The UAE has issued Federal Law No. 25 of 2025 promulgating a new Civil Transactions Law and thereby replacing the current Civil Transactions Law of 1985. The new Civil Transactions Law will take effect starting 1 June 2026. The reform is part of the efforts to modernize the legal landscape and cater to practical needs. The new law includes long sought reforms across civil law and is expected to reduce the complexity of its practical application. Of particular significance is the introduction of pre-contractual obligations and liability, which establishes a clearer legal framework governing the conduct of parties during negotiations prior to contract formation.
What changed?
In this alert we will focus on key changes relevant to doing business in the UAE.
Pre-contractual Obligations
The most significant development in our view is the introduction of pre-contractual obligations including liability if negotiations are broken off maliciously (culpa in contrahendo) as well as pre- contractual disclosure obligations. This makes UAE Civil Law one of the few in the region acknowledging pre-contractual obligations and liability for violating them.
Negotiating in good faith and liability for breaking off in bad faith. Art. 121 (1) establishes good faith as a general principle when engaging in contract negotiations. Negotiating or exiting negotiations in bad faith gives rise to liability for damages. Unless otherwise agreed, the compensation is limited to actual loss only; in particular, it does not cover lost profit expected from the potential contract (as set out in Art. 121 [3]).
Disclosure obligations. Parties engaged in pre-contractual negotiations are required to disclose any information that is critically important to the decision making of the counterpart, if they are deemed unaware of them or if they entrusted them (Art. 122 (1)).
Moreover, the concealment of significant information that affects the validity of the contract is deemed negotiation in bad faith and gives rise to liability.
Safeguarding confidential information. Negotiating parties are obliged to keep confidential information they received during the negotiations or in the context of the contract. The disclosure of such information gives rise to liability (Article 123).
This provision aims to enhance the protection of confidential information that is often disclosed to the counterparty during contract negotiations and especially during due diligence procedures.
In general, the pre-contractual obligations prescribed by the new Civil Transactions Law seek to align the Emirati legal landscape with contemporary global practices and increase certainty during the pre- contractual phase.
Recognition of Framework Agreements
The newly introduced regime also recognizes the concept of a framework agreement.
According to Article 138, contractual parties can choose to conclude a framework agreement in which they specify the main terms and conditions that would be applicable to subsequent agreements. The framework agreement then becomes part of the follow-up agreements, unless agreed otherwise by the parties.
The official recognition of framework agreements brings clarity as framework agreements are widely used in practice.
Enhancement of Buyers’ Rights
The newly enacted provisions further strengthen buyer and consumer protection.
Buyers’ rights to retain a defective good and claim reduction of the purchase price. According to Art. 495 of the new Civil Transactions Law, the buyer is entitled to choose between returning the defective item to the seller or accepting it and demanding the difference in value reduction caused by the defect. In return, the seller however is able to deflect the demand of the buyer by offering to substitute the defective item with one free of defects. The currently applicable provisions only allow the buyer to return the defective item without the possibility of claiming price reduction as set forth in Art. 544 (1).
Sellers’ guarantee. The new provisions also extend the responsibility of the seller for defective goods as set out in Art. 496 (1). The goods are deemed defective in this sense if they lack characteristics that were assured by the seller. Additionally, the seller is liable for defects that reduce the value of the goods or hinder the fulfilment of the purpose set forth in the contract. This is now explicitly stated in the law. However, the buyers’ rights are primarily enhanced by the extension of the period of limitation for claims due to defective goods from six months, as currently applicable, to one year as prescribed by Art. 510 of the new Civil Transactions Law.
Enhanced Guarantor Protection
Strengthened Guarantor position. The new law introduced a partial defense of prior recourse and the defense of prior enforcement for the benefit of the guarantor, unless otherwise agreed upon.
Under the current Civil Transactions Code, the creditor is able to alternatively or simultaneously sue the guarantor or the debtor, Art. 1078 (1). In the future, the creditor will only be able to either sue the debtor individually or sue the debtor and guarantor collectively.An isolated suit against the guarantor will no longer be possible according to Art. 1009 (1). The guarantor’s position is furthermore strengthened by the necessity of unsuccessful enforcement against the debtor before enforcement against the guarantor, Art. 1009 (2). The short period of six months upon which the guarantor is deemed released from the guarantee if no claim against them is filed remains however also under the new Civil Transactions Law (Article 1006).
Outlook
The new Civil Transactions Law represents a significant modernization of the UAE’s civil law framework. Businesses operating in or entering the UAE market should take note of these changes, particularly the introduction of pre-contractual obligations which will require greater diligence during the negotiation phase. Companies should review their standard negotiation practices, ensure robust confidentiality protocols are in place, and be mindful of disclosure obligations when engaging with potential counterparties.
The enhanced buyer protections and extended limitation periods for defect claims may also necessitate a review of existing sales contracts and warranty provisions. Similarly, creditors relying on guarantees should reassess their enforcement strategies in light of the strengthened guarantor protections.
If you would like more information about this topic then please contact us.
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