UAE Civil Transactions Law 2025: Key Changes Explained

On 1 June 2026, the UAE replaced its entire civil law framework. Federal Decree-Law No. 25 of 2025 came into force, replacing the 1985 Civil Code that had quietly governed civil and commercial life here for forty years. All 1,422 articles are new. The language is clearer. The rules are built for how business actually works today.

This post covers the key changes: who now counts as an adult, how contracts are formed and ended, what fairness now demands before you even sign, where property rights now stand, and what all of it means for you.

What This Law Actually Governs

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:

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

One important boundary, this is onshore UAE law. The DIFC and the ADGM run separate civil and contract regimes. Federal Decree-Law No. 25 of 2025 does not change those.

A note on timing; contracts signed before 1 June 2026 remain governed by the 1985 Code. The new law applies to agreements made from that date forward. If you have a contract that straddles both periods, check which law governs it before making assumptions.

Table of Contents: Federal Decree-Law No. 25 of 2025

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

Preliminary Chapter: General Provisions (Arts. 1–98)

• Application of the law, including conflict-of-laws rules and hierarchy of sources: Arts. 1–30
• Interpretive jurisprudential maxims: Arts. 31–38
• Persons: Arts. 39–78
• Property and things: Arts. 79–83
• Rights: Arts. 84–98
  

Book One: Obligations (Arts. 99–444)

Part One: Sources of Obligation (Arts. 99–338)

• Contract. Formation, interpretation, validity, effects, dissolution: Arts. 99–243
• Unilateral juridical act: Arts. 244–253
• Harmful act (tort). Personal, vicarious, custodian liability: Arts. 254–318
• Beneficial act. Unjust enrichment, undue receipt, negotiorum gestio: Arts. 319–336
• 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 (qard): 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

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.

1. Mutual consent. A genuine offer and a matching acceptance; a real meeting of minds.
2. Subject matter. The thing contracted for must exist or be capable of existing, and must be clearly defined.
3. 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 You Sign

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.

Before you sign anything, or before you try to exit something, confirm which law governs it and what it actually requires.

Frequently Asked Questions

My contract was signed before 1 June 2026. Which law governs it?

The 1985 Civil Code governs contracts signed before 1 June 2026. Federal Decree-Law No. 25 of 2025 applies to agreements entered into from that date onward. The date on the contract is the determining factor. If you signed a long-term agreement: a multi-year lease, a construction contract, a supply arrangement, before that date and it is still running, the old law applies to it unless the parties specifically agreed otherwise.

Can I claim compensation if the other party walked away from negotiations before we ever signed anything?

Yes, potentially. Under Article 121, a party who negotiates or breaks off talks in bad faith can be held liable for the other side's actual losses: wasted due diligence costs, professional fees, time invested, even without a signed contract. The recoverable amount is limited to real losses, not the profit you would have made if the deal had closed.

I discovered a hidden defect in a property I bought two years ago. Have I missed the window to claim?

It depends on the nature of the defect. For a latent defect under the seller's warranty (Articles 493+), the claim window is generally one year from delivery. Two years after handover, that window is likely closed unless the seller deliberately concealed the defect, in which case the one-year limit does not apply. If the defect threatens structural stability, the decennial liability regime gives you a separate route: 10 years from completion of the building, with 3 years from discovery to bring the claim.

Our contract includes a penalty clause. Can we rely on the agreed figure if the other party breaches?

The agreed figure is a starting point, not a guaranteed outcome. Under Article 340, a court can reduce the penalty if the debtor proves it is excessive or that the obligation was partly performed. It can also reduce or refuse the penalty to the extent that your own fault contributed to the loss. Claiming more than the agreed figure requires proof of fraud or gross fault. These rules apply regardless of what the contract says. They cannot be contracted around.

I transferred money to a business partner that was never used for the agreed purpose. Can I recover it?

Possibly, under the unjust enrichment provisions of the new Code. If you can show the transfer was made, that the other party was enriched, and that no lawful basis, such as no valid contract, no gift, no court order, justifies their keeping the funds, a claim to recover is available. The analysis is fact-specific and turns on what the underlying arrangement was and what documentary evidence you have.

How LYLAW Can Help

Whether you are reviewing a new agreement under the updated Code, advising on a transaction involving a minor, dealing with a property defect or a failed negotiation, or simply trying to understand which law governs a contract already in place, the answer depends on the specific facts of your situation. The new Civil Transactions Law changes assumptions that people have been working under for forty years, including obligations that now attach before a contract is signed.

LYLAW's civil and commercial law team can review your contracts, identify the applicable regime, and advise on your options before you act. Get in touch.