UAE New Civil Code: key contractual changes from 1 June 2026

01.06.2026

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The UAE’s new Civil Code, Federal Decree-Law No. 25 of 2025, will come into force on 1 June 2026 and will replace the old 1985 Civil Code.

The new Civil Code will apply to contracts concluded on or after that date. The reform introduces significant changes to UAE contract law, including the approach to liquidated damages, liability, grounds for contract termination, time limits, and remedies for breach of contract.

 

These changes are relevant to parties involved in any industry in the United Arab Emirates, including tech start-ups, even if they are based in free zones.

Key contractual changes:

 

• Pre-contractual good faith. Article 121 of the Civil Code now confirms that pre-contractual negotiations must be conducted in good faith. It supports a more structured and balanced approach to negotiations and disclosure obligations. A person who negotiates or terminates negotiations in bad faith shall be liable to compensate for the actual damage suffered by the other party.
• Conflict of laws. Article 19 establishes that contracts shall be governed by the law expressly agreed by the parties. If no law is agreed, the applicable law will be: (a) the law of the state where the parties have a common domicile, or (b) if the parties have different domiciles, the law of the state where the principal obligation under the contract is performed, unless it appears from the circumstances that another law was intended to apply.
• Force majeure and hardship. Article 224 broadens the court’s power to deal with force majeure events. The new Civil Code reframes hardship and force majeure principles, allowing courts to reduce onerous obligations, modify or rescind contracts in exceptional and unforeseeable circumstances, or dissolve contracts if performance becomes impossible.
• Liquidated damages. Article 340 introduces a more detailed framework for contractual compensation, commonly referred to as liquidated damages. Under English law, following Cavendish Square Holding BV v Makdessi UKSC 67, a liquidated damages clause will generally be valid unless it is penal in nature. In the UAE, the court will now have the power to reduce agreed compensation if it is exaggerated, if performance was partially completed, or if the creditor contributed to the loss. It also allows recovery above the agreed amount in cases of fraud or gross negligence.
• Construction contracts. The new law includes a number of provisions specific to construction contracts, including Article 816 on notice, Article 818 on remedies for defective works, and Article 836 on termination for convenience.

Practical takeaway

Businesses should review their standard terms and their approach to the negotiation of new contracts where UAE law applies. Particular attention should be given to governing law clauses, liability clauses, and force majeure clauses in long-term cross-border transactions.