Find a Lawyer
Book an appointment with us, or search the directory to find the right lawyer for you directly through the app.
Find out more
Al Adalla
Read MoreA complete spectrum of legal services across jurisdictions in the Middle East & North Africa.
How the new UAE Civil Transactions Law Recalibrates Contract Disputes
12 min 4 sec
February 20, 2026 (Edited)
m.aly@tamimi.com 
View LinkedIn Profile
The UAE’s Civil Transactions Law of 2025 (the New CTL) represents a significant recalibration of the UAE’s civil private law framework. While preserving the foundational structure of the 1985 Civil Transactions Law, the New CTL introduces targeted and substantive reforms across certain core areas, including, but not limited to, obligations, contract formation and interpretation, legal capacity, corporate arrangements, construction contracts, guarantees, and remedies. The reform agenda reflects a deliberate effort to respond to practical challenges encountered in judicial and arbitral practices, while enhancing certainty, balance, and coherence within the civil law system.
This article provides an overview of the key legislative developments introduced by the New CTL. The New CTL codifies clearer standards governing pre-contractual conduct, refines rules on capacity and public order, strengthens judicial discretion in remedial matters, and introduces structured solutions for situations of contractual imbalance and risk allocation.
Issued by Federal Decree-Law and published in the Official Gazette No. 809 (Supplement 2), the New CTL will enter into force on 1 June 2026. Once effective, it is expected to materially influence how UAE courts and tribunals approach contractual interpretation, liability allocation, and dispute resolution, marking an evolutionary, but meaningful, shift in UAE civil law practice.
Who Will Be Affected
All market participants transacting under UAE law, corporates, financial institutions, project sponsors, state‑owned enterprises, SMEs, and consumers—will be directly
affected. The provisions apply to nominate and innominate contracts, reaffirming the code’s general applicability across civil and commercial dealings while preserving special regimes where applicable.
Public Order Under the New Civil Transactions Law
Article 3 of the New CTL adopts a more precise and structured definition of public order. It expressly confines public order to conclusive provisions of Islamic Sharia, mandatory legal rules from which the parties may not derogate by agreement, the personal status rules applicable to Muslims, and the provisions relating to the system of governance, thereby narrowing its scope and enhancing legal certainty. This clarification represents a significant development, as it limits the previously broad and sometimes indeterminate application of public order considerations in civil and contractual matters.
Under this framework, pursuant to Article 184 of the New CTL, any contract or contractual terms that contravene these core principles are deemed null and void to the extent of the violation. Importantly, the invalidity is confined to the offending provision, unless the breach goes to the essence of the contract itself.
Modernized rules on Individual Legal Capacity
Article 84 of the New CTL introduces a modernized approach to legal capacity that reflects transactional realities, reinforcing individuals’ autonomy in legal and contractual dealings while maintaining necessary safeguards against exploitation and harm.
A key change concerns the age of majority, which has been reduced from 21 lunar years to 18 Gregorian years. This change aligns the legal framework with prevailing comparative standards and ensures greater consistency with related national legislation. It also contributes to enhanced coherence between civil capacity and criminal responsibility by establishing a clearer and more unified legal benchmark.
Additionally, the law lowers the minimum age at which a minor may seek judicial authorisation to manage their assets, from 18 Hijri years to 15 Gregorian years. This amendment aims to encourage early economic participation and support entrepreneurial initiatives among youth within a structured and legally secure framework.
Pre-Contractual Negotiations and Contractual Capacity
Articles 121 to 123 of the New CTL establish a structured framework for pre-contractual negotiations. It imposes a duty on the parties to disclose material information prior to concluding a contract, with the objective of safeguarding their rights at the pre-contractual stage and ensuring that contractual decisions are made on an informed and deliberate basis.
Further, Article 121 establishes the party’s right to claim compensation where the other party terminates negotiations with bad faith. Even though the law has not provided any guidance on what constitutes “bad faith”, it expressly provides that the awarded compensation shall not include loss of opportunity or the benefits that the aggrieved party would have made had this contract concluded, unless agreed otherwise.
Moreover, Article 123 imposes a duty of confidentiality in relation to any confidential information disclosed during negotiations or under the contract, thereby achieving a balance between the disclosure duty and the duty of confidentiality among the negotiating parties.
Newly Introduced Concept – “Framework Agreement”
Article 138 further recognises the concept of a ‘framework agreement’, designed to regulate repeated or long-term contractual relationships in an organised and efficient
manner. It allows parties to agree in advance on the essential terms governing future contracts. This mechanism assists businesses in ensuring contractual certainty where such a contractual model is adopted, particularly in the context of joint venture partnerships and project companies.
Limiting Judicial Assessment over Agreed Compensation
Unlike the earlier position under which courts were empowered to adjust agreed compensation to correspond to the actual damage sustained, Article 340 of the New CTL limits judicial oversight of agreed (contractual) compensation. Under the revised framework, the court may reduce the agreed amount only if it is shown to be excessive or where the obligation has been performed only in part.
At the same time, the law only allows the creditor to claim in excess of the agreed compensation where it is established that the debtor acted with fraud or gross negligence.
Reform of the Civil Companies Framework
Section (5) of Chapter (1) of the New CTL reorganizes the legal framework governing civil companies, aiming to achieve greater alignment between the Civil Transactions Law, the Commercial Transactions Law, and the Commercial Companies Law.
A central aspect of this reform lies in the reorganisation of the rules governing partnership and company contracts. Article 606 clearly distinguishes between civil companies and commercial companies, classifying a company as civil where its activity is non-commercial. Conversely, a company is deemed commercial where it carries out commercial activities or adopts one of the recognised legal forms of commercial companies, even if its underlying activity is non-commercial, in which case it falls within the scope of the Commercial Companies Law.
The law further departs from the traditional requirement that a company be formed by two or more persons, expressly allowing the establishment of a company by the unilateral will of a single person. This development reflects modern business practices and facilitates the creation of single shareholder entities by both natural and legal persons, enhancing entrepreneurial flexibility.
In relation to the continuity of companies, the law modernises the rules governing partner withdrawal in companies of indefinite duration. Pursuant to Article 626, a partner is permitted to withdraw provided that notice is given to the remaining partners and that the withdrawal is not tainted by bad faith or exercised at a time that would cause harm to the company or its partners. Importantly, such withdrawal no longer results in the automatic dissolution of the company. Instead, the law allows for the continuation of the company by agreement among the remaining partners, whether through the admission of a new partner to replace the withdrawing partner or through the acquisition of the withdrawn share in proportion to each partner’s capital contribution, unless otherwise agreed. Where a company consists of only two partners, the remaining partner may continue with the company as a sole owner, provided that the law permits single-person formation and that the necessary formalities are completed with the competent authorities.
Finally, the law introduces updated provisions governing company liquidation, offering greater clarity as to the point at which the authority of managers ceases upon dissolution and defining their liability for acts carried out thereafter. It also sets out a more detailed regime for the appointment of liquidators and the scope of their powers during the liquidation process, including the management of company assets.
The UAE’s Civil Transactions Law represents a significant recalibration of the UAE’s civil private law framework. While preserving the foundational structure of the 1985 Civil Transactions Law, the New CTL introduces targeted and substantive reforms across certain core areas, including, but not limited to, obligations, contract formation and interpretation, legal capacity, corporate arrangements, construction contracts, guarantees, and remedies.
Regulation of Professional Companies and Reorganizing the Mudaraba Contract
Article 645 of the New CTL introduces a modern framework for professional companies, recognising them as legal entities established by one or more licensed practitioners to carry out one or more regulated professions in accordance with applicable laws. The law
adopts a more flexible approach by permitting joint professional companies between licensed practitioners and foreign professional firms, as well as partnerships with other natural or legal persons, thereby encouraging openness and the exchange of expertise.
To safeguard the integrity of professional practice, Article 650 restricts a partner’s participation in a single professional company and prohibits concurrent employment with another professional company.
Further, Article 647 regulates the naming of professional companies and addresses the legal consequences arising from the withdrawal or death of a named partner. In addition, the law clarifies the liability of professional companies and their partners, enhancing legal certainty.
Finally, the law establishes a separate legal regime for the mudaraba contract, removing it from the scope of civil companies and regulating it as a distinct named contract governed by its own rules.
Modernising Construction Contracts and Restoring Contractual Balance
The New CTL updates construction law with a particular focus on liability, contractual balance, and termination.
- Termination in construction contracts
Article 836 of the New CTL recognizes the employer’s right to terminate the contract for convenience by his own will at any time before its completion.
This discretionary termination, however, is balanced by a compensatory regime: the employer must reimburse the contractor for expenses incurred, the value of works executed, and the profit the contractor would have earned had the contract been completed. The court is also empowered to reduce lost-profit compensation where equity so requires, taking into account the costs saved by early termination and any gains realised by the contractor through redeployment of resources or time to other engagements.
- Risk before and after delivery
Article 837 of the New CTL allocates risk of destruction of the subject matter by reference to timing, notice, and fault. If destruction occurs due to force majeure before delivery to the employer, no payment or reimbursement is due, and the loss is borne by the party that supplied the materials. The risk position changes once delivery is due and the employer has been placed on notice to take delivery, at which point responsibility is assessed by reference to fault rather than mere possession.
Where destruction occurs after a valid notice to take delivery has been issued by the contractor, and the loss is not attributable to the contractor’s fault—or is caused by the employer—the contractor remains entitled to the contract price and, where appropriate, compensation. In practice, these rules elevate the importance of proper delivery notices and fault attribution, as disputes will turn on whether the tender was validly made and which party exercised control at the time of loss.
Judicial Control over Non-Competition Penalty Clauses
Article 852 of the New CTL provides that courts are empowered to set aside or modify penalty clauses attached to non-competition obligations, in certain circumstances where the parties agree on a penalty for breach of a non-competition undertaking, and such a penalty is set at an excessive level that effectively operates as a means of compelling the worker to remain with the employer for a period exceeding what was contractually agreed.
Under the old regime, such a penalty clause would have been rendered null and void without any express statutory authority empowering the court to reconsider or adjust its terms. The New CTL has expanded the court’s authority to either set aside or modify the penalty clause in accordance with the relevant circumstances, thereby more effectively serving the interests of justice and achieving an equitable balance between the employee’s and employer’s rights.
New Framework for Guarantees
The New CTL introduces a series of provisions, Articles 1005, 1006, 1009, 1010, 1014, 1019, 1022, and 1029, that consolidate the general regime governing guarantees, while introducing targeted clarifications applicable to guarantees involving persons with limited legal capacity and obligations of a commercial nature. Collectively, these articles establish a more coherent and structured framework, enhancing certainty in the application of guarantee rules across both civil and commercial contexts.
From the perspective of creditor–guarantor relations, the law strengthens key protective mechanisms in favour of the guarantor. Most importantly, it has introduced the right of excussion which provides that, in the absence of solidarity or an express legal or contractual provision to the contrary, the creditor may not enforce against the guarantor’s assets until the debtor’s assets have been exhausted (excussio). These protections operate as defences that must be affirmatively invoked by the guarantor. Where excussio is claimed, the guarantor must, at their own expense, identify debtor assets located within the State that are capable of enforcement.
The law further reinforces guarantor protection through clear time-limit rules. Failure to act against the debtor and the guarantor within six months from the maturity of the guaranteed obligation results in the discharge of the guarantor. Similarly, unjustified or prejudicial delay in insolvency proceedings may limit the creditor’s right of recourse against the guarantor. Upon satisfying the guaranteed debt in full, the guarantor is subrogated to the creditor’s rights, including the benefit of any security and supporting documents, against the original debtor.
Conclusion
The 2025 Civil Transactions Law largely retains the conceptual foundations of the 1985 Civil Code while introducing precise and practice-driven refinements in areas where uncertainty or imbalance had emerged. Rather than a wholesale restructuring, the New CTL adopts a corrective and modernising approach: clarifying public order, unifying the calculation of limitation periods, recalibrating legal capacity thresholds, regulating pre-contractual negotiations, and strengthening judicial oversight over agreed compensation, non-competition clauses, and guarantees.
Notably, the law introduces clearer mechanisms to preserve contractual balance—whether through enhanced disclosure obligations, expanded judicial discretion in penalty clauses, structured treatment of exceptional circumstances in construction contracts, or reinforced protections for guarantors. The reforms to corporate, professional, and construction law further reflect an intention to promote continuity, flexibility, and economic stability without undermining legal certainty.
From a dispute resolution perspective, the New CTL is likely to reshape litigation and arbitration strategy. Pre-contractual conduct will attract closer scrutiny, contractual interpretation will be more systematically structured, and remedial outcomes will be more closely aligned with proportionality and fault. Parties operating under UAE law should therefore reassess their contractual templates, negotiation practices, disclosure protocols, and risk-allocation mechanisms in anticipation of the law’s entry into force. Proactive alignment with the New CTL’s express standards will be essential to mitigating dispute exposure and ensuring enforceability in the new legal landscape.
Written by
Next Article
