remains relevant, albeit now applied under a modernised statutory framework.

For contractual liability, the New Civil Transactions Law continues to anchor liability in non-performance, delay or defective performance of a contractual obligation, subject to recognised exonerating circumstances such as force majeure or an unforeseen event beyond the debtor’s control that could not be resisted. As under the 1985 Civil Code, the burden lies on the debtor to establish the existence and effect of the exonerating event, and specialised legislation may contain additional or different requirements in certain sectors. The New Civil Code, however, codifies a more nuanced regime of contributory fault, empowering courts to reduce or, in exceptional cases, exclude damages where the creditor’s conduct has contributed to the occurrence or aggravation of the damage. Contemporary legal analyses of the New Civil Transactions Law confirm that where the creditor’s fault is equal to or greater than that of the debtor, the court may significantly limit or deny compensation, thereby encouraging careful performance monitoring and timely mitigation efforts by both parties.

In relation to liquidated damages, the new civil transactions law maintains the long-standing principle that parties may agree in advance the amount of compensation payable in the event of breach, delay or non-performance, but it strengthens the judiciary’s oversight role. Courts remain entitled to reduce the agreed amount if the debtor proves that the harm suffered is less than the stipulated sum, or that no damage has been sustained, thereby aligning the compensation with the principle of full but not punitive reparation. At the same time, commentaries on the New Civil Transactions Law, including in the construction sector, indicate that increases above the agreed amount are now generally limited to cases involving fraud, gross negligence or other exceptional circumstances expressly provided for in the statute (such as those discussed under Article 340(4) in construction-related contexts). This codified balance between contractual freedom and judicial control is intended to discourage both nominal penalties detached from actual risk and exaggerated penalties inconsistent with commercial reality, and it is particularly relevant to delay and performance damages in construction and real estate projects.

The New Civil Transactions Law also confirms that liability may arise from unilateral acts, including certain public promises, prize offers and voluntary acts of managing another’s affairs without authority (negotiorum gestio). In such cases, the scope of obligation and the recoverable damages depend on the nature of the unilateral commitment, the reliance it reasonably induced and the extent to which the acting party complied with the New Civil Code’s standards of prudence and loyalty. This is of practical importance for consumer-oriented enterprises, loyalty programmes and promotional campaigns in the United Arab Emirates, where public offers and incentives may create enforceable expectations under the UAE civil code.

Furthermore, the New Civil Transactions Law reiterates the principle, traceable to former Article 45 of the 1985 Civil Code, that a state of compelling necessity, while it may diminish or exclude personal culpability in some circumstances, does not in itself extinguish the rights of third parties to seek compensation where their property or legally protected interests have been harmed. This concept remains particularly pertinent during public health crises, natural disasters or exceptional security situations, when private property may be affected in the course of protective measures. Courts retain a margin of appreciation to balance the legitimacy of necessary acts against the residual entitlement of affected parties to fair compensation, applying the New Civil Code’s general principles on liability, causation and quantum.

From a strategic standpoint, these refinements to civil liability UAE demand more rigorous risk-management practices by businesses and investors operating under onshore law. Contractual documentation should clearly allocate responsibilities, set out mitigation and notification duties, and record mechanisms for dealing with adverse events or potential breaches. Insurance arrangements should be carefully aligned with the liability profiles articulated in the New Civil Code, ensuring that both contractual and tortious exposures are adequately covered. In litigation and arbitration, parties should prepare detailed factual records and contemporaneous correspondence addressing causation, foreseeability, contributory conduct and mitigation measures, all of which will shape the court’s or tribunal’s assessment of liability and damages under the recalibrated statutory regime of the UAE civil transactions law.

Statute of Limitations and Enforcement of Civil Judgments under the UAE Civil Transactions Law

The statute of limitations in the United Arab Emirates continues to be governed by an interplay between the New Civil Transactions Law and specific limitation provisions contained in sectoral legislation, including the Commercial Transactions Law, labour law, insurance regulations and financial-services statutes. The UAE civil code does not impose a single universal limitation period for all civil claims. Rather, it provides differentiated limitation periods depending on the nature of the obligation, the type of contract, and, in some cases, the identity of the parties (for example, claims between merchants or between professionals and their clients). Existing commentary suggests that the New Civil Transactions Law largely preserves this differentiated structure whilst clarifying certain triggers, particularly in relation to the moment when the injured party is deemed to have acquired knowledge of the damage and of the responsible person in tort claims. This is intended to reduce disputes over when limitation periods commence, without significantly altering the length of the limitation periods for common categories of claims, which under the pre-existing framework typically ranged from 3 to 15 years depending on the cause of action.

A fundamental principle, carried forward under the New Civil Code, is that limitation periods and related exceptions are not extended by analogy. Where the law prescribes a specific limitation period for a particular class of claim, that period cannot be applied by analogy to different types of claims, nor may courts create new limitation time-limits in the absence of an express statutory basis. In situations where the code is silent, the judge must turn to the established hierarchy of supplementary sources – Islamic Shari’a, prevailing custom, and principles of natural law and equity – rather than extrapolating from limitation provisions designed for other contexts. This strict approach protects legal certainty and predictability, but it places considerable importance on the accurate legal characterisation of the claim when drafting pleadings and selecting the cause of action under the UAE civil transactions law.

The enforcement of civil judgments in the United Arab Emirates remains primarily regulated by Federal Decree-Law No. 42 of 2022 Promulgating the Civil Procedure Code and its implementing regulations, but it must now be read together with the substantive rules of the New Civil Transactions Law that define rights, obligations and proprietary interests. Once a civil judgment has become final – whether through expiry of the appeal period, dismissal of the appeal, or the issuance of a final decision by the Court of Cassation – it becomes enforceable via the execution departments attached to the onshore courts. These departments are empowered to adopt a wide range of enforcement measures, including attachment of movable assets (vehicles, equipment, inventory and other tangible property), attachment of debts owed to the judgment debtor by third parties (such as bank balances, receivables and other monetary claims, even where deferred or conditional), and attachment and judicial sale of real property, subject to compliance with the procedures of the relevant land department and registration authorities.

In practice, the enforcement department issues attachment orders to banks, employers, tenants, registries and other third parties, who are obliged to declare and preserve any assets or debts they hold for the judgment debtor. If the attached assets are to be sold, judicial auctions are conducted under regulated procedures designed to ensure transparency and protect both creditors and debtors. The proceeds are then distributed in accordance with statutory priority rules and any validly registered security interests under the applicable laws on mortgages and security rights over movables. Throughout this process, the UAE civil transactions law provides the substantive rules that determine ownership and priority of rights, govern the validity and ranking of security interests, and regulate challenges by the debtor or third parties claiming better title.

From a creditor’s perspective, the interaction between the New Civil Code and the Civil Procedure Law underscores the need to structure loans, guarantees, shareholder support arrangements and commercial contracts in a manner that facilitates eventual enforcement. This includes clear identification of obligors, adequate description of secured assets, proper registration of security interests, and careful drafting of default and acceleration provisions under the UAE civil code. For foreign judgments and arbitral awards, recognition and enforcement continue to be governed by the Civil Procedure Law and applicable international treaties or reciprocal arrangements. Once a foreign judgment or award is recognised, it is enforced through the same mechanisms as a domestic judgment, again subject to the property-law and obligations framework now codified in the New Civil Transactions Law.

In summary, while the New Civil Transactions Law does not radically rewrite limitation periods or enforcement mechanics, it clarifies the substantive underpinnings of limitation and enforcement, reinforces the prohibition on extending limitation periods by analogy, and emphasises the need for claimants and defendants to act diligently within prescribed time limits and to prepare enforcement strategies grounded in a nuanced understanding of the UAE civil transactions law and the Civil Procedure Law.

Onshore UAE Civil Code and DIFC Law: A Comparative Perspective

The coexistence of the UAE civil transactions law with the distinct legal systems of the State’s financial free zones – most notably the Dubai International Financial Centre (DIFC) – remains a defining feature of the United Arab Emirates legal environment. The promulgation of Federal Decree-Law No. 25 of 2025 reinforces the need to understand the structural differences and interaction points between the onshore civil-law regime and the common-law-inspired DIFC law framework, particularly in relation to DIFC vs UAE civil law considerations in cross-border financing, corporate structuring and dispute resolution.

The new UAE civil code is a codified civil law system rooted in Islamic Shari’a and continental civil-law traditions. It is structured into general provisions on persons, civil acts and obligations, followed by specific regimes governing contracts, property, security rights and other nominate institutions, and it is supplemented by federal and emirate-level legislation. Judicial decisions, including those of the Federal Supreme Court and emirate Courts of Cassation, are influential and increasingly consistent, but they do not formally constitute binding precedent in the common-law sense. The New Civil Transactions Law reaffirms this structure, emphasises the centrality of Shari’a and custom as supplementary sources, and introduces modern drafting and conceptual clarity in areas such as pre-contractual liability, choice-of-law and damages.

By contrast, DIFC law operates within the geographically limited DIFC free zone pursuant to the laws of the Emirate of Dubai and federal enabling instruments. It is based on DIFC statutes (including the DIFC Contract Law, the DIFC Law of Obligations and specialised financial-services laws) and on a doctrine of judicial precedent, with decisions of the DIFC Courts binding within that system. DIFC law draws heavily on English common-law concepts such as consideration, repudiatory breach, estoppel and equitable remedies, adapted to the DIFC legislative framework. Party autonomy is strongly protected, and the DIFC Courts commonly give effect to sophisticated contractual limitation-of-liability and exclusion clauses, subject only to mandatory rules, illegality and public policy.

With respect to choice of law and jurisdiction, Federal Decree-Law No. 25 of 2025 codifies a more detailed private international law regime onshore. Parties are generally free to choose the law governing their civil contracts, subject to limitations based on United Arab Emirates public order and mandatory provisions. However, onshore courts may decline to apply a chosen foreign or free-zone law to the extent that it conflicts with mandatory rules of the UAE civil transactions law or other federal legislation. The DIFC Courts, conversely, will apply DIFC law by default where the dispute falls within their jurisdiction and the parties have not specified another governing law, but they are prepared to give effect to an express choice of onshore UAE law or other foreign law where such choice is bona fide and not contrary to DIFC public policy. This means that the DIFC vs UAE civil law analysis must be undertaken transaction by transaction, considering the locus of performance, the governing law clause, the seat and forum of dispute resolution, and the location of assets available for enforcement.

There are also notable differences between the systems in terms of pre-contractual duties and good faith. Under the UAE civil code, Articles 121 and 122 now impose explicit statutory duties of good faith during negotiations and a non-waivable obligation to disclose decisive information, backed by remedies for bad-faith termination and non-disclosure. While concepts of good faith and fair dealing are recognised in DIFC law, they are not codified in the same way, and the regime relies more on common-law doctrines such as misrepresentation, duress, undue influence and negligent misstatement to regulate pre-contractual conduct. As a result, negotiation strategies and disclosure practices that might be acceptable in a purely DIFC context can carry different legal risks when the transaction has an onshore nexus and is subject, in whole or in part, to the UAE civil transactions law.

In the realm of damages and limitations of liability, the New Civil Transactions Law adheres to the civil-law principle of full compensation for direct and foreseeable loss, including lost profit where it is the normal consequence of the breach or wrongful act, and subjects liquidated damages to judicial review for excessiveness or lack of harm. DIFC law, by contrast, reflects common-law rules regarding expectation and reliance damages, remoteness and mitigation, and generally accords robust effect to contractual limitations and exclusions of liability, provided they are clearly drafted and not contrary to statute or public policy. For complex cross-border structures that combine onshore and free-zone elements – such as an onshore security package governed by the UAE civil code supporting a facility agreement governed by DIFC law – parties must pay close attention to how each system treats causation, foreseeability, penalty clauses and limitation of liability.

Finally, the applicability of each regime must be clearly demarcated. The UAE civil transactions law governs mainland United Arab Emirates civil transactions, subject to carve-outs and specialised federal and local statutes. It does not displace the separate legal systems of the DIFC or Abu Dhabi Global Market (ADGM), which continue to govern civil and commercial relationships within their respective free zones and in respect of contracts that validly opt into their laws and courts. For cross-border corporate and financial transactions, it is increasingly common to see hybrid arrangements in which onshore and free-zone laws intersect, necessitating careful drafting to reconcile differences in capacity, security interests, insolvency treatment and the enforcement of judgments and arbitral awards under DIFC vs UAE civil law.

In this evolving legal landscape, Federal Decree-Law No. 25 of 2025 should be viewed not merely as an incremental update but as a strategic consolidation of the onshore civil-law regime, designed to interact coherently with the advanced common-law systems of the State’s financial free zones. For corporate actors, SMEs, investors and expatriate property owners, sustained attention to the doctrinal and practical interface between the UAE civil code and free-zone regimes is now essential to effective risk management, transaction planning and dispute resolution in the United Arab Emirates.

Frequently Asked Questions

• When does the New UAE Civil Transactions Law take effect?
  Federal Decree-Law No. 25 of 2025 enters into force on 1 June 2026 and will replace the 1985 Civil Code in all matters of onshore civil transactions subject to transitional provisions.
• What are the biggest changes introduced by the new law?
  Explicit statutory pre-contractual duties of good faith and disclosure, enhanced party autonomy in governing law clauses, a reduced age of majority (from 21 to 18), refined civil liability provisions (including contributory fault), clarified limitation rules, and tighter integration of sectoral and public order rules into contract law.
• Does the new law affect existing contracts?
  Transitional rules apply. Generally, contracts entered into before 1 June 2026 remain governed by the law in force at the date of their conclusion. However, for subsequent amendments, renewals or performance, parties should review the New Civil Transactions Law’s requirements.
• Does the new civil code apply to personal status, family or inheritance matters?
  Personal status matters are governed primarily by specialised legislation, including Federal Decree-Law No. 41 of 2024 Promulgating the Personal Status Law and, where applicable, Federal Decree-Law No. 41 of 2022 on Civil Personal Status.
• How do the New Civil Transactions Law and DIFC law interact?
  Onshore law applies on the UAE mainland and to contracts selecting UAE law; DIFC law applies within the DIFC and (where validly chosen) to contracts selecting DIFC jurisdiction/law. Careful contract drafting and asset structuring is required for hybrid, cross-border, or multi-jurisdictional matters.
• Is good faith disclosure in negotiations mandatory under the new law?
  Yes. There is an express, non-waivable duty to negotiate in good faith and to disclose decisive information, with remedies for breaches covering reliance damages and possible rescission.
• How are liquidated damages treated under the new code?
  Pre-agreed (liquidated) damages remain generally enforceable but are subject to judicial review for excessiveness, lack of loss, or manifest disproportionality. Increases above the agreed sum are now usually limited to fraud, gross negligence, or specific statutory grounds.
• How should contracts be updated for compliance?
  Redraft standard templates to align with statutory duties of good faith and disclosure, update risk and governing law clauses, review and evidence due diligence/disclosure, and ensure all terms comply with mandatory rules, especially for penalties, limitations, and sector-specific regulations.
• Does the code address digital and cross-border transactions?
  The recodification responds to technological developments and cross-border dealings, and it modernises private international law rules and civil liability analysis.
• Are UAE court judgments and foreign awards easier to enforce?
  Substantive rights are clarified and support streamlined enforcement under the Civil Procedure Law, but practical enforcement remains dependent on asset location, registration, and (for foreign awards) applicable recognition treaties.