The adoption of Federal Decree-Law No. 25 of 2025, introducing a new Civil Transactions Law scheduled to enter into force on 1 June 2026, marks a defining moment in the development of private law in the United Arab Emirates. For nearly forty years, the Civil Code of 1985 served as the principal legal framework governing civil obligations, contractual relationships and liability across the UAE. The new legislation replaces that framework at a time when the country’s economic landscape and the sophistication of the transactions conducted within it, has changed dramatically. What emerges from the reform is not a radical departure from the principles that have historically structured UAE civil law, but rather a deliberate recalibration of those principles to reflect the realities of a modern commercial economy.

The Civil Code has always occupied a particular place within the UAE legal system. Although numerous sector specific laws regulate areas such as companies, banking, real estate or insolvency, the conceptual foundations underpinning those regimes originate in the Civil Code. Doctrines such as good faith, fault, causation and abuse of rights continue to shape the interpretation of contractual and civil obligations throughout the legal system. The decision to replace the Code after four decades therefore carries structural significance: it represents an effort to ensure that the fundamental legal architecture supporting economic activity evolves alongside the country’s rapid institutional and commercial development.

One of the underlying themes of the new legislation is the consolidation of principles that had previously developed through judicial practice. Over time, UAE courts were required to address numerous issues that the original Code did not expressly regulate. In the absence of binding precedent, judicial reasoning provided guidance but did not always offer the level of certainty expected in complex commercial environments. The new Code addresses several of these gaps by codifying principles that had gradually emerged through litigation and judicial interpretation. The legislative intention appears clear: reducing uncertainty while aligning statutory provisions with the way civil and commercial disputes have already been resolved in practice.

The regulation of negotiations illustrates this evolution particularly well. Modern transactions rarely arise from a single contractual exchange. Instead, they are typically preceded by extended negotiations, exchanges of confidential information and preliminary documents such as term sheets or framework agreements. Under the former Civil Code, the legal consequences of conduct during negotiations remained largely implicit. The new law introduces explicit rules governing this phase of the contractual process, requiring parties to negotiate in good faith and to disclose information that may materially influence the other party’s decision to contract. Misuse of confidential information obtained during negotiations may also give rise to liability. The practical effect is to recognise that negotiations themselves can create legitimate expectations and economic reliance even before a definitive agreement is concluded.

Another dimension of the reform concerns the broader methodology through which courts approach the interpretation of civil law. Historically, when statutory provisions did not provide a clear answer, the Civil Code directed judges to rely on Islamic jurisprudence according to a prescribed hierarchy of schools. The new framework removes that rigid hierarchy and gives courts greater interpretative latitude in drawing upon Islamic Sharia and other sources when legislation is silent. Courts may also rely on principles of justice or natural law as a last resort where neither legislation, Sharia nor customary practice provides a solution.

This development reflects a subtle but important shift in the role of the judiciary. Rather than operating within a rigid interpretative framework, courts are granted broader discretion to reach equitable outcomes in cases where legislation does not offer explicit guidance. The likely consequence is an increased importance of jurisprudence emerging from the higher courts, which will inevitably play a central role in shaping coherent interpretative principles over time.

The treatment of exploitation also receives clarification under the new law. The previous Civil Code already recognised exploitation where one party took advantage of another’s need, passion, inexperience or weakness of judgment in order to obtain a disproportionate contractual advantage. In such cases, courts could annul the contract or reduce the excessive obligation. The new Civil Code does not fundamentally alter this doctrine, but articulates it in a more structured manner by placing clearer emphasis on situations of manifest contractual imbalance arising from vulnerability, dependence or lack of experience. Courts retain the power either to annul the contract or to rebalance obligations where exploitation results in a clearly disproportionate outcome. In practice, the change is therefore less about expanding judicial powers than about clarifying the conditions under which they may be exercised. For contracting parties, the reform signals that transactions characterised by significant economic imbalance, particularly where one party can be shown to have taken advantage of another’s vulnerability or inexperience, may attract closer judicial scrutiny.

The new Code also seeks to adapt civil law to the operational realities of contemporary commerce.
While the UAE already recognises electronic signatures and digital documents under separate legislation governing electronic transactions, the new Code modernises the underlying rules of contract formation in a manner that accommodates contemporary methods of communication. Contracts may now clearly arise through various forms of communication and conduct demonstrating acceptance, rather than solely through formal written instruments. By recognising the role of electronic exchanges, framework agreements and iterative negotiations in the formation of binding obligations, the new law aligns the Civil Code with the operational realities of modern commerce.

A more visible reform concerns legal capacity. The new legislation reduces the age of majority from 21 years to 18 years, aligning civil capacity with international benchmarks and other areas of UAE legislation. Individuals aged eighteen will therefore be considered legally capable of entering into contracts and managing their financial affairs without the restrictions previously associated with minority.

While this change may appear primarily technical, it has practical implications for financial institutions and businesses that engage directly with consumers, as contracts concluded with individuals between the ages of eighteen and twenty will no longer face the same challenges relating to contractual capacity.

The reform also touches upon structural aspects of corporate and professional activity. The new framework recognises the possibility of single person civil companies and introduces clearer rules governing the withdrawal of partners, business continuity and the operation of professional entities. These provisions respond to the increasing diversity of business structures operating in the UAE and complement developments already introduced under the Commercial Companies Law.

The objective appears less about creating entirely new forms of corporate organisation than about ensuring that the Civil Code accurately reflects the organisational structures already present within the economy.

On remedies, the new law introduces clarification rather than a fundamental shift in the doctrine of warranty for defects. Under the previous Civil Code, the buyer’s primary option upon discovery of a latent defect was generally limited to returning the goods or accepting them at the contract price, although a reduction in value could be obtained in certain specific circumstances. The new law now expressly recognises the buyer’s right to retain the goods and claim the amount by which the defect has diminished their value as a primary remedy. It also extends the limitation period for bringing defect claims from six months to one year from delivery, while maintaining the rule that a seller cannot rely on this time limit where the defect has been fraudulently concealed. In practice, these changes strengthen the position of purchasers by providing a clearer statutory basis for price reduction claims and a longer period to identify and pursue latent defects, while encouraging sellers to ensure greater transparency regarding the condition and characteristics of the goods sold.

From a practical standpoint, perhaps the most significant impact of the new Civil Code lies not in any single provision but in the cumulative effect of numerous clarifications. The reform reinforces the primacy of contractual agreement between parties, emphasises the importance of transparency during negotiations and provides courts with a clearer methodology for addressing gaps in the legislation. For businesses operating in the UAE, these developments translate into a stronger emphasis on careful contractual drafting and risk allocation. Ambiguities in contracts are likely to receive greater scrutiny, particularly where they concern obligations imposed on one party or situations involving weaker contracting parties.

At a broader level, the reform can also be understood as part of the UAE’s continuing effort to align its legal infrastructure with its role as an international commercial hub. Over the past decade, the country has undertaken extensive legislative reforms across multiple areas of law, including bankruptcy, arbitration, evidence and commercial companies. The replacement of the Civil Code completes an important stage in this modernisation process by updating the foundational principles that support those specialised regimes.

Yet the true significance of the new Civil Transactions Law will only become fully visible once it begins to operate in practice. As courts interpret its provisions and practitioners test its boundaries in litigation and arbitration, the contours of the new framework will gradually emerge. In particular, areas such as pre-contractual liability, the expanded role of judicial reasoning and the interaction between statutory rules and broader notions of justice will likely generate important jurisprudence in the coming years.