Commercial Contracts in the UAE After the 2026 Civil Transactions Law: What International Businesses Should Review
The UAE’s new Civil Transactions Law has been in force since 1 June 2026. For businesses operating under onshore UAE-governed contracts, the change is a reason to review default, termination, force majeure and enforcement provisions rather than assume existing wording will produce the intended result.
Federal Decree-Law No. 25 of 2025 introduced the new Civil Transactions Law and repealed Federal Law No. 5 of 1985, which had governed civil transactions in the UAE for more than four decades. The new law took effect on 1 June 2026.
Commercial contracts are not governed by the Civil Transactions Law in isolation. Federal Decree-Law No. 50 of 2022 on Commercial Transactions also applies to merchants and commercial activities, together with any special legislation relevant to the transaction. Under the Commercial Transactions Law, the parties’ agreement generally applies unless it conflicts with a mandatory commercial provision. Where there is no applicable agreement or commercial rule, commercial customs and, where appropriate, civil-law principles can also become relevant.
For international businesses, the practical issue is therefore not simply that one statute has changed. Commercial agreements should be considered against the complete legal framework governing the transaction, including the current rules on contractual obligations, breach, rescission and impossibility of performance.
A well-drafted contract should make the commercial consequences of default as predictable as the law allows.
Contractual Freedom Still Has Legal Boundaries
Commercial parties ordinarily negotiate detailed provisions on pricing, performance, liability, termination and risk allocation. The fact that sophisticated parties agree to a clause does not mean that every contractual condition will necessarily operate without legal constraint.
Article 184 of the new Civil Transactions Law allows a contract to contain conditions agreed by the parties provided they are not contrary to law, public order or public morals. Where a condition breaches those limits, the condition itself is void. A contracting party may also seek annulment of the contract if it can be established that the party would not have agreed to the contract without that condition.
For international companies adapting agreements developed in another jurisdiction, this matters. Contract drafting should not be treated simply as a translation exercise. Liability clauses, termination mechanisms, remedies and risk allocation need to be considered within the UAE legal framework that will govern their operation.
Default Clauses Need More Than a Termination Right
Article 234 addresses non-performance in bilateral contracts. Where one party fails to perform an obligation when it becomes due, the other party may, after giving notice to the debtor, ask the court to order performance or rescind the contract. The court may require performance, grant a grace period where circumstances justify it, or refuse rescission where the debtor has remedied the default or the unperformed obligation is of minor importance compared with the obligation as a whole. Compensation may also be awarded where justified.
For commercial obligations, these general civil rules must also be considered together with the Commercial Transactions Law. For example, where the issue concerns additional time for payment of a commercial obligation, Article 82 of the Commercial Transactions Law restricts the court from granting time for full payment or payment by instalments except with the creditor’s consent or under general exceptional circumstances.
This makes the drafting of default provisions commercially significant. A contract should identify which obligations are fundamental, when performance becomes due, what constitutes default, whether a cure period applies and what notice must be given before remedies are pursued. Good lawyers in Dubai reviewing substantial commercial agreements should examine the default structure as a whole rather than focusing only on the wording of the termination clause.
Automatic Rescission Clauses Should Be Drafted Precisely
Article 235 permits parties to agree that a contract will be automatically rescinded for failure to perform contractual obligations without requiring a judicial judgment. The provision also makes an important distinction regarding notice.
An agreement for automatic rescission does not by itself remove the requirement to give notice. Notice is dispensed with only where the parties have expressly agreed to waive it.
A clause stating that an agreement “terminates automatically” may therefore leave important questions unanswered if the drafting does not deal properly with notice, timing and the consequences of termination. The best lawyers in Dubai handling commercial contracts should test these clauses against the intended enforcement strategy and make clear when rescission takes effect, what notice is required and which obligations survive the end of the agreement.
Force Majeure Now Requires Closer Attention
Article 236 deals with force majeure where contractual performance becomes impossible. In a bilateral contract, where force majeure makes performance of an obligation impossible, the corresponding obligations are extinguished and the contract is automatically rescinded.
Where impossibility is partial, either party may rely on the extinguishment of the corresponding obligation or ask the court to rescind the contract. Where impossibility is temporary in a continuing contract, the law also addresses the extinguishment of the corresponding obligation, modification of the contract and the possibility of seeking rescission from the court.
The statutory test is therefore concerned with the effect of the event on performance, not simply the label attached to the event. A commercial force-majeure clause should address the events covered, the relationship between the event and performance, notification, mitigation, temporary interruption, partial performance and the circumstances in which termination may become necessary. Merely listing events such as natural disasters, government measures or supply disruption does not by itself establish that Article 236’s impossibility test has been satisfied.
For long-term supply, construction, technology, logistics and service contracts, those distinctions can be more important than the description given to the disruptive event.
Dispute Clauses Should Support the Remedy
Termination rights and substantive obligations cannot be separated from the forum in which they may eventually need to be enforced.
The UAE continues to operate under Federal Law No. 6 of 2018 on Arbitration, as amended by Federal Decree-Law No. 15 of 2023. Where parties choose arbitration, the arbitration agreement should be considered together with the governing law, seat, institutional rules, language, tribunal structure and likely location of assets. DIFC and ADGM-seated arbitrations also require consideration of their respective legal frameworks.
Top lawyers in Dubai advising on international commercial contracts should align the dispute clause with the transaction rather than treating it as standard wording. A carefully negotiated termination provision has limited practical value if the route for resolving and enforcing a dispute has not been considered with equal care.
Existing Contracts Deserve a Fresh Review
The introduction of the new Civil Transactions Law does not mean every existing contract must be rewritten. Article 4 establishes the general rule that the new law applies from its effective date and does not apply retrospectively to preceding facts and acts unless the law provides otherwise.
The legislation also contains specific temporal rules. Articles 6 and 7, for example, address the treatment of periods for barring claims by lapse of time where those periods began before the new law entered into force. This means the application of the new law to an existing contractual relationship should be analysed rather than assumed.
A contract entered into before 1 June 2026 should not automatically be treated as governed in every respect by the new provisions simply because performance continues after that date. The timing of the relevant facts, acts, accrued rights and obligations must be considered. Where an agreement is renewed, amended or restated after 1 June 2026, the legal effect of those changes should also be assessed according to their terms and timing.
The sensible approach is to identify important contracts with continuing performance, renewal or dispute exposure and determine which legal framework applies before relying on the new rules on default, rescission or force majeure.
Dr Sunil Ambalavelil’s practice includes corporate and commercial transactions, contractual matters and cross-border acquisitions involving businesses and investors in the UAE and internationally. His professional recognition includes being honoured as Best Indian Lawyer in Dubai at the Kempegowda Utsava & Business Award 2024.
Conclusion
The value of a commercial contract is tested when the relationship stops operating as expected.
The 2026 Civil Transactions Law makes it appropriate for businesses to revisit how their agreements deal with performance, notice, rescission, force majeure and dispute resolution. That review should also consider the Commercial Transactions Law, relevant special legislation and the temporal rules that determine which provisions apply to an existing transaction.
The objective is not to add more clauses. It is to ensure that the provisions already being relied upon reflect the legal framework applicable to the transaction and the commercial outcome the parties actually intend. Reviewing, renewing or negotiating a UAE commercial agreement? Early legal review can identify weaknesses in default, termination, force majeure and dispute provisions before those clauses have to be relied upon in a live dispute. Consult with Dr Sunil Ambalavelil about your UAE and cross-border commercial contracts.
FAQs
1. When did the new UAE Civil Transactions Law take effect?
The new Civil Transactions Law under Federal Decree-Law No. 25 of 2025 came into force on 1 June 2026. It repealed Federal Law No. 5 of 1985, as amended.
2. Can a UAE contract provide for automatic rescission after a breach?
Yes. Article 235 allows parties to agree that a contract will be automatically rescinded following non-performance without requiring a judicial judgment. Notice remains required unless the parties have expressly agreed to waive it. The wording of the clause should therefore deal clearly with both automatic rescission and notice.
3. Can Indian lawyers in UAE practices advise on UAE commercial contracts?
Yes, where they are appropriately registered, licensed or otherwise authorised to provide the relevant legal services in the jurisdiction concerned. Nationality by itself does not determine whether a practitioner may provide legal advice. Indian lawyers in UAE practices may also contribute useful cross-border experience where an agreement involves Indian counterparties, investments or connected transactions.
4. When may Indian lawyers in Abu Dhabi be relevant to a commercial agreement?
Indian lawyers in Abu Dhabi may form part of the advisory team where an Abu Dhabi transaction also involves Indian parties, investments, assets or contractual relationships. The appropriate adviser should ultimately be selected according to the governing law, transaction, professional authority and expertise required.
5. Is there one best lawyer in Dubai for every commercial contract?
No. The idea that one practitioner can be the Dubai best lawyer for every type of commercial agreement is unrealistic. A construction contract, acquisition agreement, financing arrangement and technology licence can require materially different legal and sector experience. The appropriate lawyer should be selected according to the transaction, applicable law, industry and potential dispute or enforcement risks.
6. Should existing UAE contracts be reviewed after the new Civil Transactions Law?
Yes, where the contract remains commercially important, is approaching renewal or carries significant default or dispute exposure. However, a contract entered into before 1 June 2026 should not simply be assumed to fall entirely under the new law. The review should first determine which provisions apply under Article 4 and the relevant temporal or special-law rules, and then assess whether the contract’s performance, notice, termination and force-majeure provisions remain suitable.
