The United Arab Emirates has entered a new era of civil and contractual regulation with the entry into force of Federal Decree-Law No. 25 of 2025 on Civil Transactions on 1 June 2026. Representing one of the most significant reforms to the UAE’s civil law framework in recent decades, the new legislation introduces substantial changes to the manner in which contractual relationships are negotiated, interpreted, and enforced.
The reform has far-reaching implications for businesses, financial institutions, service providers, and other market participants operating across the UAE. As the new legal framework becomes fully operational, organisations should take proactive measures to ensure compliance, mitigate legal risk, and align their contractual and governance practices with the updated statutory requirements.
One of the most immediate priorities for businesses is the review of existing contractual documentation and standard form agreements. The new Civil Transactions Law incorporates enhanced principles relating to contractual interpretation, good faith, and pre-contractual conduct, which may influence how contractual provisions are construed and enforced by the courts. Organisations should therefore revisit their contract templates to ensure that they reflect the updated legal terminology and statutory obligations introduced by the legislation.
Particular attention should be paid to indemnity provisions, limitations of liability, termination mechanisms, and other risk allocation clauses. Given the increased importance placed on negotiation history and established commercial practices, contractual language should be drafted with greater precision and clarity. Businesses should also review standard terms and conditions used in transactions with customers, suppliers, contractors, and business partners, particularly in relation to long-term and high-value commercial arrangements.
The new law accords greater significance to the conduct of parties during the pre-contractual stage, thereby elevating the legal importance of negotiations and related communications. As a result, businesses should adopt a more structured and disciplined approach to the negotiation process. Negotiation records should be maintained carefully, and parties should exercise caution when making representations, assurances, or statements that could later be interpreted as creating legal obligations.
It is equally important to ensure consistency between draft agreements and final executed contracts, as discrepancies may become relevant in any subsequent dispute. Commercial, procurement, and business development teams should also be made aware of the enhanced legal consequences associated with pre-contractual conduct, thereby reducing exposure to allegations of misrepresentation, reliance-based claims, or implied contractual obligations.
A notable development under the new Civil Transactions Law is the reduction of the age of full legal capacity from 21 years to 18 years. This amendment has practical implications across a range of sectors and business activities, including employment relationships, tenancy arrangements, banking services, financial products, service agreements, and consent-based procedures.
Businesses should review their internal policies, onboarding processes, contractual practices, and authorisation requirements to ensure that they are aligned with the revised legal threshold. Failure to update such procedures may create compliance risks or operational inconsistencies in dealings with individuals who now possess full legal capacity under the law.
The introduction of revised limitation periods represents another significant aspect of the reform. Importantly, the new limitation rules apply immediately to any claims or rights for which the applicable limitation period had not expired prior to 1 June 2026. Consequently, businesses should undertake a comprehensive review of ongoing disputes, potential claims, and legacy matters to determine whether limitation deadlines have been affected.
This exercise may reveal circumstances in which claims are now subject to shorter limitation periods than previously anticipated. Legal, compliance, and risk management teams should therefore reassess litigation strategies, enforcement actions, and settlement considerations while ensuring that relevant stakeholders are informed of any revised timelines. Early evaluation of limitation issues will be essential in preserving legal rights and avoiding inadvertent forfeiture of claims.
The revised Civil Code places increased emphasis on the principles of good faith, fair dealing, and commercial reasonableness. These concepts are likely to play a more prominent role in the assessment of contractual performance and business conduct. Organisations should therefore consider whether their internal governance structures, compliance frameworks, and operational procedures adequately reflect these evolving legal standards.
Enhanced record-keeping practices, transparent decision-making processes, and comprehensive documentation protocols will be critical in demonstrating compliance with the principles embodied in the new legislation. Businesses should also invest in targeted training initiatives to ensure that employees understand the practical implications of the revised legal framework and apply those principles consistently in their day-to-day activities.
Businesses operating in the construction, engineering, infrastructure, and professional services sectors should pay particular attention to the amendments affecting Muqawala and service contracts. The reforms provide greater clarity regarding contractor obligations, liability for defects, variations and additional works, as well as payment obligations and delays.
Given the complexity and long-term nature of many construction and service arrangements, organisations should undertake a detailed review of their standard contractual forms and project documentation to ensure alignment with the updated legal requirements. Proactive contractual adjustments at this stage may reduce the likelihood of disputes and facilitate more effective risk management throughout the lifecycle of a project.
In light of the breadth of the reforms, businesses should consider conducting targeted legal audits of contracts that present elevated legal or financial risk. Particular focus should be given to agreements involving long-term commitments, sophisticated risk allocation structures, cross-border elements, or significant commercial exposure.
A comprehensive legal review can assist in identifying provisions that may require amendment, clarification, or renegotiation under the new legal framework. Such audits also provide an opportunity to assess broader contractual risk management strategies and ensure that critical agreements remain enforceable and commercially effective.
The entry into force of Federal Decree-Law No. 25 of 2025 marks a fundamental development in the UAE’s legal landscape and signals a modernisation of the country’s approach to civil and contractual relationships. While the reforms are intended to enhance legal certainty, commercial fairness, and alignment with contemporary business practices, they also require organisations to revisit existing contractual arrangements, internal policies, and risk management frameworks.
Businesses that take early and proactive steps to assess the impact of the new legislation will be better positioned to ensure compliance, preserve commercial certainty, and mitigate potential legal exposure. As the practical application of the new Civil Transactions Law continues to evolve, ongoing legal review and strategic planning will remain essential components of effective corporate governance and risk management.
BDO Legal UAE is assisting clients across a broad range of sectors in navigating the transition to the new Civil Transactions Law through contract reviews, legal audits, compliance assessments, and tailored advisory services designed to address the specific needs of each organisation.
Federal Decree-Law No. 25 of 2025 represents a significant development in the UAE’s civil and commercial legal framework, introducing comprehensive reforms that modernise the regulation of contractual and civil relationships. The new law enhances legal certainty, promotes fair dealing, and provides greater clarity regarding the rights and obligations of parties across a wide range of commercial and personal transactions. Whether you are negotiating contracts, managing business operations, or assessing legal risk, understanding the changes introduced by this law is essential to ensuring compliance, protecting commercial interests, and maintaining effective governance practices in an evolving legal environment.
Note: This Legal Update / Newsletter is intended for general informational purposes only and should not be construed as legal advice. It is based on laws and legal interpretations in effect as of the date of publication. Laws and regulations may change over time, and their application can vary depending on individual circumstances. Readers are strongly encouraged to seek specific legal counsel before acting on any of the information provided herein.
The reform has far-reaching implications for businesses, financial institutions, service providers, and other market participants operating across the UAE. As the new legal framework becomes fully operational, organisations should take proactive measures to ensure compliance, mitigate legal risk, and align their contractual and governance practices with the updated statutory requirements.
Review and Update Contractual Documentation
One of the most immediate priorities for businesses is the review of existing contractual documentation and standard form agreements. The new Civil Transactions Law incorporates enhanced principles relating to contractual interpretation, good faith, and pre-contractual conduct, which may influence how contractual provisions are construed and enforced by the courts. Organisations should therefore revisit their contract templates to ensure that they reflect the updated legal terminology and statutory obligations introduced by the legislation.Particular attention should be paid to indemnity provisions, limitations of liability, termination mechanisms, and other risk allocation clauses. Given the increased importance placed on negotiation history and established commercial practices, contractual language should be drafted with greater precision and clarity. Businesses should also review standard terms and conditions used in transactions with customers, suppliers, contractors, and business partners, particularly in relation to long-term and high-value commercial arrangements.
Reassess Ongoing and Future Contract Negotiations
The new law accords greater significance to the conduct of parties during the pre-contractual stage, thereby elevating the legal importance of negotiations and related communications. As a result, businesses should adopt a more structured and disciplined approach to the negotiation process. Negotiation records should be maintained carefully, and parties should exercise caution when making representations, assurances, or statements that could later be interpreted as creating legal obligations.It is equally important to ensure consistency between draft agreements and final executed contracts, as discrepancies may become relevant in any subsequent dispute. Commercial, procurement, and business development teams should also be made aware of the enhanced legal consequences associated with pre-contractual conduct, thereby reducing exposure to allegations of misrepresentation, reliance-based claims, or implied contractual obligations.
Update Policies Following the Reduction of the Age of Legal Capacity
A notable development under the new Civil Transactions Law is the reduction of the age of full legal capacity from 21 years to 18 years. This amendment has practical implications across a range of sectors and business activities, including employment relationships, tenancy arrangements, banking services, financial products, service agreements, and consent-based procedures.Businesses should review their internal policies, onboarding processes, contractual practices, and authorisation requirements to ensure that they are aligned with the revised legal threshold. Failure to update such procedures may create compliance risks or operational inconsistencies in dealings with individuals who now possess full legal capacity under the law.
Reevaluate Limitation Periods and Dispute Management Strategies
The introduction of revised limitation periods represents another significant aspect of the reform. Importantly, the new limitation rules apply immediately to any claims or rights for which the applicable limitation period had not expired prior to 1 June 2026. Consequently, businesses should undertake a comprehensive review of ongoing disputes, potential claims, and legacy matters to determine whether limitation deadlines have been affected.This exercise may reveal circumstances in which claims are now subject to shorter limitation periods than previously anticipated. Legal, compliance, and risk management teams should therefore reassess litigation strategies, enforcement actions, and settlement considerations while ensuring that relevant stakeholders are informed of any revised timelines. Early evaluation of limitation issues will be essential in preserving legal rights and avoiding inadvertent forfeiture of claims.
Strengthen Internal Governance and Compliance Frameworks
The revised Civil Code places increased emphasis on the principles of good faith, fair dealing, and commercial reasonableness. These concepts are likely to play a more prominent role in the assessment of contractual performance and business conduct. Organisations should therefore consider whether their internal governance structures, compliance frameworks, and operational procedures adequately reflect these evolving legal standards.Enhanced record-keeping practices, transparent decision-making processes, and comprehensive documentation protocols will be critical in demonstrating compliance with the principles embodied in the new legislation. Businesses should also invest in targeted training initiatives to ensure that employees understand the practical implications of the revised legal framework and apply those principles consistently in their day-to-day activities.
Review Muqawala and Service Agreements
Businesses operating in the construction, engineering, infrastructure, and professional services sectors should pay particular attention to the amendments affecting Muqawala and service contracts. The reforms provide greater clarity regarding contractor obligations, liability for defects, variations and additional works, as well as payment obligations and delays.Given the complexity and long-term nature of many construction and service arrangements, organisations should undertake a detailed review of their standard contractual forms and project documentation to ensure alignment with the updated legal requirements. Proactive contractual adjustments at this stage may reduce the likelihood of disputes and facilitate more effective risk management throughout the lifecycle of a project.
Conduct Targeted Legal Audits of High-Risk Contracts
In light of the breadth of the reforms, businesses should consider conducting targeted legal audits of contracts that present elevated legal or financial risk. Particular focus should be given to agreements involving long-term commitments, sophisticated risk allocation structures, cross-border elements, or significant commercial exposure.A comprehensive legal review can assist in identifying provisions that may require amendment, clarification, or renegotiation under the new legal framework. Such audits also provide an opportunity to assess broader contractual risk management strategies and ensure that critical agreements remain enforceable and commercially effective.
Looking Ahead
The entry into force of Federal Decree-Law No. 25 of 2025 marks a fundamental development in the UAE’s legal landscape and signals a modernisation of the country’s approach to civil and contractual relationships. While the reforms are intended to enhance legal certainty, commercial fairness, and alignment with contemporary business practices, they also require organisations to revisit existing contractual arrangements, internal policies, and risk management frameworks.Businesses that take early and proactive steps to assess the impact of the new legislation will be better positioned to ensure compliance, preserve commercial certainty, and mitigate potential legal exposure. As the practical application of the new Civil Transactions Law continues to evolve, ongoing legal review and strategic planning will remain essential components of effective corporate governance and risk management.
BDO Legal UAE is assisting clients across a broad range of sectors in navigating the transition to the new Civil Transactions Law through contract reviews, legal audits, compliance assessments, and tailored advisory services designed to address the specific needs of each organisation.
Conclusion
Federal Decree-Law No. 25 of 2025 represents a significant development in the UAE’s civil and commercial legal framework, introducing comprehensive reforms that modernise the regulation of contractual and civil relationships. The new law enhances legal certainty, promotes fair dealing, and provides greater clarity regarding the rights and obligations of parties across a wide range of commercial and personal transactions. Whether you are negotiating contracts, managing business operations, or assessing legal risk, understanding the changes introduced by this law is essential to ensuring compliance, protecting commercial interests, and maintaining effective governance practices in an evolving legal environment.Note: This Legal Update / Newsletter is intended for general informational purposes only and should not be construed as legal advice. It is based on laws and legal interpretations in effect as of the date of publication. Laws and regulations may change over time, and their application can vary depending on individual circumstances. Readers are strongly encouraged to seek specific legal counsel before acting on any of the information provided herein.