Understanding the New Civil Transactions Law in the UAE

INTRODUCTION

On the 1st of October 2025, the United Arab Emirates (“UAE”) issued Federal Decree-Law No. 25 of 2025 (the “2025 Civil Code”), a new legislation that updates and replaces the old law, which was issued 40 years ago, back in 1985. The 2025 Civil Code came into force on the 1st of June 2026, and with that, Federal Law No. 5 of 1985 and its amendments (the “1985 Civil Code”) were repealed. This will be a historic milestone for the UAE, as the 1985 Civil Code is one of the oldest key pieces of legislation still in force, which also formed the core of the UAE’s civil law system. The Civil Transactions Law is an onshore UAE Law. The contracts signed before 1 June 2026 remain governed by the 1985 Code. The new law applies to agreements made from that date forward.

The Civil Transactions Law sits underneath almost every agreement made in the UAE. Buying property, signing a lease, lending money, starting a business, giving a gift. When a deal goes wrong, this is the law courts reach for first.

It is not the only law, though. Several specialized laws take priority in their specific areas:

• Business-to-business transactions: Governed by the Commercial Transactions Law (Federal Decree-Law No. 50 of 2022).
• Setting up or running a company: Governed by the Commercial Companies Law (Federal Decree-Law No. 32 of 2021).
• Employment disputes, including salary claims, termination, and end-of-service benefits: Governed by the Employment Law (Federal Decree-Law No. 33 of 2021).
• Marriage, divorce, and inheritance matters: Governed by the Personal Status Law — Federal Law No. 41 of 2024 for Muslims, and Federal Decree-Law No. 41 of 2022 for civil and non-Muslim matters.
• Company insolvency: Governed by the Bankruptcy Law (Federal Decree-Law No. 51 of 2023).
• Faulty consumer products: Governed by the Consumer Protection Law (Federal Law No. 15 of 2020).
• Property purchases or registration in Dubai: Governed by Dubai Law No. 7 of 2006 (property registration) and Dubai Law No. 6 of 2019 (jointly owned property).

When a specialized law applies, it leads. The Civil Transactions Law fills the gaps.

DETAILED ANALYSIS OF THE CIVIL TRANSACTIONS LAW (Federal Decree-Law No. 25 of 2025)

The law is organized into four books covering 1,422 articles:

• Preliminary Chapter: General Provisions — Articles 1 – 111
• Book One: Obligations — Articles 112 – 444
• Book Two: Named Contracts — Articles 445 – 1035
• Book Three: Real Rights — Articles 1036 – 1295
• Book Four: Security Rights — Articles 1296 – 1422

Preliminary Chapter: General Provisions (Arts. 1 – 111) 

Application of the law, including conflict-of-laws rules and hierarchy of sources: Arts. 1–30

Interpretive jurisprudential maxims: Arts. 31–71

Persons: Arts. 72–95

Property and things: Arts. 96–104

Rights: Arts. 105–111

Book One: Obligations (Arts. 112 – 444)

Part One: Sources of Obligation (Arts. 112–118)

Contract. Formation, interpretation, validity, effects, dissolution: Arts. 113–244

Unilateral act: Arts. 239– 244

Harmful act (tort). Personal, vicarious, custodian liability: Arts. 245–273

Beneficial act. Unjust enrichment, undue receipt, negotiorum gestio: Arts. 274–286

The law as a source: Arts. 337–338

Part Two: Effects of Obligations (Arts. 339–444)

General provisions: Arts. 339–342

Means of performance. Voluntary, equivalent, compulsory execution: Arts. 343–353

Attributes of the obligation. Conditions, terms: Arts. 354–370

Plurality of subject matter: Arts. 371–380

Plurality of parties. Joint liability, indivisibility, transfer: Arts. 381–424

Extinction of obligation. Release, impossibility, limitation: Arts. 425–444

Book Two: Named Contracts (Arts. 445–1035)

Part One: Contracts of Ownership Transfer (Arts. 445–684)

Sale: Arts. 445–547

Barter: Arts. 548–551

Gift: Arts. 552–590

Loan : Arts. 591–601

Partnership: Arts. 602–654

Mudarabah: Arts. 655–670

Settlement (sulh): Arts. 671–684

Part Two: Usufruct Contracts (Arts. 685–811)

Lease: Arts. 685–787

Loan for use (ariyah): Arts. 788–811

Part Three: Work Contracts (Arts. 812–945)

Construction (muqawalah): Arts. 812–839

Employment: Arts. 840–865

Agency (wakala): Arts. 866–903

Bailment: Arts. 904–930

Custodianship: Arts. 931–945

Part Four: Aleatory Contracts (Arts. 946–985)

Competition/wager: Arts. 946–947

Life annuity: Arts. 948–952

Insurance. Takaful, fire, life: Arts. 953–985

Part Five: Suretyship/Kafala (Arts. 986–1035)

General provisions: Arts. 986–1001

Effects: Arts. 1002–1028

Termination: Arts. 1029–1035

Book Three: Real Rights (Arts. 1036–1295)

Part One: Right of Ownership (Arts. 1036–1212)

General provisions: Arts. 1036–1049

Co-ownership. Muhaya’a, family, apartments/strata: Arts. 1050–1106

Causes of acquiring ownership. Inheritance, accession, pre-emption (shuf’a): Arts. 1107–1212

Part Two: Rights Derived from Ownership (Arts. 1213–1295)

Usufruct, use, habitation, musataha: Arts. 1213–1261

Easement rights: Arts. 1262–1295

Book Four: Security Rights (Arts. 1296–1422)

Part One: Security Mortgage, rahn tameeni (Arts. 1296–1342)

Definition and creation: Arts. 1296–1308

Effects between parties, third parties, and priority: Arts. 1309–1336

Extinction: Arts. 1337–1342

Part Two: Possessory Pledge, rahn hiyazi (Arts. 1343–1397)

Definition and creation: Arts. 1343–1361

Effects: Arts. 1362–1378

Special provisions. Real estate, movables, debts: Arts. 1379–1395

Extinction: Arts. 1396–1397

Part Three: Privileges/Preferential Rights (Arts. 1398–1422)

General provisions: Arts. 1398–1404

Types. Privileges over movables and immovables: Arts. 1405–1422

Key Provisions Discussed in This Article

• Age of majority — Articles 84, 146
• Categories of minors — Articles 85, 86, 147, 148, 149
• Guardian roles and powers — Articles 150, 151, 152, 153, 157
• Contract validity — Article 124
• Good faith in negotiations — Articles 120, 121, 122
• Abuse of right — Article 106
• Governing law and choice of law — Articles 19, 27
• How contracts end — Articles 224, 232, 233, 234, 235, 236
• Damages and penalty clauses — Articles 331, 336, 339, 340
• Unjust enrichment — Articles 319–336
• Seller’s warranty for hidden defects — Articles 493+
• Structural/decennial liability — Articles 812–839
• Building collapse liability — Article 270
• Property and limited real rights — Articles 1036–1295

The New Age of Majority

One of the most immediate changes, and one that affects every family in the country: the UAE has lowered the age of majority from 21 to 18.

That is Article 84, measured in Gregorian years.

At 18, a person has full civil capacity under Articles 84 and 146 together. They can sign contracts, grant a power of attorney, manage their own money, and dispose of their own property without a guardian. They can sue, and be sued, in their own name.

Before this law came into force, an 18-year-old could legally own a company (the Commercial Transactions Law had already set the trading age at 18 in 2022 under Federal Decree-Law No. 50 of 2022), but still needed a guardian to sign a contract or power of attorney. The new Civil Code closes that gap. Civil capacity at 18 now catches up with the commercial capacity that already existed.

Below 18: Three Distinct Categories

Not all minors are treated the same. The law distinguishes by what it calls discernment; the capacity to understand an act and its consequences, and the dividing line is age 7 under Article 85.

Under 7: no discernment at all. A child’s acts are simply void. A guardian acts entirely on their behalf under Article 147.

Ages 7 to 17: limited capacity under Article 86. What the minor can validly do depends on the nature of the act:

A purely beneficial act: accepting an unconditional gift, is valid.

A purely harmful act: giving property away, standing as a guarantor, is void.

Mixed acts: buying or selling property, are voidable in the minor’s favor under Article 148.

From 15: a discerning minor can apply to the court for permission to manage their own property, in whole or in part, under Article 149. The court can grant that permission.

Guardians: Who Acts for a Minor, and What They Can Do

When a minor cannot act for themselves, a guardian steps in. Article 150 sets the order: the father first, then the testamentary guardian the father appointed, then the paternal grandfather, and finally the court or whoever the court appoints.

Article 151 sets the qualifications: capable, trustworthy, and able to manage the minor’s interests.

For day-to-day matters, the guardian acts without court involvement under Article 152 — short leases, collecting debts, paying what is owed, maintaining the property, spending on the minor’s needs.

The bigger decisions require court authorization under Article 153: selling the minor’s property, mortgaging it, lending it, or entering a settlement. The logic is straightforward — the greater the risk to the minor’s wealth, the more oversight the law requires.

One important cross-reference: the Civil Code gives the framework, but the detailed rules on appointing, supervising, and removing guardians sit in the Personal Status Law (Article 157). The two laws work together. If you are dealing with property belonging to a minor, confirm who the guardian is, and whether the specific transaction needs a court sign-off.

What Makes a Contract Valid

Article 124 sets three elements. All three must be present.

Mutual consent. A genuine offer and a matching acceptance; a real meeting of minds.

Subject matter. The thing contracted for must exist or be capable of existing, and must be clearly defined.

Lawful cause. The purpose of the agreement must be lawful.

Miss any one of them and there is no enforceable contract.

Capacity sits separately in Article 146 and operates differently. A missing capacity does not automatically void a contract, it usually makes it voidable, meaning it can be undone but is not automatically invalid. The distinction has real consequences: a void contract produces no legal effects at all; a voidable one can be ratified or set aside depending on who has the right to challenge it.

Fairness Now Starts Before a Contract is signed.

This is where the new law moves furthest from the 1985 Code, and it is the change most people in business have not yet absorbed.

Under the old framework, the duty of good faith applied only after a contract was concluded, governing how you performed it. The negotiation stage itself was largely unregulated. Federal Decree-Law No. 25 of 2025 moves that duty back to the negotiating table.

Negotiating in Good Faith: Article 121

You are still free to walk away. Entering negotiations does not force you to sign. But if you negotiate, or break off talks, in bad faith, you can be held liable for the other side’s actual losses: their wasted costs, due diligence expenses, time invested, even if no contract is ever concluded. The recoverable amount covers real losses, not the profit they would have made on a deal that never closed.

Duty to Disclose: Article 122

Each party must share information that is material and decisive to the other side’s decision to contract. Two points deserve attention. First, this obligation cannot be contracted out of; any clause purporting to exclude it is void. Second, deliberate non-disclosure can give the other party grounds to annul the contract.

Ambiguity Favors the Weaker Party: Article 120

Courts read contracts to achieve justice and good faith. Where terms are ambiguous, they interpret in favor of the weaker party. This applies most directly to adhesion contracts, the ones you cannot negotiate, including standard tenancy agreements, insurance policies, and bank or telecom terms. A court can modify or strike out an unfair condition in those contracts. This protection existed under the 1985 Code and continues here.

Abuse of Right

Article 106 states a principle that runs through the whole Code: a legal right can be exercised unlawfully. Exercising a right crosses that line in four situations:

·       The sole purpose is to harm someone else, with no genuine benefit to the person exercising it.

·       The interest pursued is disproportionate to the harm caused to the other side.

·       The purpose is contrary to law, public order, or morals.

·       The exercise exceeds what custom would consider acceptable.

·       Someone who acts purely out of spite toward a neighbor, with no real benefit to themselves, may be abusing a right that technically exists on paper.

The new Code sharpens the proportionality test, requiring courts to weigh the benefit gained against the harm caused. A right used as a weapon, with no legitimate purpose behind it, will not receive legal protection.

Governing Law: Which Country’s Rules Apply to Your Contract

If a contract crosses borders, Article 19 now gives a clearer answer. Party autonomy is strengthened.

The parties can choose the law governing both the form and the substance of their contract. Where they have done so, Article 19 provides an explicit statutory basis for that choice.

Where no choice has been made, the Code applies the law of the parties’ common domicile. If they are in different countries, it applies the law of the place where the contract’s principal obligation is to be performed.

The limits: under Article 27, a foreign law will not be applied if it conflicts with Sharia, UAE public order, or morals. And certain matters remain under UAE law regardless of what the contract says: rights over property located in the UAE, employment, and registered commercial agencies.

How Contracts End

A valid contract is binding under Article 232. You cannot simply walk away. Termination happens through defined routes only.

By mutual agreement (Article 233). Both parties agree to unwind the deal. The cleanest route.

By the court, for breach (Article 234). If one side breaches, the other can go to court, after serving formal notice, and ask for either compulsory performance or rescission with compensation. The court has discretion here. It can order performance, grant additional time, or refuse rescission if the breach is minor.

By an automatic clause (Article 235). The parties can agree in advance that the contract terminates automatically on non-performance, without a court judgment. The trap clients regularly fall into: even an automatic rescission clause does not remove the need for notice, unless notice has been expressly waived in the contract. That rule carries over from the old law unchanged.

By force majeure or hardship. Article 236 covers cases where performance becomes impossible through no one’s fault, the obligations fall away. Article 224 covers the exceptional case where unforeseen circumstances make performance excessively burdensome, giving the court the power to scale the obligation back to a reasonable level.

Once a contract is terminated by any route, each party generally returns what they received.

Damages and Penalties for Breach

UAE law prefers performance over money. Under Article 331, the court’s starting position is to order the breaching party to actually perform, where that remains possible.

When performance is no longer the answer, Article 336 requires the breaching party to pay compensation, unless they can prove the failure came from an external cause beyond their control. A procedural point worth remembering: compensation is generally not due until the claimant has formally put the breaching party in default by serving notice.

How Damages Are Measured: Article 339

Where the contract has not fixed the compensation amount, the court awards an amount equal to the actual loss. If a supplier fails to deliver and you buy from someone else at a higher price, the court awards the difference.

Penalty Clauses: Article 340

Where the contract fixes compensation in advance, that figure is not final. The court can reduce it if the debtor proves the amount was excessive or that the obligation was partly performed. It can also reduce or refuse the agreed penalty to the extent that the claimant’s own fault contributed to the loss. Claiming more than the agreed figure requires proof of fraud or gross fault.

None of this can be contracted around.

The power to adjust an agreed penalty is not new; it existed under old Article 390. What the new law adds is structure. It now specifies the grounds for adjustment and expressly brings in the claimant’s contributory fault. The court’s discretion is more defined, and more predictable, than it was before.

Unjust Enrichment

The principle is not new. It was Article 318 in the old Code and carries forward: no one should benefit at another’s expense without a legal reason.

For a claim to succeed, three things must be present: an enrichment of one party; a corresponding loss to the other; and no legal basis, no contract, no gift, no judgment, to justify it.

Common scenarios include a payment made by mistake, an advance paid for goods never delivered, or funds transferred to the wrong account. A related rule allows recovery of any payment that was never owed in the first place.

The practical implication: keep records. Contracts, invoices, receipts. Unjust enrichment claims turn on whether a lawful cause existed for the payment, and that is proved with documents.

Real Estate Defects

Two separate regimes apply, and which one governs depends on the nature of the defect and who is responsible.

Seller’s Warranty for Hidden Defects: Articles 493+

Every sale is presumed to be of property free from defects. Under Articles 493 and following, the seller is liable for a latent defect: one that is hidden, pre-existing, and not detectable by ordinary inspection. The seller is liable even without knowledge of the defect.

The buyer’s remedies are to return the property and recover the price, or to keep the property and claim a reduction in price.

The warranty has limits. It does not cover defects that were disclosed, obvious, or that could have been found with ordinary care. Claims must generally be brought within one year of delivery. Where the seller fraudulently concealed the defect, the one-year limit does not apply.

For buyers: inspect thoroughly, and document the condition of the property at handover.

Structural Defects: Decennial (Ten-Year) Liability

For buildings and fixed structures, the contractor and supervising engineer are jointly liable for 10 years for any total or partial collapse, or any defect that threatens the building’s stability or safety. This liability is strict and mandatory. No contractual clause can limit or exclude it; any clause attempting to do so is void.

A claim under this regime must be brought within 3 years of the collapse or of discovering the defect.

If structural cracks threatening a building’s integrity appear years after handover, the contractor and engineer face liability regardless of any waiver buried in the construction documents.

Collapse Causing Harm to Others: Article 270

Separately, whoever is in control of a building is liable for harm its collapse causes to third parties. A balcony panel or facade element that breaks loose and injures a passer-by, or damages a vehicle below, falls within Article 270.

Property Rights

Ownership under the new Code is the right to use, enjoy, and dispose of a thing. It is the most complete right the law recognizes.

Possession is also protected in its own right. A possessor who is not the owner can still defend their possession in court.

Limited Real Rights

Below outright ownership, the Code recognizes defined rights that give a person a specific interest in someone else’s property. Usufruct is the right to use and enjoy another’s property. Musataha is the right to build on land owned by someone else.

What Is New on Musataha

Musataha must now be registered with the competent authority to be valid. Without registration, the right is void. This is a genuine change; it moves these rights onto the official register and removes a route previously used to obscure ownership arrangements, reducing the scope for fraud and forgery.

The Code also introduces a new claim: an action to stop new works. A possessor can apply to halt construction that threatens their possession, before the damage is done rather than after.

The principle across property rights generally: registration is increasingly the dividing line between a right that holds and one that does not.

What Changes Most in Practice

Federal Decree-Law No. 25 of 2025 is not a refinement of the 1985 Code, it replaces it entirely. The most consequential shifts:

Pre-contractual liability is now real. Under the old law, you could walk away from negotiations without consequence, however unfairly. Under the new law, negotiating in bad faith or withholding material information can expose you to damages even before a contract is signed.

Penalty clauses are starting points, not endpoints. Parties who agree a fixed penalty figure often assume it holds. Courts can and will adjust it based on proportionality, partial performance, and contributory fault.

Property rights without registration are at risk. Musataha and similar rights that are not registered with the competent authority are void under the new Code. If you hold or have granted a right over property, registration is no longer optional.

The date of the agreement matters. Old contracts stay under the 1985 Code. New contracts fall under Federal Decree-Law No. 25 of 2025. A contract that straddles 1 June 2026 needs to be checked carefully.