Introduction

The UAE legal system is seeing a major change with the issuance of Federal Decree-Law No. 25 of 2025 on Civil Transactions Law, effective 1 June 2026. It repeals and replaces in full the long-standing Federal Law No. 5 of 1985.

The Civil Code of 1985 generally left it to the courts in their broad discretion to create construction contracts. The 2026 CTL aims to improve certainty by better defining the rules on notice obligations, remedies for defective work, liquidated damages and decennial liability, and to facilitate more predictable risk allocation in project agreements.

Apart from specific provisions on contract for work agreements, the 2026 Civil Transactions Law contains more general changes of broad application, which might have a material impact on the formation and execution of project agreements. Article 121 expressly regulates the pre-contractual phase and states that the initiation, conduct, and termination of negotiations shall be in accordance with good faith. The parties negotiating are not obliged to enter into a contract. A party negotiating or terminating negotiations in bad faith may be liable for actual damages suffered by the other party. The article also limits the compensation to exclude expected benefits from a contract that was never concluded, and lost opportunities to obtain such benefits, unless otherwise agreed. Importantly, when a material fact relating to the validity of the contract is knowingly concealed, it constitutes an act of bad faith. Additionally, Article 84 also states that the age of majority shall be 18 Gregorian years (reduced from 21 lunar years).

The Structural Evolution of Contract for Work Agreements

Under the Civil Code of 1985, contracts for work were governed by Articles 872 to 896. Now they are dealt under Articles 812 to 839 with the implementation of the 2026 Civil Transaction Law. This change maintains the spirit of the pricing and performance of the agreements, while introducing structural flexibility and lessening the need for court involvement. The operational distinction between these two statutory frameworks is most apparent in several key legal areas:

  • Governing Provisions and Applicability: The governing provisions of the 1985 Civil Code (Articles 872 to 896) are replaced by Articles 812 to 839 of the 2026 CTL, which will form the primary statutory framework for onshore construction contracts governed by the new law as of 1 June 2026.
  • Contractor Notice Requirements: The 1985 Civil Code did not impose such an express notice duty on contractors. Article 816(3) of the Civil Transactions Law 2026 states that the contractor shall immediately notify the employer of any event that may impede proper execution, and failing which the contractor shall bear the resulting consequences.
  • Defective Work Remedies: Article 877 provided for judicial approval before termination or the appointment of another contractor. However, in the 2026 Civil Transactions Law, Article 818 provides a more explicit notice and cure mechanism. Upon notice, proof of defect, and lapse of a reasonable cure period, the employer may terminate the contract or appoint another contractor at the expense of the first contractor.
  • The Court’s Power to Reduce Liquidated Damages: Article 390 of the Civil Code of 1985 stipulates that the Court may reduce the liquidated damages. The courts and arbitrators have wide powers to increase or decrease the damages to correspond with the actual loss. This power is limited by Article 340 of the 2026 CTL, which does not permit an upward modification unless the creditor can prove the debtor’s dishonesty or gross fault.
  • Termination for Convenience: Article 892 addressed only the general termination of a contract of work by completion, mutual agreement, or court order. Article 836 of the 2026 Civil Transactions Law now expressly regulates the employer’s right to withdraw from the contract and the compensation payable to the contractor.
  • Decennial Liability Scope: Articles 880 to 883 of the 1985 Civil Code provided for ten-year joint liability of contractors and architects for collapse or structural defect, but did not deal with recourse against subcontractors. This regime is maintained in articles 821 to 824 of the 2026 Civil Transactions Law, but it is specified that contractor recourse against subcontractors is not regulated by the statutory decennial warranty.

Arbitration and Enforcement in UAE Construction Disputes

When construction disputes escalate, many major project disputes are resolved through binding arbitration, particularly where the underlying contract contains an arbitration clause, utilizing the procedural framework of Federal Law No. 6 of 2018 (the “UAE Arbitration Law”) and the 2022 Arbitration Rules of the Dubai International Arbitration Center (DIAC).

The UAE Arbitration Law is based on the UNCITRAL Model Law and provides strong support for complex infrastructure disputes. Article 6 of the Federal Law No. 6 of 2018 further codifies the principle of separability, by which the invalidity, cancellation or termination of the main contract does not affect the validity of the underlying arbitration agreement. However, parties must comply with severe requirements regarding capacity under Article 4, which states that an arbitration agreement can only be entered into by a natural person with the capacity to dispose of his or her rights, or by an authorized representative of a legal person.

The 2022 DIAC Rules also provide for contemporary procedures such as electronic filings, virtual hearings and electronic signatures on awards under Article 34.6, while Article 41(6) of the UAE Arbitration Law separately provides for electronic signing of arbitration awards.

The UAE Arbitration Law sets out the main procedural framework for challenging and enforcing arbitration awards at the enforcement stage. Articles 53 to 55 are interconnected in that they limit the grounds of annulment, govern the time and manner of filing an application for annulment, and lay down the procedure for recognition and enforcement before the competent court.

Strategic Contract Updates for Construction Stakeholders

To avoid disputes and protect commercial positions, stakeholders may incorporate few changes to their practices for contract administration, procurement and risk management:

  • Establish Rigorous Claim Notice Workflows: Contractors shall, under the statutory notice duty in Article 816(3), be required to use mandatory project management checklists to ensure that any delay, disruption or obstruction is notified immediately. Standard templates must spell out precise communication channels to ensure notices are served in writing without delay on the appropriate employer representatives to preserve claims for extensions of time and cost compensation.
  • Integrate Structured Warning and Cure Mechanisms: Employers should revise tailored and standard form project contracts to include the notice and cure regime in Article 818. Contracts should clearly specify default notices, reasonable periods of rectification, proof of non-compliance and the process of cancellation or appointment of another contractor at the defaulting contractor’s expense.
  • Address Subcontractor Recovery Deadlines and Evidentiary Burdens: Article 821 clarifies that the decennial warranty does not extend to the recourse claims of the contractor against the subcontractors. Main contractors should therefore explicitly address the liability of subcontractors in their sub-contracts, including warranties, indemnities, periods of liability, and back-to-back claim mechanisms where applicable.
  • Review Liquidated Damages Clauses: Employers must be careful when drafting agreed compensation clauses, according to Article 340 of the 2026 Civil Transactions Law, and the clause must be proportionate to the expected loss. The provision empowers the court to reduce agreed compensation where it is too high, if the obligation has been partly performed or if the creditor has contributed to the harm, while any claim in excess of the agreed amount must be supported by evidence of fraud or gross fault on the part of the debtor.

Conclusion

The 2026 Civil Transactions Law represents an important point in the UAE construction law framework, shifting from general judicial discretion to more specific statutory provisions on notice, defective works, liquidated damages, termination and decennial liability. The reform is not just technical for contractors, employers, engineers, and subcontractors. It directly affects the drafting, administration, and enforcement of construction contracts.

As the 2026 Civil Transactions Law comes into force, parties that review their contracts and strengthen their internal project-management processes early will be better placed to reduce disputes, preserve claims, and manage construction risk with greater certainty.