UAE’s transactions law resets court tests for project risk, pricing and exit economics

The law, which took effect on 1 June, does not significantly change the legal principles that apply to disputes but instead how these are examined. For project sponsors, contractors and lenders, the practical impact is a recalibration of risk across negotiations, damages, termination and land rights, particularly for contracts negotiated or reworked around commencement.

The law replaces the 1985 Civil Transactions Law in full and brings together doctrines that UAE courts have long applied into clearer statutory reference points. The update sharpens how courts are likely to test what parties assumed, disclosed and agreed when projects later unravel.

For parties operating under onshore UAE law, particularly in complex or high‑value projects, this shift is likely to influence negotiation behaviour, bid strategy and dispute preparedness well before any claim reaches court.

Commencement and transaction

The law applies from its effective date and does not automatically govern facts or transactions that occurred before then, unless it expressly provides otherwise. Firms should not assume that the update suddenly rewrites existing contracts because performance continues after 1 June. At the same time, there should be no assumption that the law will be irrelevant to future disputes under those contracts.

For projects being bid, amended, refinanced or restructured around commencement, that creates an immediate diligence issue. The update codifies negotiation disclosure, agreed compensation and exceptional‑circumstances relief as express statutory tools. Once in force, these are likely to become routine reference points for onshore court reasoning, particularly where disputes turn on evidence rather than drafting alone.

Disclosure and good faith

One of the clearest recalibrations sits at the negotiation stage. The law expressly addresses good faith and disclosure obligations during negotiations, including a duty to disclose information of decisive importance to the other party’s consent. Parties may not agree to waive or exclude that obligation, and any clause to the contrary is void.

The practical shift is not that disclosure is new, but that it is now articulated separately from deceit‑based annulment remedies under the 1985 law. Businesses should not assume that standard contract wording will protect them if disclosure processes are inadequate. In tenders and procurement processes, courts may look at how information was selected, qualified and communicated, as well as the wording of the final contract.

Higher‑risk procurements may therefore need more structured disclosure records, such as Q&A audit trails identifying material assumptions, exclusions and qualifications, to evidence what bidders were told and when.

Agreed damages

Judicial intervention in liquidated damages is not new under UAE law, but the statute updates and clarifies when courts may adjust agreed compensation. Courts may reduce pre‑agreed sums if the amount is exaggerated or the obligation has been partially performed and may also reduce or eliminate compensation where the creditor’s own fault contributed to the harm.

At the same time, the law expressly allows recovery above the agreed sum where fraud of gross fault is established. The law confirms that liquidated damages clauses remain valid. However, if they are challenged, courts may look at whether they are proportionate, linked to the loss suffered and supported by evidence. This means parties should be able to explain how the agreed amounts were calculated and what risks they were intended to cover

Construction risk 

For construction projects, the law sharpens several long‑standing pressure points. It gives clearer statutory footing to an employer’s right to withdraw before completion, with compensation for costs, completed work and what the contractor could have earned, while allowing courts to reduce loss‑of‑profit claims by reference to saved costs and substitute earnings. 

That turns termination for convenience into a more explicit financial checkpoint, affecting how employers, contractors and lenders model downside scenarios.

The law also strengthens the court’s toolkit for dealing with exceptional general circumstances. Building on the hardship doctrine under the 1985 law, courts may reduce onerous obligations or order rescission where unforeseeable general circumstances threaten heavy loss, including express powers tailored to construction contracts to restore contractual equilibrium. 

These provisions are not a licence to reopen bad bargains, but they do raise the evidentiary bar on showing how a project’s financial basis has been disrupted.

Decennial liability, which makes contractors and designers responsible for certain structural defects or collapses for 10 years post project completion, remains a significant risk. While the law confirms that contractors can still seek recovery from subcontractors where appropriate, there is a counter risk that a contractor’s liability to the client could last longer than the period in which it can bring a claim against a subcontractor.

Land rights and finance

For project finance and infrastructure projects, one of the most important changes concerns ‘musataha’ rights. A musataha right allows a party to develop or own a building on land owned by someone else. Under the update law, a musataha must be created by contract and registered with the relevant authority. If it is not registered, it will be invalid.

That elevates musataha registration from an administrative step to a core validity issue. It is likely to feature more prominently in conditions precedent, land‑title due diligence and lender requirements. Existing structures relying on musataha rights may also need review to confirm whether transitional protection applies or further steps are required before commencement.