New civil transaction reform is a ‘significant shift’ in UAE contract law

Businesses will be required to negotiate in ‘good faith’ and may be face compensation claims if they fail to do so, alongside a new legal duty to disclose important information to other parties when Federal DecreeLaw No. 25 of 2025 on Civil Transactions takes effect on 1 June.

Omar Saifan, an expert in commercial disputes at Pinsent Masons, said: “The introduction of express rules on precontractual negotiations represents a significant shift in UAE contract law.”

“These reforms will have wide ranging implications for businesses, investors and commercial counterparties operating under UAE law, especially in sectors where complex or high value transactions are common,” he said.

“While UAE courts have previously recognised elements of good faith dealings, this marks the first time the legislature has codified obligations governing the negotiation stage.”

The new law represents a comprehensive overhaul designed to replace the previous civil transaction law, introduced in1985, entirely, resulting in a streamlined legislative environment, according to the UAE government.

Saifan said: “Historically, negotiations were treated largely as factual acts with limited legal consequence, leading to uncertainty where negotiations broke down or where information exchanged during negotiations later proved inaccurate or incomplete.”

”The new framework establishes that negotiations must be conducted in good faith, while preserving contractual freedom by confirming that parties are not obliged to conclude a contract,” he said.

“At the same time, the law introduces meaningful accountability by allowing compensation for actual damage caused by bad faith negotiations, while excluding loss of profit unless otherwise agreed.”

Under the new framework, parties who fail to disclose material information may face compensation claims or challenges to the validity of the contract. The law also states that parties cannot contract out of the disclosure duty, making any waiver or exclusion clause invalid.

Saifan said: “Of particular commercial importance is the statutory duty of disclosure.”

“Parties must now disclose information of decisive importance to the other party’s consent, and this duty is elevated to the level of public order. This materially affects risk allocation, as non-disclosure may lead not only to damages but also to annulment of the contract,” he said.

“The reforms provide greater legal certainty but also require more disciplined negotiation processes. Businesses should ensure that decision making, disclosures and communications during negotiations are carefully managed and documented.”