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The New UAE Civil Code – Key Changes and Practical Implications for Commercial Parties 17 June 2026

"The New Civil Code reinforces force majeure as a core legal concept recognised in the UAE, and expressly identifies circumstances where unforeseen events, including conflict, render performance so onerous that it justifies rescinding a contract. This is particularly relevant in today’s geopolitical landscape in the Middle East."

The UAE’s new civil code came into force on 1 June 2026 (the “New Civil Code”). Pursuant to UAE Federal Decree Law No. 25 of 2025 in October 2025, the New Civil Code replaces the old Federal Law No. (5) of 1985 (the “Old Civil Code”). In this article, we address the impact of the New Civil Code and the key changes that have been introduced.

The New Civil Code is set to have an important impact, particularly in relation to matters of contractual interpretation and pre-contractual negotiations. One key change is that the pre-contractual negotiation phase is no longer without consequences. This is a marked shift from the established position under the Old Civil Code, which had governed contracts in the UAE for over 40 years.

Impact of the New Civil Code

Importantly, the New Civil Code only applies to contracts entered into from 1 June 2026 onwards and does not apply retrospectively (Article 4(1) of the New Civil Code). Parties entering into new contracts after 1 June 2026 will be subject to the New Civil Code in their negotiations and contractual arrangements.

There are a number of significant changes introduced, including material changes to risk allocation, particularly by extending legal exposure into the negotiation phase and broadening courts’ intervention in contractual remedies. For example:

the introduction of an obligation to conduct pre-contractual negotiations in good faith (Articles 121 to 123);
the reinforcement of force majeure as a legal concept and an express recognition of circumstances where unforeseen events, including conflict, render performance so onerous that it justifies rescinding a contract altogether (Article 224);
welcomed clarity around the courts’ power to reduce liquidated damages and the grounds on which they may do so (Article 340); and
changes to address common issues arising under construction contracts, including in relation to notice obligations (Article 816(3)), limitation periods for latent defects (Article 510), remedies for defective work (Article 818), lump-sum contracts (Article 829) and termination for convenience (Article 836).

We examine these key changes further below. Certain provisions may be of particular relevance to entities operating in the construction and infrastructure sectors.

Good faith

Article 246 of the Old Civil Code imposed a mandatory obligation of good faith in the performance of contracts. Good faith requires parties to act in a manner that is honest and fair and is intended to prevent parties from exploiting or seeking an unfair advantage over the other party.

This duty is implied as a matter of law in the UAE and can influence the interpretation and enforcement of contractual provisions, sometimes in ways that may differ from common law jurisdictions (which may be more familiar to some international contracting parties).

The New Civil Code now includes additional obligations of good faith. For example, Article 121(1) requires pre-contractual negotiations to be conducted in good faith and Articles 121(3) and 121(4) impose liability for negotiating or terminating negotiations in bad faith. Perhaps most notably, Article 121 provides that a deliberate failure to make a material statement affecting the validity of a contract is a clear example of bad faith.

Parties should therefore treat the pre-contractual negotiation phase with importance. Parties should not assume that, in the absence of a signed contract, their actions during the negotiation phase are entirely without consequence.

It will be interesting to monitor how the courts apply the New Civil Code in practice as the body of case law develops. In any event, parties should make sure to document their negotiations carefully and avoid making informal or speculative statements that could later be characterised as misleading or vexatious, by their counterparty.

Choice of governing law

The Old and New Civil Codes both recognise and uphold the freedom of commercial parties to choose the governing law of their contracts, with the law of the parties’ common domicile applying in the absence of a choice of law.

However, parties entering into contracts in the UAE should be aware that Article 19 of the New Civil Code also provides that, in the event that parties are domiciled in different states and have not agreed on a governing law, the law of the place where the principal obligation of the contract is to be performed will apply.

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Emmanuel Ninos

Partner Dubai

Natalie Jensen

Partner Dubai

Amir Mahdavi

Senior Associate Dubai

William Stewart

Associate Dubai

"Parties entering into contracts in the UAE should be aware that Article 19 of the New Civil Code also provides that, in the event that parties are domiciled in different states and have not agreed on a governing law, the law of the place where the principal obligation of the contract is to be performed will apply."

The introduction of Article 19 of the New Civil Code brings the UAE into closer alignment with the approach in various other jurisdictions to determining governing law in the absence of party agreement. For instance, modern frameworks, such as the Rome I Regulation (593/2008) in the EU, adopt structured rules based on connecting factors, but ultimately reflect the principle that the governing law is that of the jurisdiction with which the contract has the closest and most real connection.

Force majeure

The New Civil Code reinforces force majeure as a core legal concept recognised in the UAE, and expressly identifies circumstances where unforeseen events, including conflict, render performance so onerous that it justifies rescinding a contract. This is particularly relevant in today’s geopolitical landscape in the Middle East.

Article 224 of the New Civil Code expands the existing position under Article 249 of the Old Civil Code in relation to unforeseeable exceptional circumstances of a public nature. The New Civil Code maintains the ability to reduce ‘oppressive’ obligations but also allows a court to rescind a contract.

The provisions governing circumstances of force majeure, which render performance of a contract wholly or partially impossible, are maintained in the New Civil Code under Article 236. UAE courts are given the discretionary power to: (i) reduce onerous obligations; (ii) modify or rescind contracts in exceptional and unforeseeable circumstances; or (iii) dissolve contracts where performance is genuinely impossible.

The broader scope introduced by Article 236 of the New Civil Code is a welcome development, affording greater certainty to parties whose contracts have been impacted by force majeure. It also enables the courts to intervene more effectively and grant broader statutory relief where appropriate.

Liquidated damages

Article 390 of the Old Civil Code provided that parties may fix in advance the compensation payable under the contract (i.e. liquidated damages), and the courts had the power, upon an application by either party, to adjust the pre-agreed compensation to reflect actual loss.

Article 340 of the New Civil Code introduces a structured framework governing liquidated damages. It expands the courts’ powers to amend contractually agreed liquidated damages up or down, by permitting a court to:

(i) reduce the agreed compensation if the debtor proves that the assessment was excessive or that the original obligation has been partially performed;
(ii) reduce or prohibit the agreed compensation if the creditor contributed to the occurrence or increased the damage suffered; or
(iii) allow a creditor to claim above the agreed compensation if the debtor is proven to have committed fraud or gross fault.

Importantly, parties should be aware that they cannot contract out of Article 340, which provides that any agreement contrary to it shall be void.

This new framework is particularly relevant for entities operating within the construction and infrastructure sectors, where liquidated damages provisions are regularly relied upon and disputes as to their enforceability frequently arise.

Termination for convenience

In the context of construction projects specifically, under Article 836(1) of the New Civil Code, an employer can terminate a contract for convenience, as long as it (i) occurs prior to completion of the project; and (ii) full compensation is paid to the contractor for its incurred expenses and work completed, as well as for the expected ‘profit [the contractor] would have earned if the work had been completed’.

The express recognition of the right to terminate for convenience under Article 836(1) gives greater legal certainty for employers, aligning the New Civil Code more closely with international practice, where termination for convenience clauses are commonly included in FIDIC contracts (sub-clause 15.5 of the Red, Yellow and Silver Book 2017 standard forms). It also provides a clearer statutory foundation for such clauses, reducing the risk of challenges on enforceability grounds.

The obligation to compensate the contractor not only for costs incurred and work performed, but also for lost profit on the unperformed portion of the works, is an important aspect of Article 836(1). In practice, this may increase the financial consequences of termination and requires careful consideration by employers when assessing whether to exercise such a right. There may be some ambiguity between parties as to the proper quantification of ‘lost profit’, particularly where the contractor’s anticipated margin is contested or insufficiently documented.

The interaction between Article 836(1) and contractual termination provisions remains an area that will likely be tested in practice. For example, it remains to be seen whether parties can validly limit or exclude lost profits through contractual drafting, or whether such limitations would be curtailed by the mandatory nature of the provision.

Accordingly, Article 836(1) introduces a clearer and more commercially recognisable framework for termination for convenience. Its practical impact will be subject to the UAE courts’ interpretation and application of the compensation mechanism, particularly in complex and high-value construction disputes.

Decennial liability

Further, in the construction sector, one of the most distinctive aspects of UAE law is the concept of decennial liability. Under Articles 880 to 883 of the Old Civil Code, joint and several liability is imposed on contractors and supervising architects/engineers for total or partial collapse, or for defects affecting the structural integrity or safety of a building, for a period of ten years following handover. This is a strict liability and mandatory regime, and its application cannot be excluded or limited by contract.

The New Civil Code preserves the existing position in relation to decennial liability and clarifies that this liability framework is confined to the employer’s claims against the main contractor and the engineer and does not apply between the main contractor and subcontractor. Articles 821 to 824 reference engineers and contractors as being jointly and severally liable for any total or partial collapse of a structure for a ten-year period.

The practical effect of the New Civil Code is that the main contractor remains liable to the employer, but it cannot rely on the statutory decennial liability framework to pass down liability to the subcontractor.

"The changes arising from the New Civil Code are a welcome development, aligning with international practices and enhancing several provisions under the Old Civil Code."

Summary and practical takeaways

The changes arising from the New Civil Code are a welcome development, aligning with international practices and enhancing several provisions under the Old Civil Code.

It is significant that the New Civil Code only applies to contracts entered into from 1 June 2026 onwards, so it is crucial to check which law applies to your contract.

Following the introduction of the New Civil Code, parties should be particularly aware of the expanded powers of the courts to amend contractually agreed liquidated damages and should take note that decennial liability only applies between the employer and the engineer/architect/contractor and not to subcontractors down the contractual chain.

Should you wish to discuss how these changes may impact your contracts or existing commercial activities in the UAE, please reach out to the authors, a member of the WFW Dubai office or your regular contact at WFW.