Galymzhan Alpeis July 24, 2026July 24, 2026 What if the biggest legal risk in your next deal has nothing to do with the contract itself? Most businesses assume that legal obligations only kick in once a contract is signed. Under the new UAE Civil Code, that assumption no longer holds up. Think about how much happens before anyone reaches for a pen. Advisers get instructed. Due diligence teams dig through data rooms for weeks. Site visits happen. Internal approvals get chased down. And sometimes, after all of that, the deal simply does not happen. Price cannot be agreed, financing does not come through, or priorities shift. That is normal. That is business. The law has never had a problem with a negotiation that just does not work out. What is new is a different question entirely: was the negotiation itself conducted properly? Federal Decree-Law No. 25 of 2025, Promulgating the Civil Transactions Law, took effect on June 1, 2026, and it changes the picture in a way every business negotiating in the UAE should understand. For the first time, the law expressly regulates how parties conduct themselves while negotiating a contract, not just after they sign one. This is worth getting familiar with before your next big negotiation, not after a dispute has already landed on your desk. Freedom to Negotiate, Freedom to Walk Away Here is the good news first. Nothing about this changes your basic freedom to negotiate hard, hold your ground, or walk away when a deal stops making sense. The new Civil Code does not force anyone to sign a contract just because talks have started, and it does not punish a negotiation that ends without a deal. What it does is set clearer expectations for how the process itself should run, and how it should be brought to a close, for everyone at the table. What Does Good Faith Actually Mean? Article 121 Article 121 says negotiations must be started, conducted, and ended in good faith. There is no rigid checklist attached to that phrase, and whether particular conduct measures up will always come down to the specific facts. Broadly speaking, though, it points to dealing honestly, avoiding conduct designed to mislead, and using the negotiation process for what it is meant for: genuinely trying to reach an agreement. A few situations that could raise questions, purely as illustrations: entering or continuing talks with no real intention of ever concluding a deal letting a counterparty keep spending money after quietly deciding not to proceed repeating assurances that are already known to be out of date stretching out a negotiation on purpose to gain leverage sitting on information that would affect whether the deal makes sense at all Here is the part worth underlining twice: a negotiation that simply does not work out is not a bad faith negotiation. Tough bargaining, hard deadlines, walking away, changing your mind, all of that remains completely fair game. The law is aimed at something much narrower: dishonesty or an improper motive, not the ordinary friction of getting a deal done. Walking Away Is Still Completely Fine Nothing here requires anyone to finish a deal just because talks began. There are countless legitimate reasons a negotiation can end: a price gap that will not close, financing that falls through, due diligence turning up something unexpected, or priorities changing on either side. What tends to matter, if a dispute ever comes up later, is how things were handled and why they ended. A simple habit worth building into any important negotiation is jotting down, at the time, the real commercial reason for stepping back. It costs almost nothing to do, and it can make all the difference if that reasoning is ever questioned months down the line. When Staying Quiet Becomes a Problem: Article 122 Article 122 adds something new to the mix. In certain situations, a party may need to disclose information that would be decisive to the other side’s decision to go ahead. This tends to matter most where one party holds information the other genuinely could not be expected to find on its own, or where one side has placed real trust in the other. Depending on the deal, this could touch on things like: who actually owns the business or asset in question whether the party has the authority to sign at all required licenses, permits, or regulatory approvals known defects in a product, property, or asset material liabilities, restrictions, or encumbrances technical or operational limits that affect the proposal Not every internal worry or minor detail needs to be shared. This is about information that is genuinely material and decisive, not every line item buried in a data room. Where exactly that line sits will depend on the deal, and it is often exactly the kind of question worth raising with a lawyer early rather than late. Here is the detail that changes how contracts should be drafted going forward: parties cannot simply write their way out of this obligation. A clause trying to exclude or limit the duty to disclose would be at serious risk of being void, and a bad enough failure to disclose could let the other party unwind the whole contract. That means familiar tools like “entire agreement” and “non-reliance” clauses should not be treated as a free pass around this rule. What Could It Actually Cost? If a party is found to have fallen short of good faith while negotiating or ending a negotiation, a court can order compensation for the actual loss this caused. Depending on the facts and the evidence, that could mean wasted legal and advisory fees, due diligence costs, travel expenses, or other money spent preparing for a deal that never happened. There is an important limit worth knowing about, and it cuts both ways. Compensation generally will not stretch to cover the profits someone hoped to make from the deal, or the value of that missed opportunity, unless the parties agreed otherwise up front. This is about recovering real, out of pocket losses, not handing someone the upside of a deal that was never signed. Confidentiality Cuts Both Ways None of this is one directional. Just because a party might need to disclose something important does not mean the other side gets to do whatever it wants with that information. Article 123 says that using or sharing confidential information picked up during negotiations, without permission, can create liability. This shows up most often in acquisitions, joint ventures, tenders, technology deals, and anything else involving sensitive commercial or technical information, and it protects whoever is holding the sensitive material at any given moment, regardless of which side of the table they sit on. That statutory protection is a helpful backstop, but it should not replace a properly drafted non disclosure agreement. A good NDA still does the real work: spelling out what counts as confidential, who gets to see it, how it can be used, and what happens to it if talks end. A Few Habits Worth Building In None of this means negotiations have suddenly become dangerous. It just means a handful of simple habits are worth adopting, for any business, on either side of the table: mark discussions and early drafts as “subject to contract” from day one put important disclosures in writing, and get the details right keep a running, contemporaneous note of key assumptions and assurances as things progress correct anything that turns out to be inaccurate as soon as you know jot down the real reason for stepping back from a deal, at the time it happens use NDAs, term sheets, and letters of intent that actually fit the transaction make sure the people at the table, not just the legal team, understand these rules Worth remembering too: a “non-binding” term sheet confirms nobody has to finish the deal, but it does not give anyone a free pass to act in bad faith, hide decisive information, or misuse confidential material shared along the way. The Bottom Line Under the new UAE Civil Code, legal risk can start well before anyone signs anything, and that applies equally to every party at the table. This is not a reason to negotiate any less firmly. It is simply a reason to be thoughtful about how a negotiation runs, what gets shared, and why it ends the way it does. Fichte & Co helps businesses and investors get this right, from term sheets and confidentiality arrangements to disclosure exercises, negotiation strategy, and pre-contractual risk assessment. Getting advice early, while a deal is still taking shape, tends to be far more valuable than getting it after something has already gone wrong. This article is intended to provide general guidance on the new UAE Civil Code and does not constitute legal advice. Whether particular conduct or circumstances give rise to liability will depend on the specific facts. Businesses should seek tailored legal advice before relying on the points discussed above.
