New UAE Civil Transactions Law in force, reshaping liability and contract rules

Federal Decree-Law No. 25 of 2025 introduced a new Civil Transactions Law in the UAE, fully effective as of 1 June 2026. The law replaces Federal Law No. 5 of 1985 and substantially updates rules governing contracts, civil liability, construction work, property damage and compensation.

Key changes include: (1) Articles 246–247 establish foundational civil liability principles, distinguishing between direct harm (requiring no proof of intent) and indirect harm (requiring proof of negligence); (2) Article 253 allows courts to apportion liability among multiple responsible parties and reduce compensation if the injured party contributed to the harm; (3) Article 258 sets a three-year statute of limitations from the date the injured party became aware of harm and the responsible party, with a hard 15-year limit from the date of the harmful act; (4) Articles 812–839 reorganise contractor liability rules, requiring contractors to work to professional standards, complete work within a reasonable period, and promptly notify employers of delays or defects; (5) Article 822 clarifies engineer liability based on role (design vs. supervision); (6) Article 340 permits courts to review agreed compensation clauses and reduce excessive amounts; (7) Article 255 permits recovery of actual losses and lost profits when supported by evidence; (8) Articles 121–122 require parties to negotiate in good faith and disclose material information.