Core Legal Reforms in the New UAE Civil Transactions Law of 2026

Legislative Introduction: General Directions and Judicial Approach

On 1 January 2026, the UAE Government issued a Federal Decree-Law enacting the new Civil Transactions Law. This reform aims to establish an integrated legal system that reflects modern socio-economic developments, ensures statutory clarity, and eliminates duplication with specialized legislation such as the Law of Evidence, Insolvency, and Bankruptcy laws.

The law adopts an adaptive judicial approach by expanding the scope of judicial reasoning (ijtihad). In the absence of an express or implicit legislative provision, judges may apply Islamic Sharia principles by selecting the most appropriate solutions to achieve justice and public interest, without being bound to a specific jurisprudence school (madhhab). Islamic Sharia provisions remain applicable in the absence of special laws governing persons of unknown parentage, missing persons, and absentees.

Legislative Integration and In-Rem Rights

The law reaffirms the validity of local legislation regarding specific regulatory licensing and oversight within the jurisdiction of each Emirate, preserving federal cohesion. Substantive updates include:

• Musataha Rights: Reorganizing Musataha provisions, mandating registration with competent authorities upon pain of nullity, allowing parties to define the duration, and establishing specific obligations on the Musataha holder.

• Estates of Foreigners without Heirs: Stipulating that financial assets inside the state belonging to a foreigner who dies without heirs become a charitable endowment (Waqf) supervised by the competent authority.

• Protection of Possession and Assignment of Rights: Regulating assignment of rights and introducing the action to halt new works (precautionary claim) to prevent infringement of possession.

• Theory of Nullity: Replacing the categories of invalid (fasid) and suspended (mawqoof) contracts with the concept of the voidable contract (contract subject to annulment).

Legal Capacity and Protection of Will

The law implements fundamental revisions to legal capacity rules to align with comparative systems, criminal responsibility, labor, and juvenile legislation:

1. Age of Majority: Lowering the age of majority to (18) Gregorian years instead of (21) lunar years.

2. Management of Property by Minors: Lowering the eligible age for a minor to request authorization to manage their funds to (15) Gregorian years instead of (18) Hijri years to foster youth entrepreneurship.

3. Judicial Assistant: Empowering courts to appoint a judicial assistant for incapacitated or ill persons who cannot articulate their will.

4. Defects of Consent: Establishing that defects of will (mistake, fraud/deceit, duress) entail the annulment (voidability) of the contract from inception rather than mere termination (rescission), while introducing exploitation as a distinct defect of consent.

Pre-contractual Negotiations and Compensation

The law establishes a structured regime for pre-contractual negotiations by imposing a duty of disclosure regarding material information, alongside regulating 'Framework Agreements' for recurring or long-term dealings. Financial dispositions of a discerning minor that fluctuate between benefit and detriment are now deemed voidable for the minor's benefit within one year of the guardian's knowledge or within one year after reaching the age of majority.

Furthermore, the law explicitly authorizes combining Diya (blood money) or Arsh with additional damages whenever the bodily injury or death results in material or moral harm not fully remedied by the Diya or Arsh.

Execution by Compensation and Liquidated Damages

The law broadens the scope of remedy by damages to encompass partial and defective performance, in addition to non-performance and delay. It also refines judicial discretion over contractual liquidated damages:

• Courts may reduce the agreed damages if they are proven exaggerated, if the obligation was partially performed, or if the creditor contributed to the harm through fault.

• Damages may be denied entirely if the creditor's fault superseded the debtor's fault.

• Creditors may claim compensation exceeding the agreed amount if the debtor committed fraud or gross negligence.

Modernization of Contract of Sale and Latent Defects

Substantive provisions have been enacted to protect vulnerable parties and enhance transactional certainty:

• Sale by Sample and Model: Enforcing strict conformity standards, granting buyers the option to accept or reject non-conforming goods, and detailing evidentiary rules if the sample is lost.

• Protection of Incompetent Sellers: Where real estate owned by a person lacking full capacity is sold with gross lesion (ghubn fahish), the seller may claim price supplementation up to the market value at the time of sale. Such actions are barred after three (3) years from regaining full capacity or the owner's death, while safeguarding the in-rem rights of bona fide third parties.

• Enhanced Latent Defect Remedies: Providing buyers the choice between returning the goods or retaining them while claiming a proportionate price reduction. The seller may prevent rescission by supplying an identical, non-defective replacement.

• Limitation Period for Defect Claims: Extending the statutory limitation to one full year from delivery (up from 6 months), preserving contractual freedom for longer warranty periods.

• Dispositions during Terminal Illness: Eliminating the rigid one-year lookback period, granting judges discretionary power based on empirical case facts to safeguard heirs and creditors.

• Sale of Litigious Rights: Declaring the purchase of contested rights by judges, public prosecutors, court officials, and legal counsel acting in the case absolutely null and void.

Corporate Framework and Modern Legal Entities

The law re-articulates the foundational rules governing companies to maintain harmony with the Commercial Companies Law:

1. Civil vs. Commercial Companies: Companies remain civil if their objects are non-commercial, whereas they become commercial and subject to the Commercial Companies Law if they conduct commercial business or adopt a statutory commercial form.

2. Single-Member Companies: Authorizing single natural or legal persons to incorporate single-member limited liability companies by unilateral will.

3. Partner Withdrawal: Regulating withdrawal in indefinite-term partnerships subject to prior notice and absence of bad faith, while permitting remaining partners to maintain the firm by admitting a replacement partner or acquiring the departing share.

4. Company Liquidation: Precisely establishing the cessation point of managerial authority, setting rules for liquidator appointment, asset administration, and creditor distributions.

5. Non-Profit Companies: Establishing a dedicated statutory regime for non-profit companies that reinvest net profits into corporate objectives rather than distributing them to partners.

Professional Partnerships and Mudaraba Contracts

The law introduces a dedicated regime for Professional Companies established by licensed professionals to practice liberal professions. It permits joint ventures with foreign professional firms or non-licensed stakeholders to stimulate knowledge transfer, while prohibiting dual membership or concurrent employment across multiple professional firms. Clear rules govern firm naming, partner withdrawal, death, and professional liabilities.

Furthermore, Mudaraba has been reconstituted as an autonomous nominated contract with its own governance rules, decoupling it from the general framework of civil companies.

Modernization of Muqawala (Construction Contracts) and Contractual Equilibrium

Substantial revisions have been enacted governing construction and works agreements (Muqawala):

• Contractor's Duty of Care: Imposing a standard of care of a 'reasonable person' when managing employer-supplied materials, obligating restitution of unused materials, immediate notification of material defects, and liability for damage caused by negligence.

• Exceptional Circumstances and Hardship: Introducing express mechanisms for situations where unexpected general exceptional circumstances (such as pandemics or unforeseen price surges) disrupt the financial equilibrium of the contract. Courts are empowered to restore parity by extending completion timelines, adjusting contract remuneration, or terminating the contract where appropriate.

• Unilateral Termination by Employer: Granting employers the right to terminate the contract and halt works prior to completion, subject to fully indemnifying the contractor for incurred expenses, completed works, and lost profits—with judicial discretion to adjust damages based on actual savings achieved by the contractor.

Insurance and Suretyship (Guarantee)

The enactment modernizes risk-management and security regimes:

1. Mutual Takaful Insurance: Establishing a statutory framework for cooperative and mutual takaful insurance funds, recognizing policyholders as mutually insured members and regulating fund investments and surplus distributions.

2. Reform of Suretyship (Kafala): Eliminating obsolete classifications of suretyship, while introducing statutory rules for guaranteeing obligations of legally incapacitated persons and commercial debts.

3. Benefit of Discussion (Asset Exhaustion): Prohibiting creditors from claiming against or enforcing upon a guarantor's assets prior to exhausting enforcement against the principal debtor's assets, unless the guarantor is explicitly joint and several (mutadamin) by statute or contract, requiring guarantors to plead this defense before court.