The enactment of Federal Decree-Law No. 25 of 2025 (the “New Civil Code”), which comes into effect on 1st June 2026, represents a significant development in the UAE’s contractual framework. Understanding UAE contract good faith requirements is now essential for all businesses as the law fundamentally changes how parties must conduct themselves from initial negotiations through final performance.

Replacing Federal Law No. 5 of 1985 (the “Old Civil Code”), the new legislation introduces a structured and comprehensive regime governing negotiations, disclosure, good faith, and contractual imbalance.

For the first time, UAE law expressly regulates pre-contractual conduct and establishes defined consequences for bad faith negotiations, non-disclosure of material information, exploitation, and gross imbalance. The New Civil Code also reinforces judicial oversight of standard form contracts and adhesion agreements, while modernising the rules on nullity, rescission, and force majeure.

These reforms materially affect how businesses negotiate, draft, and terminate contracts. The focus is no longer limited to performance in good faith; the obligation now extends from the opening stages of negotiations through the entire contractual timeline.

This article examines the key developments and their commercial implications for UAE contract good faith requirements.

Negotiation, Disclosure Obligations and Good Faith Requirements

The Old Civil Code did not expressly regulate the conduct of parties during negotiations. Whilst the general principle of good faith in the performance of contracts was found in Article 246 of the Old Civil Code, which required contracts to be implemented ‘in a manner consistent with the requirements of good faith’, this obligation was directed at performance, not at pre-contractual conduct. There was no statutory basis for a claim arising purely from how negotiations were conducted or abandoned.

Comprehensive Pre-Contractual Framework:

The New Civil Code introduces a fully elaborated pre-contractual regime for the first time, with the development of a comprehensive framework on negotiations and disclosure obligations. Accordingly, pre-contractual negotiations including their initiation, progress, conduct and conclusion must adhere to UAE contract good faith requirements (Article 121).

Liability for Bad Faith Negotiations:

Negotiations alone do not obligate parties to conclude a contract. However, bad faith in negotiating or breaking off talks can trigger liability for the other party’s actual damages, excluding any anticipated profits from an unformed contract, or lost chances to pursue any such interests, absent contrary agreement. Furthermore, intentionally withholding key information that impacts the contract’s validity will be considered as bad faith (Article 121).

This represents a major shift in UAE contract law. Previously, parties could generally walk away from negotiations without legal consequence unless they had entered into a binding letter of intent or similar commitment. Now, the manner in which negotiations are conducted and terminated is subject to judicial review under good faith principles.

Disclosure Duties Under UAE Contract Good Faith Requirements

Parties engaged in negotiations or contracts must disclose any critical information they know that materially influences the other party’s consent, particularly if ignorance is assumed or trust has been placed in them. Such information qualifies as decisive if it directly relates to the contract’s terms or the parties’ circumstances. This disclosure duty binds both sides equally, and requires reasonable efforts to share relevant details about the talks, the deal itself, and surrounding conditions, and the party alleging nondisclosure must bear the burden of proof. The law indicates that agreements cannot waive or restrict this obligation, therefore any such terms would be considered void and the harmed party could void the contract for breach (Article 122).

Key Elements of Disclosure Obligations:

• Material Information: Information that would materially influence the other party’s decision to enter the contract
• Knowledge Standard: Applies to information the disclosing party actually knows
• Trust and Reliance: Heightened duty where the other party has placed trust or assumes ignorance
• Mutual Obligation: Both parties owe disclosure duties equally
• Non-Waivable: Parties cannot contract out of this obligation
• Voidability Remedy: Breach allows the harmed party to void the contract

Practical Impact:

This provision has profound implications for due diligence, representations and warranties, and disclosure practices in commercial transactions. Parties can no longer rely solely on caveat emptor principles or limit disclosure to express contractual representations. There is now a statutory duty to disclose material information during negotiations.

Confidentiality in Negotiations

Any person who uses or discloses confidential information obtained in negotiations or under a contract without proper authorization, shall be liable in accordance with the general rules (Article 123). This provision has significant effect, giving statutory recognition to an obligation of confidentiality in the pre-contractual context. It supplements and codifies protections that parties would previously have had to establish through non-disclosure agreements (though this provision does not eliminate the need for non-disclosure agreements).

Implications for Business Practice:

While confidentiality is now statutorily protected, businesses should continue to use comprehensive non-disclosure agreements (NDAs) that:

• Define what constitutes confidential information
• Specify permitted uses and disclosure exceptions
• Establish clear remedies for breach
• Set duration of confidentiality obligations
• Address return or destruction of confidential materials

The statutory provision provides a baseline, but well-drafted NDAs provide greater certainty and tailored protections for specific transaction types.

Misrepresentation and Lesion

Previously referred to as ‘exorbitant hardship’, the Old Civil Code, addressed instances of deceit with exorbitant hardship and hardship without deceit, granting a right of rescission for the property of incapacitated persons, Waqf, and the State (Old Civil Code Articles 185-192).

However, the New Civil Code reframes this as “lesion”, defined as an imbalance between the rights gained and obligations imposed, where ‘slight lesion’ will be judged by expert valuation ranges, while ‘gross lesion’ exceeds these ranges (Article 173).

Expanded Remedies:

Not only does the new law allow the deceived party to seek annulment of the contract where it has been concluded with gross lesion (Article 172), it now extends the remedy so that if a contract causes gross lesion to someone lacking capacity, with diminished capacity, or an endowment, the affected party can seek court intervention to modify their own or the other party’s obligations to eliminate the imbalance (rather than simply voiding the contract). This right persists even if a legal representative made the deal or a court approved it. However, challenges based solely on lesion do not apply to public auction contracts (Article 174).

Additional regulations surrounding this matter remain the same as they were in the Old Civil Code.

Exploitation: Enhanced Protection Under UAE Contract Good Faith Requirements

A key development in the New Civil Code arises from the addition of an explicit anti-exploitation article within the general contract law rules. If one party takes advantage of another’s urgent need, obvious recklessness, intense passion, inexperience, obvious weakness, or moral sway, and this results in a contract with extreme imbalance between obligations and benefits at the time of signing, the exploited party may seek annulment or reduced obligations. The other party can prevent annulment by offering court-approved compensation deemed sufficient to remedy the lesion (Article 179).

Expanded Categories of Vulnerability:

Compared to the old law, this provision expands the categories of personal vulnerability that may give rise to an exploitation claim:

• Urgent Need: Financial necessity or time pressure
• Obvious Recklessness: Demonstrated lack of commercial judgment
• Intense Passion: Emotional state affecting rational decision-making
• Inexperience: Lack of knowledge or sophistication in relevant business matters
• Obvious Weakness: Physical, mental, or circumstantial vulnerability
• Moral Sway: Undue influence based on personal relationship or authority

The reference to ‘apparent weakness’ and ‘moral influence’ recognise that exploitation can arise from a variety of personal circumstances beyond mere financial necessity, thus providing increased protection to vulnerable parties consistent with UAE contract good faith requirements.

Special Rules for Donations:

For donations (gratuitous contracts), proven exploitation allows the donor to cancel the gift or lower its value. Claims must be filed within one year of concluding the contract (or when the exploitative condition ends, if ongoing), but no later than three years from the conclusion of the contract (Article 179).

Standardized Contract Terms and Good Faith

In addition to requirements of performance in good faith and in accordance to laws, customs and the nature of the obligation, the New Civil Code further stipulates that where standardised contract templates are used to draft the contract, any added terms will prevail over the original terms (even if said original terms are not struck out), unless the law does not allow derogation from the original terms (Article 221). These developments fall in line with the UAE’s aims to align with international contracting standards and give effect to the parties’ true intentions.

Strengthened Good Faith Performance Obligation:

Furthermore, the New Civil Code reaffirms and strengthens the foundational principle that contracts must be performed in good faith. Although Article 221 mirrors the equivalent provision in the Old Civil Code (Article 246), it takes on greater significance in the context of the broader good faith framework introduced by the New Civil Code. Good faith is now a concept that exists through the entire life of a contract, from the opening of negotiations (Article 121), through disclosure obligations (Article 122), into interpretation (Article 120), and through performance (Article 221). It is no longer possible to treat good faith as a supplementary standard; the New Civil Code has made it a central principle of UAE contract good faith requirements.

Contracts of Adhesion: Enhanced Protections

The Old Civil Code recognised contracts of adhesion and contained provisions allowing a court to modify or exempt a party from arbitrary conditions in such contracts (Old Civil Code Article 248). However, the protections were relatively sparse, and the definition of an adhesion contract was not consistently articulated.

Clearer Definition:

The New Civil Code provides a more coherent and protective framework for parties to adhesion contracts. A contract of adhesion is defined as one whose general terms are predetermined by one of the parties and are non-negotiable (Article 118(2)), which is a clearer definition than was previously available.

Reinforced Protections:

The protections against unfair terms in adhesion contracts are reinforced in several ways:

1. Interpretation Against Drafter: Article 120 provides that doubt in ambiguous clauses in contracts of adhesion must not be interpreted to the detriment of the adhering party. This is reinforced by requiring that ambiguity be resolved in favour of the weaker party.
2. Limited Scope of Acceptance: The New Civil Code further confirms that acceptance in adhesion contracts is limited to mere adherence to uniform terms; there is no scope for negotiation, and no assumption can be made that the adhering party assented to terms they had no opportunity to discuss (Article 134).
3. Judicial Power to Modify: Most significantly, Article 223 of the New Civil Code (in terms broadly similar to Article 248 of the Old Civil Code) confirms that where an adhesion contract contains arbitrary (unfair) clauses, the court can modify such clauses or exempt the adhering party from them, depending on whichever solution achieves the most just outcome. Any agreement to the contrary is null and void, making this a non-waivable judicial power.

The effect of these provisions together creates a coherent framework for the protection of parties who have no realistic opportunity to negotiate their contractual terms, thus providing greater protections for consumers and small businesses dealing with large commercial parties.

Nullity and Dissolution of Contracts

Voidable Contract:

The Old Civil Code stipulated that a transaction must be suspended until authorised where: the contract is made by an unauthorized person dealing with another’s property, when an owner transacts property subject to third-party rights, when someone with diminished capacity enters a deal fluctuating between benefit and detriment involving their own property, the contract is entered under duress, or as specified by law.

Under the New Civil Code, such agreements are not automatically suspended; they are voidable, meaning such contracts will automatically take effect unless annulled (then treated as never existing) or ratified (effective from the start, without harming third-party rights) (Article 188), thus requiring action from the affected person or their guardian to stop the contract taking effect (Article 189).

Ratification and Annulment Rights:

Remaining the same as the Old Civil Code, voidable contracts can be ratified by the owner, rights holder, guardian, trustee, person regaining capacity, coerced party post-duress, or legally authorized individual, thus making the contract binding. However the New Civil Code adds that now, only the entitled party can seek annulment; ratification (express or implied) waives that right for the specific defect, and courts must grant annulment if invoked unless the law states otherwise. The counterparty cannot claim annulment (Article 189).

Time Limits:

Interested parties can send a notice to the party entitled to annul the contract, directing them to affirm their annulment intent within 90+ days. Silence, without a valid excuse, forfeits the right (Article 190). Annulment rights expire after one year if not invoked (unless otherwise specified), starting from: diminished capacity ending, date of mistake/lesion discovery, duress cessation, or exploitation at contract date. The overall cap for annulment is 15 years for mistake, lesion, or duress (Article 191).

These changes will help to reduce automatic transaction delays, improving commercial certainty for property transactions and placing the responsibility on owners and guardians to take appropriate action within the prescribed time limits.

Effects of Contract Nullity or Annulment:

The Old Civil Code merely specifies that the annulment or nullity of a contract shall result in the parties being restored to their status prior to the conclusion of the contract, or where restoration is impossible, parties may be awarded compensation. The New Civil Code adds to this, stipulating that a discerning minor, upon annulment of a contract due to their diminished capacity (where legally allowed), only needs to return the benefits actually received from the contract’s performance (Article 192).

If only part of a contract is void or voidable, just that portion fails, unless the contract wouldn’t have been made without it, in which case the whole contract is void. However, if a void/voidable contract still meets the core requirements of a different valid contract, it stands as the alternative contract, assuming the parties intended it (Article 193).

Contract Dissolution

Mutual Rescission (Iqala):

Parties may mutually agree to rescind (Iqala) a contract after formation, subject to general contract conditions. Partial rescission is allowed, proportional to the subject matter and consideration, however full rescission requires the ability to restore both parties to the pre-contract status quo. For contracting parties, Iqala acts as contract rescission, but acts as a new contract in respect to third parties (Article 233).

Breach-Based Dissolution:

The Old Civil Code permits the non-breaching party in bilateral contracts to formally notify the debtor of non-performance, then seek court-ordered specific performance, rescission, a grace period, or damages as the court deems justified, offering broad judicial discretion without detailed limits (Old Civil Code Article 272).

The New Civil Code adds to this, similarly allowing formal notice followed by a petition for specific performance or rescission after term maturity, but adds court discretion to refuse rescission if the debtor later performs their obligations or the breach is minor compared to the whole obligation, along with possible grace periods and damages (Article 234).

As such, the new Article 234 introduces safeguards against rescission for trivial or remedied breaches, provisions which are absent in the Old Civil Code, thus prioritizing contract preservation and good faith while maintaining core remedies consistent with UAE contract good faith requirements.

Force Majeure: Expanded Remedies

The New Civil Code also brings major developments to force majeure rules. It stipulates that in bilateral contracts, complete impossibility to perform contractual obligations due to a force majeure event removes reciprocal obligations and automatically rescinds the contract (Article 236).

Partial and Temporary Impossibility:

Partial impossibility to perform allows either party to lapse that part of the agreement, or seek court rescission. Temporary impossibility to perform contractual obligations in continuous (successive) contracts allows either party to lapse that part of the contract, seek modification, or petition the court for rescission (Article 236).

The New Civil Code expands the available remedies by granting both parties (not just the creditor) rights to act, introducing contract modification as an option for temporary issues in continuous (successive) contracts, creating a flexible approach which will aid in contract preservation.

Practical Implications:

These enhanced force majeure provisions provide greater flexibility for parties facing disruption, particularly in long-term supply, distribution, and service contracts. The ability to modify rather than terminate contracts during temporary impossibility aligns with commercial reality and the good faith principle of contract preservation.

Practical Compliance Checklist for UAE Contract Good Faith Requirements

To ensure full compliance with UAE contract good faith requirements effective June 1, 2026, businesses should:

Before Entering Negotiations:

• Establish internal protocols for documenting negotiation conduct
• Train commercial teams on pre-contractual good faith obligations
• Prepare standard disclosure checklists for material information
• Implement confidentiality procedures for information received during negotiations
• Create systems for tracking negotiation communications and decisions

During Negotiations:

• Document all material information disclosed to counterparties
• Maintain records of negotiation meetings, proposals, and responses
• Avoid abrupt termination without documented commercial justification
• Disclose any information that would materially influence counterparty consent
• Respect confidentiality of information received during negotiations
• Be cautious when negotiating with parties showing signs of vulnerability (inexperience, urgent need, etc.)

When Drafting Contracts:

• Review all standard form contracts and adhesion agreements for arbitrary/unfair terms
• Ensure standardized templates allow for handwritten additions that will prevail
• Include clear good faith performance obligations
• Add explicit disclosure representations and warranties
• Consider including mutual non-waiver of statutory disclosure duties
• Draft force majeure clauses that align with new modification options

During Performance:

• Exercise contractual rights proportionately and in good faith
• Avoid termination for minor or remedied breaches
• Document performance issues and good faith attempts to resolve
• Consider contract modification before seeking rescission
• Maintain records demonstrating good faith performance

Risk Management:

• Review vulnerability of counterparties before contracting (exploitation risk)
• Obtain independent valuations to avoid gross lesion claims
• Document commercial rationale for pricing and terms
• Ensure proper authorization for agents and representatives
• Monitor time limits for annulment claims (1 year general, 15 year cap)
• Consider insurance for pre-contractual liability exposure

Key Changes Summary: UAE Contract Good Faith Requirements

Eight critical changes businesses must understand:

1. Pre-Contractual Good Faith Obligation: Negotiations must be conducted in good faith; bad faith termination creates liability for actual damages
2. Mandatory Disclosure Duties: Non-waivable obligation to disclose material information that influences counterparty consent
3. Statutory Confidentiality Protection: Unauthorized use or disclosure of confidential information obtained during negotiations creates liability
4. Expanded Exploitation Categories: Protection extends to urgent need, recklessness, passion, inexperience, weakness, and moral influence
5. Enhanced Adhesion Contract Protections: Courts have non-waivable power to modify or exempt parties from unfair adhesion terms
6. Lesion Remedies: Courts can modify contracts to eliminate gross imbalance, not just void them
7. Proportionate Termination: Courts may refuse rescission for minor or remedied breaches
8. Force Majeure Flexibility: Contract modification option for temporary impossibility in continuous contracts

Protect Your Business Under the New UAE Civil Code

The New Civil Code reshapes the contractual landscape in the UAE by embedding UAE contract good faith requirements, disclosure, and proportionality at the core of negotiation and performance. Pre-contractual conduct is now subject to statutory scrutiny. Exploitation and gross imbalance attract expanded remedies. Standard form contracts and adhesion clauses face stronger judicial control. Termination rights are moderated by proportionality and fairness principles.

Early legal review is essential to minimize exposure and preserve commercial certainty under the new regime. The obligation of good faith now permeates every stage of the contractual relationship, from the first exploratory discussion through final performance and potential termination. Businesses that fail to adapt their negotiation practices, disclosure protocols, and contract templates face significant liability exposure under the new regime.

For tailored advice and strategic support on navigating UAE contract good faith requirements, updating your negotiation protocols, and ensuring full compliance with Federal Decree-Law No. 25 of 2025 effective June 1, 2026, consulting with an experienced law firm in UAE like Economic Law Partners (ELP) ensures your commercial arrangements remain robust, enforceable, and aligned with the New Civil Code. Visit our law firm in Sharjah or contact ELP for expert guidance on all contractual and civil law matters in the UAE.

Disclaimer: This article is provided for informational purposes only and does not constitute legal advice. Federal Decree-Law No. 25 of 2025 takes effect on June 1, 2026. Readers should consult qualified legal counsel specializing in UAE contract law for advice specific to their business arrangements, negotiation practices, and contractual obligations.