Author: afridi-angell

Federal Decree-Law No. 25 of 2025, the UAE’s New Civil Code, came into force on 1 June 2026, replacing Federal Decree-Law 5 of 1985 Concerning the Issuance of the Civil Transactions Law (the Old Code).

 

This article forms part of a series examining the changes introduced by the New Code, and highlights some significant changes affecting sale contracts which seek to provide more commercial flexibility, clarify party obligations, and strengthen protection for purchasers.

 

What has Changed?

 

1. Expanded definition of sale

 

The New Code broadens the concept of a sale and adapts to modern commercial realities by recognizing that the subject matter of a sale may include transferable financial rights and intangible assets and rights, including intellectual property rights.

 

2. Greater flexibility in pricing mechanisms

 

One of the more practical changes is the increased flexibility in determining the purchase price. The New Code allows parties to agree on criteria by which the price will be determined at a later stage or to appoint a third party to determine the price. It also provides that a sale may remain valid even where the price is not expressly specified, provided it is clear that the parties intended to adopt the prevailing market price or a price previously applied in their dealings.

 

This development is particularly relevant for long-term supply arrangements and transactions where pricing depends on future market conditions.

 

3. Clarification of ownership transfer, delivery and risk

 

The New Code, for the first time, requires the Seller to take all necessary steps to transfer ownership and not to hinder that transfer.

 

It also clarifies the rules relating to delivery and risk. Delivery may occur even without actual physical possession where the seller has made the subject matter available to the purchaser and notified the purchaser accordingly.

 

The New Code also clarifies and consolidates the consequences where the sold property is damaged or destroyed before delivery. Where part of the sold property is damaged before delivery, the purchaser may rescind the contract or accept the remaining part for a proportionate reduction in the price. The purchaser may also, where applicable, maintain the contract in respect of the whole property at the agreed price and seek recourse against the person responsible for the damage portion of the property. While these remedies were also available under the Old Code, they were addressed under separate provisions depending on the cause of the loss or damage. The New Code brings them together within a single provision governing the consequences of damage or destruction of the sold property.

 

4. Enhanced protection in title disputes

 

The New Code introduces a more structured framework where a third-party claims ownership of, or rights over, the sold property.

 

A purchaser facing such a claim from a third party must notify the seller promptly. The seller is then required to intervene in the proceedings or assume conduct of the defence. Failure to do so may expose the seller to liability under the statutory warranty regime.

 

These provisions encourage early involvement by sellers and provide greater protection for purchasers facing third-party claims.

 

5. Expanded remedies for latent defects

 

The New Code significantly strengthens the purchaser’s remedies in cases involving latent defects.

 

Under the Old Code, where a latent defect existed in the sold property, the purchaser generally had to choose between returning the property or retaining it at the agreed price, and was expressly prevented from retaining the property while claiming a reduction in price. The New Code changes this position by allowing the purchaser to retain the property and assert a claim for a reduction in the price from the seller. The New Code also provides that a seller may avoid liability by providing a replacement.

 

The New Code also sets out more detailed standards governing the seller’s warranties. The seller is liable where, at the time of delivery, the sold property does not possess qualities which the seller guaranteed, or where the property has a defect diminishes its value or utility. The value or utility of the property is assessed by reference to the purpose stated in the contract, the nature of the property or the purpose for which it was prepared. The seller may be liable in these circumstances even if unaware of the defect.

 

In addition, the period for bringing a latent defect warranty claim has been extended from six months to one year from the day following delivery, unless the seller has undertaken a longer warranty period. These changes increase the importance of carefully drafted warranty, inspection, acceptance and remedy provisions in sale contracts.

 

6. New framework for the sale of disputed rights

 

For the first time, the New Code introduces a specific framework governing the sale of disputed rights. A right is considered disputed where proceedings have been commenced in respect of it or ‘a serious dispute’ (which is not defined in the New Code) has arisen concerning the right.

 

The New Code does not prohibit the sale of a right merely because it is disputed. However, where a disputed right is sold, the person disputing the right with the seller may extinguish the dispute by reimbursing the price paid by the purchaser and the expenses incurred. This right of recovery must be exercised within 60 days from the date on which that person becomes aware of the sale.

 

In practice, this mechanism may have significant consequences. For example, if a disputed claim with a nominal value of AED 10 million is sold for AED 3 million, the person disputing that claim may extinguish the claim by paying the purchaser of the disputed right a sum of AED 3 million purchase price together with the relevant expenses. The practical effect may therefore be to extinguish the underlying claim for an amount substantially below its nominal value.

 

This right of recovery does not apply in certain circumstances, including where the disputed right forms part of a group of properties sold for a single price, where a co-owner or heir sells their share in a jointly held right, where the right is transferred to a creditor in settlement of a debt, or where a right encumbering immovable property is sold to the possessor of that property.

 

The New Code also imposes conflict-related restrictions on the acquisition of disputed rights. In particular, judges, members of the Public Prosecution, experts and certain court officials may not acquire disputed rights falling within the jurisdiction of the court in which they perform their duties. Similar restrictions apply to arbitrators, conciliators and mediators in relation to matters assigned to them, while lawyers are prohibited from dealing with their clients in respect of disputed rights which they are engaged to defend. Transactions entered into in breach of these restrictions are void.

 

Why does this matter?

 

The New Code modernizes several aspects of UAE sale law and addresses areas that previously lacked sufficient legislative guidance. The changes provide greater contractual flexibility, clarify the allocation of obligations and risks between contracting parties, and strengthen purchaser protections in relation to title disputes and defective goods.

 

Businesses should not assume that existing sale contract templates adequately reflect the new legal framework.

 

Practical Takeaways

 

Parties entering into sale contracts should consider:

 

➢ clearly defining the subject matter of the sale, particularly where financial or intangible rights are involved;

 

➢ adopting a clear pricing mechanism, especially where the price will be determined in the future;

 

➢ specifying the procedures for delivery and transfer of ownership;

 

➢ establishing contractual procedures for dealing with third-party title claims; and

 

➢ reviewing warranty, inspection and defect provisions to ensure they align with the expanded remedies available under the New Code.

 

As businesses continue to update their contractual documentation following the introduction of the New Code, sale agreements should be reviewed carefully to ensure they are compliant with these important developments. ■

Federal Decree-Law 25/2025 Issuing the Civil Transactions Law (the New Code) came into force on 1 June 2026. It replaced Federal Law 5/1985 Concerning the Issuance of the Civil Transactions Law (the Old Code).

 

This inBrief forms part of a series examining the changes introduced by the New Code, and deals with the provisions governing force majeure and hardship.

 

Unlike common law jurisdictions, force majeure and hardship find statutory expression in the UAE. Force majeure refers to unforeseeable events beyond the parties’ control which renders performance impossible, while the doctrine of hardship refers to exceptional circumstances where performance remains possible but becomes more onerous or radically different than originally contemplated by the parties.

 

While these doctrines were recognised under the Old Code, the New Code makes the remedies clearer, more flexible, and more commercially usable.

 

1.  What was the position under the Old Code?

 

The Old Code contained a framework governing force majeure, including partial and temporary impossibility, and hardship in contractual and non-contractual obligations.

 

(i) Force majeure

 

Article 273 of the Old Code addressed the consequences of force majeure, including total, partial and temporary impossibility of performance.

 

➢ Total impossibility: If force majeure rendered performance impossible, the corresponding obligation ceased and the contract was automatically cancelled.

 

➢ Partial and temporary impossibility: Where performance became partially or temporarily impossible, the impossible part (i.e., the corresponding obligation) was extinguished. In both cases, the obligor (i.e., the party which owed performance) could cancel the contract, provided the party to whom performance was owed to was notified of the impossibility.

 

(ii) Hardship

 

Article 249 of the Old Code empowered a court to reduce or adjust a burdensome obligation to a reasonable level while having regard to the interests of both parties, where exceptional circumstances of a public nature arose that could not have been foreseen at the time of entering into the contract, which rendered performance burdensome and threatened the obligor with grave loss. Any agreement to the contrary was void.

 

2.  What are the changes introduced under the New Code?

 

The New Code retains the underlying principles of force majeure and hardship, and expands the reliefs that may be sought.

 

(i) Force majeure

 

Article 236 of the New Code retains the position under the Old Code in cases of total impossibility, i.e., if force majeure renders performance impossible, corresponding obligations cease, and the contract is cancelled automatically. The principal changes concern the treatment of partial and temporary impossibility.

 

➢ Partial impossibility: Where performance is partially impossible, either party, not just the obligor (as was the case under the Old Code), may seek discharge from the corresponding obligation(s), or apply to the court for recission of the contract.

 

➢ Temporary impossibility: Similar to the remedy for partial impossibility, where impossibility is temporary in a continuing contract, either party may seek discharge from the corresponding obligation(s), apply to the court for recission, and/or additionally, seek modification of the contract.

 

➢ Loans for specific things (العارية): The New Code also addresses circumstances in which a borrower may remain liable despite force majeure. Article 804(2) provides that a borrower may remain liable for the loss or destruction of a borrowed item where the loss could have been avoided by sacrificing the borrower’s own property, or where the borrower chose to save their own property instead (Article 804(2)).

 

(ii) Harship

 

The New Code more clearly articulates the range of remedies available to the court. Where the commercial bargain can sensibly be saved, the court may adjust it; and if it cannot, the court may order rescission. Under the Old Code, the court only modify the terms of the contract, and could not order recission.

 

3.  Why the change matters?

 

(i) Commercial and contractual impact

 

➢ Real disruption resulting from a force majeure or hardship event rarely fits neatly into legal boxes. A supply chain disruption, regulatory change, labour shortage or geopolitical event may affect contractual performance in different ways and to different degrees. The New Code recognises this reality and makes clear that both parties may seek relief, while granting the courts broader remedial powers that are no longer limited to cancellation, as was the position under the Old Code.

 

Force Majeure

 

➢ By way of example, where a force majeure event temporarily reduces a supplier’s production capacity, the New Code allows the contract to be preserved, through temporary adjustments to the parties’ obligations. This is commercially significant as the focus shifts from an all-or-nothing outcome towards preserving a commercially workable arrangement, where possible.

 

➢ The amendments are likely to be particularly significant in the context of long-term commercial relationships, including supply, infrastructure, logistics, outsourcing and distribution arrangements, where temporary disruption may not justify termination of the contractual relationship, but equally may require the parties’ obligations to be adjusted to reflect changed circumstances.

 

Hardship

 

➢ The New Code does not permit contracts to be revisited merely because a party has made an unfavorable bargain, which was also the case under the Old Code. However, where exceptional and unforeseeable circumstances render performance excessively onerous, the court is empowered to rescind the contract as well to adjust the obligations of the parties.

 

➢ This is significant because hardship cases often fall between two unsatisfactory outcomes. While strict enforcement of the contract may become excessively onerous, cancellation may be commercially wasteful. The New Code makes the middle ground easier to identify and ensures that parties will focus less on artificial labels and more on the remedy that best fits the disruption.

 

(ii) Litigation impact

 

➢ The practical shift under the New Code is that parties are likely to spend less time debating rigid classifications and more time addressing the consequences of the disruption itself. That is the practical shift: the New Code makes it plain that both parties can seek remedies, and that the court has a wider remedial toolkit. The emphasis therefore moves away from a narrow argument about classification and towards the practical question: what remedy fits the disruption?

 

➢ This may be particularly important in disputes where the parties agree that an external event has affected performance but disagree as to the appropriate response. The New Code provides clearer statutory mechanisms for preserving, modifying or terminating contractual relationships depending on the circumstances.

 

4.  Practical takeaways

 

Dos

➢ Address remedies and consequences at the drafting stage: Parties should decide in the contract what happens if performance becomes impossible, partially impossible, temporarily impossible or exceptionally onerous. The key question is not just whether a force majeure or hardship event has occurred, but what contractual consequences and remedies should follow.

 

➢ Use bespoke force majeure and hardship clauses and define assumed risks clearly: A generic force majeure or hardship clause may not be sufficient. If inflation, sanctions, war, shipping disruption, labour shortages, currency movement, material shortages or regulatory delay are intended to sit with one party, say so expressly.

 

➢ Decide in advance what follows from the disruption: The clause should also address notice requirements, mitigation measures, suspension rights, partial performance, temporary modification, extension of time, price adjustment, cost-sharing, renegotiation procedures, and termination rights.

 

➢ Build in a process for preserving the contract: Parties should consider including contractual mechanisms designed to preserve the relationship during periods of disruption, where disruption occurs but continuation of the contractual relationship remains commercially viable.

 

➢ Consider the wider range of judicial remedies available: The New Code provides clearer statutory mechanisms through which parties may seek judicial relief, including preservation, modification, or recission of contractual obligations where the statutory requirements are satisfied. A party resisting relief may still argue that the relevant risk was foreseeable, assumed, insured against or allocated by the contract.

 

➢ Comply strictly with any contractual notice requirements (where applicable): Delayed or inadequate notice may prejudice a party’s ability to rely on force majeure or hardship provisions.

 

Don’ts

 

➢ Do not confuse commercial difficulty with hardship: Every increase in cost, reduction in profitability or commercial inconvenience may not constitute hardship.

 

➢ Do not assume that force majeure automatically leads to termination: The appropriate remedy will depend on whether the impossibility is total, partial or temporary and the circumstances of the case. A party will not automatically be entitled to terminate the contract.

 

➢ Do not exclusively rely on the remedies contained in the New Code: Seek legal advice and incorporate contractual provisions to clearly allocate risk and prescribe the consequences of disruption.

 

➢ Do not wait for a dispute before exploring solutions: Parties should consider at an early stage whether contractual performance can be modified, suspended or otherwise preserved before a dispute arises. ■