The UAE’s New Civil Transactions Law: Key Changes and the Impact on M&A Transactions

5 min 12 sec

Written by

Richard Catling

Partner

r.catling@tamimi.com View LinkedIn Profile

Mariam Eldawy

M.Eldawy@tamimi.com View LinkedIn Profile

The United Arab Emirates has enacted the most significant reform of its civil law framework in four decades. Federal Decree-Law No. 25 of 2025, promulgating a new Civil Transactions Law (the New Civil Code), came into force on 1 June 2026, repealing and replacing Federal Law No. 5 of 1985 (the Old Civil Code).

While the New Civil Code preserves the foundational architecture of its predecessor, it introduces targeted and substantive reforms across obligations, contract formation, legal capacity, remedies, and the corporate framework. For practitioners and businesses engaged in mergers and acquisitions (M&A) in the UAE, the changes carry practical and strategic significance that demand attention.

The New Civil Code is not intended to apply retrospectively. It governs legal relationships and events arising on or after 1 June 2026. Agreements concluded under the Old Civil Code should continue to be governed by the old regime in respect of rights and obligations that arose before that date.

That said, practical questions arise when a pre-existing contract is amended, restated, refinanced, or renewed after 1 June 2026. Whether such changes constitute a variation of the original arrangement or the creation of a new one will require careful case-by-case analysis.

Pre-contractual good faith and disclosure duties

Perhaps the most consequential change for M&A practitioners is the extension of good-faith obligations into the pre-contractual phase. Under the Old Civil Code, good faith was required only in the performance of a contract. The New Civil Code, through Articles 121 to 123, fundamentally reshapes the risk landscape for deal negotiations.

Article 121 establishes a right to claim compensation where a party terminates negotiations in bad faith. Bad faith now expressly includes the deliberate failure to disclose a material statement that has a substantive effect on the validity of the contract. Negotiations do not create an obligation to conclude a contract, preserving parties’ right to walk away. However, any party that does so in bad faith faces liability for the counterparty’s wasted costs and reliance losses.

Article 122 goes further, imposing a mandatory mutual duty to disclose essential and decisive information before concluding a contract. This duty cannot be excluded by agreement: any contractual term purporting to do so is void. Article 123 supplements this with a duty of confidentiality over information shared during negotiations, with liability arising from unauthorised use or disclosure.

For M&A transactions, these provisions materially elevate the standard of conduct expected during deal negotiations. Deal teams must document their disclosures and negotiation steps with greater rigour. Heads of terms and letters of intent will need to address pre-contractual conduct expressly, and vendor due-diligence processes will need to reflect the mandatory disclosure standard.

The concept of ‘bad faith’ is not defined in the New Civil Code and will be subject to judicial interpretation over time. This introduces a degree of uncertainty that parties should anticipate when structuring their negotiations.

Warranties, indemnities, and agreed remedies

 Warranties and indemnities are central to any M&A agreement, and their treatment under UAE law has always differed from the English law position. Under onshore UAE law, warranties and indemnities are not recognised as distinct legal concepts. They are treated as contractual obligations, the enforceability of which depends on general contract principles, and breaches must be clearly linked to defined contractual consequences. The New Civil Code does not change this position.

However, the framework governing agreed remedies and compensation has changed. Article 340 of the New Civil Code continues to permit parties to specify compensation in the contract. Courts retain the power to reduce agreed compensation where it is exaggerated or where part of the obligation has been discharged, and to reduce or refuse compensation where the claimant participated in or aggravated the breach. Courts may also increase compensation in cases of fraud or gross negligence. Critically, any agreement that purports to contract out of these rules, such as a no-reduction clause or a no-fault-apportionment clause, is at high risk of being void.

This has direct implications when considering the intended scope and effect of warranties and indemnities in transaction documents. Practitioners should treat caps, floors, and agreed liquidated damages clauses with caution if drafted in a manner that purports to prevent judicial interference. Pre-agreed monetary remedies need to be framed as genuine estimates of anticipated loss in order to withstand scrutiny. Absolute exclusion clauses that seek to eliminate judicial discretion entirely are at high risk of being set aside.

Contract interpretation and framework agreements

Articles 118 and 120 of the New Civil Code introduce a formal distinction between negotiated contracts and contracts of adhesion (standard-form contracts whose terms are predetermined by one party and not open to negotiation). Obligations in negotiated contracts are to be interpreted in light of the factual circumstances at the time of conclusion, while any ambiguity in a contract of adhesion is to be resolved in favour of the party bearing the obligation or the weaker party.

This distinction has practical relevance in M&A transactions where standard-form ancillary documents, such as employment contracts, supplier agreements, or licensing arrangements within the target business, may be re-characterised as contracts of adhesion. Acquirers should assess the risk of adverse interpretation when reviewing such contracts as part of due diligence.

Article 138 expressly recognises framework agreements for the first time in UAE statute, defining them as contracts under which parties predefine the essential terms governing subsequent contracts between them. Unless otherwise agreed, such framework agreements are deemed to form part of those subsequent contracts.

Care must be taken to ensure that the terms of any pre-contract letter of intent or similar agreement — which are commonplace in M&A transactions — are not inadvertently brought within the scope of any subsequent dispute by a failure to ensure that they are properly superseded by definitive documentation.

Representation and authority

Articles 139 to 145 introduce more robust rules governing contracting through representation. Representatives cannot act beyond the powers granted to them. If a signatory does not declare their representative capacity, the contract binds that signatory personally. Critically, self-dealing is restricted: a representative may not enter into a contract with themselves without the principal’s prior authorisation.

In the M&A context, these provisions reinforce the importance of confirming authority before signing. Deal teams should ensure that all transaction documents are executed by individuals with clear and documented authority, and that powers of attorney are properly scoped.