New UAE civil law takes effect June 1: How it will reshape daily life and businesses

On June 1, 2026, the UAE government issues the Federal Decree Law promulgating the Civil Transactions Law - Federal Decree-Law No. 25 of 2025, replacing the Civil Code that has been in force since 1985. The new law represents a pivotal milestone and a shift in regulating civil transactions in the UAE, based on a vision that seeks to reorganise the general foundations of rights and obligations under contracts, while also having the clarity of legal rules and facilitating its practical application.

The Law aims at enhancing the efficiency of application, reducing procedural complexities, and contributing to building a more coherent and harmonious legislative system, in support of the federal government’s comprehensive development agenda founded on the rule of law. Many provisions seek to provide greater flexibility in judicial decision-making while maintaining legal certainty, reflecting balance between codified statutory provisions and the evolving needs of society. Let us look at the provisions in detail.

Statutory texts prevails over discretion

The law expands the scope of judicial reasoning and grants courts broader discretion when referring to the principles of Islamic Sharia in cases where an applicable legislative provision is absent. And where no statutory rule exists, either explicitly or implicitly, the judge may refer to the principles of Islamic Sharia and adjudicate to achieve justice and public interest, without being bounded by a specific school of jurisprudence or one single Sharia doctrine.

1. The legislative provisions shall apply to all matters they address expressly or implicitly. No room shall be left for Ijtihad (independent legal reasoning) where the text is definitive in its indication.

2. Should the court find no provision in the applicable legislations, it shall rule in accordance with the Islamic Shari'ah, selecting the most appropriate solutions as required by the interest (Maslaha).

3. Should the court find no ruling in the Islamic Shari'ah for the matter before it, it shall rule in accordance with custom (Urf), provided it does not conflict with public order or public morals. If the custom is specific to a particular Emirate, its ruling shall apply to that Emirate.

4. Should the court find no ruling in custom for the matter before it, it shall rule in accordance with the principles of natural law and the rules of justice.’

This approach not only strengthens the role of the judiciary but also instils societal development and the evolving nature of modern transactions. The law also provides for the application of Sharia principles in the absence of special legislation governing matters relating to persons of unknown parentage, missing persons, and absentees.

Now, with respect to proprietary rights, the law reorganised the rules governing usufructuary construction rights, requiring registration of the contract with the competent authority and providing for nullity in the absence of registration. It introduces provisions governing the obligations of the holder of such rights and allowed the parties to determine the duration thereof. 

The law further provides that financial assets located within the UAE belonging to a foreigner with no heirs shall be designated as a charitable endowment, subject to supervision by the competent authority to ensure proper management and allocation. In addition, the new legislation introduced a new framework governing assignment, including the assignment of rights, and established provisions for the protection of possession through preventive actions aimed at halting new acts of encroachment before harm occurs.

Aligning the Age of Majority with International Norms

A core reform with respect to the age of majority, which has been reduced from twenty-one lunar years to eighteen Gregorian years, aligning with prevailing common law jurisdictions. This change unifies the legal age for full capacity, ensures consistency with other national legislation such as juvenile and labour laws, and harmonises civil and criminal responsibility standards, thereby enhancing legal clarity and coherence.

‘Article (84)

1. Every person who has reached the age of majority, enjoying full mental capacity, and has not been interdicted shall have full legal capacity to exercise their civil rights.
2. A person reaches the age of majority upon completing eighteen (18) Gregorian years.’

Regarding contractual capacity, financial acts of a discerning minor involving both benefit and detriment are deemed voidable in the minor’s interest rather than suspended, granting the guardian the right to seek annulment within one year from knowledge, and allowing the minor to seek annulment within one year after reaching majority.

The law introduces provisions addressing persons requiring assistance due to incapacity to express their will, empowering courts to appoint a judicial assistant to support such individuals in acts serving their best interests.

Pre-contractual Negotiations now an Obligation

The new Decree Law establishes an advanced framework governing pre-contractual negotiations, imposing an obligation to disclose any fundamental information to ensure informed and conscious contractual decision making. This enhances trust between parties and reduces disputes before they arise. Articles 119 to 122 embed the principle of good faith in contractual negotiations.

Provisions Governing Sale Contracts

The law updates provisions governing sale contracts, including clearer regulation of sale by sample and by model, protection of persons lacking full capacity in cases of gross inadequacy, and enhanced rules governing latent defects.

1. If the sale is by "sample or model", the subject matter of the sale shall conform thereto.

2. If it appears that the subject matter of the sale does not conform to the sample or model, the purchaser shall have the option to accept or reject it.

3. If the sample or model is damaged, destroyed, or lost while in the possession of one of the parties to the sale, the statement of the other party regarding conformity or non-conformity shall prevail, unless the opposing party proves otherwise.’

Buyers/Consumers now have the option to reject

Buyers are granted the option to reject the goods, accept them with price reduction, or allow the seller to provide a defect-free substitute. The limitation period for claims relating to latent defects has been extended from six months to one year from delivery, unless a longer guarantee is agreed.

The law introduces detailed rules governing the sale of disputed rights, prohibiting acquisition by judges, prosecutors, court officials, and attorneys involved in the dispute, under penalty of nullity, to safeguard judicial integrity.

‘Article (545)

1. A right is considered disputed if a lawsuit has been instituted regarding its subject matter or if a serious dispute has arisen concerning it.

2. If a disputed right is sold, the person disputing with the seller may recover it from its purchaser if they refund them the price paid and the expenses incurred.

3. The right of recovery shall be extinguished upon the lapse of sixty (60) days from the date on which the recovering party became aware of the sale.’

‘Article (547)

1. Judges, members of the Public Prosecution, experts, court officials, or persons in a similar capacity, or their relatives up to the second degree, may not purchase, whether in their own names or in assumed names, all or part of a disputed right, if the consideration of the dispute falls within the jurisdiction of the court in whose division they perform their duties; otherwise, the sale shall be void.

2. Arbitrators, conciliators, or mediators, or their relatives up to the second degree, may not purchase, in their own names or in assumed names, all or part of a disputed right, if the consideration of the dispute falls within the tasks assigned to them; otherwise, the sale shall be void.

3. Lawyers may not deal with their clients concerning the disputed rights for which they are defending, whether the dealing is in their own names or in assumed names; otherwise, the contract shall be void.’

Clear distinction between Civil and Commercial Companies

Corporate provisions were modernised to align the Civil Transactions Law with commercial legislation. The law distinguishes between civil and commercial companies based on activity and legal form, permits single-person companies, regulates partner withdrawal, continuation of companies, and liquidation procedures, and enhances corporate stability.

‘Article (606)

1. A company shall be civil if its activity is non-commercial.

2. A company shall be commercial if its activity is commercial, or if it adopts one of the forms of commercial companies, even if its activity is non-commercial, and in such case, it shall be subject to the Commercial Companies Law.

3. A company shall be subject to the provisions set out in this Chapter and the provisions of the special legislation regulating the activities it carries out.’

The law also establishes a modern regime for professional companies, regulates ownership, naming, liability, legal effects and introduces independent regulation of “mudaraba contracts” outside the scope of company law. Article 655 to 670 governs the validity effects and elements of the Mudarabah contracts. Furthermore, insurance provisions were refined, including a comprehensive framework for takaful insurance. 

In conclusion, the law marks a step forward in the development of the UAE’s legislative system. Revamping the long-established civil law principles and providing clarity on the rights and obligations of parties, the law aims to make legal rules easier to understand and apply in practice. For individuals and businesses, this means greater certainty when entering into transactions and resolving disputes. Ultimately, the reforms are expected to strengthen confidence in the legislative framework, support a more predictable ecosystem, and contribute to the UAE’s continued economic growth and development.

FAQ’s - Frequently Asked Questions

1. When does the new UAE Civil Transactions Law take effect?
The new UAE Civil Transactions Law takes effect from 1 June 2026 under Federal Decree-Law No. 25 of 2025.

2. How will the new UAE Civil Law affect businesses?
The law introduces reforms impacting contracts, corporate governance, negotiations, consumer rights, ownership structures, and dispute resolution, affecting how businesses operate and structure transactions.

3.What changes were made to the age of majority in the UAE?
The legal age of majority has been reduced from 21 lunar years to 18 Gregorian years, aligning with international standards and other UAE legislation.

4. What are the new rules around contractual negotiations?
The law introduces obligations of good faith and disclosure during pre-contractual negotiations to improve transparency and reduce disputes between parties.

5. How does the new law impact companies and corporate structures?
The reforms distinguish civil and commercial companies more clearly, permit single-person companies, strengthen governance provisions, and modernise liquidation and partner withdrawal rules

Author’s Name

Vikshita Poojary

(Legal  Associate at Water & Shark)

Disclaimer

The views and opinions expressed in this article are solely those of the author. They do not necessarily reflect the official position, policy, or perspective of Water & Shark.