The UAE’s New Civil Transactions Law: Key Banking and Finance Considerations

The UAE has taken another significant step in modernising its legal framework with the enactment of Federal Decree by Law No. 25 of 2025 Promulgating the Civil Transactions Law, which came into force on 1 June 2026 and repealed and replaced Federal Law No. 5 of 1985.

While many of the underlying principles of UAE contract law remain familiar, the New Civil Transactions Law introduces a number of important reforms that are particularly relevant to banks, financial institutions and Islamic finance providers. These changes are aimed at enhancing legal certainty, improving commercial flexibility and aligning the UAE’s civil law framework with modern financing practices.

1. A modern framework for assignment and transfer

One of the most important developments for the banking sector is the clearer statutory framework governing the assignment of rights and the transfer of obligations.

The New Civil Transactions Law distinguishes between the validity of an assignment and its effectiveness. Unless prohibited by law, agreement or the nature of the obligation, a creditor may assign its rights to another person without obtaining the debtor’s consent. However, while the assignment is valid as between the assignor and assignee, it only becomes enforceable against the debtor and, in certain circumstances, third parties once the debtor has accepted or been notified of the assignment. The Law also introduces fixed-date requirements in certain cases to determine effectiveness against third parties.

The Law further confirms that an assignment of rights includes related securities, such as suretyship, privilege and pledge, as well as instalments that have fallen due. These provisions are particularly relevant for syndicated lending, receivables financing, factoring, securitisations, loan transfers and secondary debt trading. The Law separately addresses the transfer of obligations, including the requirement for creditor consent where a debtor seeks to transfer its obligation to another person. This distinction between the assignment of rights and the transfer of obligations should assist banks when structuring transfer mechanics in facility agreements and when assessing the legal effect of assignments, novations and debt transfers.

2. Good faith, disclosure and negotiations

The New Civil Transactions Law expressly regulates pre-contractual negotiations. It provides that the initiation, conduct and termination of negotiations must comply with the requirements of good faith, and that a party that negotiates or terminates negotiations in bad faith may be liable to compensate the other party for actual damage suffered.

The Law also codifies an express obligation to disclose essential and decisive information where that information is of decisive importance to the consent of the other party and where the other party’s ignorance is presumed or the other party has placed trust in the contracting party. These provisions reinforce the importance of transparent negotiations, clear term sheets, robust customer onboarding procedures and proper disclosure of material financing terms.

For lenders, this does not mean that every failed negotiation will give rise to liability. However, it does mean that banks should be able to evidence the basis on which key financing terms were communicated, negotiated and agreed, particularly in transactions involving complex pricing, security packages, guarantees, Islamic finance structures or vulnerable counterparties.

3. Greater certainty in contract interpretation

The New Civil Transactions Law expands the statutory principles governing contractual interpretation. Where the wording of a contract is clear, the court may not depart from it to ascertain the parties’ common intention. Where interpretation is required, the court may consider the parties’ common intention, the nature of the transaction, honesty and trust between the parties, prevailing custom and the surrounding circumstances at the time of contracting.

The Law also confirms that a contract should be interpreted in a manner that achieves justice and good faith between the parties, and that ambiguity or inconsistency may be construed in favour of the party bearing the obligation or the weaker party. For finance documents, this places renewed emphasis on precise drafting of representations, undertakings, events of default, indemnities, guarantees, enforcement rights and discretion-based lender protections.

4. Mudaraba and Islamic finance

The New Civil Transactions Law modernises the statutory framework governing Mudaraba arrangements, reflecting the continued growth of Islamic finance in the UAE. A Mudaraba is defined as a contract under which a capital provider delivers funds to another person who undertakes to invest them in return for a proportional share of the profit.

Among the notable updates, the Law provides that Mudaraba capital may be a debt owed by the mudarib to the capital provider, and that where capital consists of assets other than cash, the capital is determined by reference to the value of what is contributed at the time of contracting or such value as the parties agree as an appropriate basis for valuation. The Law also requires the mudarib to provide information relating to the Mudaraba activities and to render an account at the end of the term, or annually where the contract is for an indefinite term unless otherwise agreed.

These changes provide greater statutory clarity and flexibility for Islamic banks and financial institutions when structuring Shari’ah-compliant investment and financing arrangements, including structures involving non-cash capital, profit-sharing and governance obligations.

5. Guarantees and security administration

Guarantees remain a key area for banks. The New Civil Transactions Law reorganises the provisions governing suretyship, including the scope of the surety’s liability and the circumstances in which a surety may be discharged. A suretyship may not exceed the amount due from the debtor or be on more onerous terms than the secured debt, although it may be for an equal or lesser amount and on identical or more lenient terms.

The Law also provides that a surety’s liability may be released to the extent of the value of securities lost by the creditor. This is significant for lenders because it reinforces the need for careful security administration, including proper perfection, monitoring, custody of original documents, registration where required and controlled release of security.

Practical considerations for banks

The New Civil Transactions Law is generally prospective in its application and does not ordinarily apply retroactively to facts and acts preceding its entry into force, unless the law provides otherwise. However, new limitation provisions apply from the date the Law came into force to any limitation period that had not yet expired, while prior law continues to govern commencement, suspension and interruption for the period before entry into force.

Existing financing arrangements therefore remain valid, but amendments, assignments, enforcement steps and other matters arising after 1 June 2026 may require consideration under the new statutory framework. Banks and financial institutions should consider reviewing their standard facility agreements, assignment and transfer provisions, guarantee documentation, customer disclosure procedures, Islamic finance documents and internal transaction processes to ensure alignment with the New Civil Transactions Law.

Banks and financial institutions should take this opportunity to review their documentation and transaction structures to ensure they remain consistent with the updated legislative framework and evolving market practice.