Contract termination under UAE law depends first on when the agreement was entered into. Federal Decree-Law No. 25 of 2025 came into force on 1 June 2026, while the repealed 1985 Civil Code generally continues to govern contracts formed before that date.
The core rule remains that a valid contract cannot be ended unilaterally merely because one party wants to leave. Mutual consent, a court order, or a specific legal provision remains the basic structure, with good faith and penalty-clause review requiring careful attention under the new framework.
Federal Decree-Law No. 25 of 2025 has governed contracts entered into on or after 1 June 2026. Contracts entered into before that date generally remain under Federal Law No. 5 of 1985 and its Articles 267 to 272 termination framework.
Under the old framework, Article 267 limited termination to mutual consent, a court order, or a legal provision. Article 271 allowed agreed automatic termination on notice after breach, while Article 272 allowed a court to order performance instead of granting termination.
The new law carries forward the rule against unilateral termination and adds an express good-faith duty under Article 121 through negotiation, performance, and termination. Article 340(4) is highlighted for court review of contractual penalties, including construction delay and early-termination provisions.
Faris Raian is the Founder, Managing Partner, and Senior Legal Consultant at Leaders Advocates. He brings more than 15 years of experience across commercial, corporate, real estate, family, and criminal law in UAE courts, with experience relevant to commercial contracts, termination disputes, corporate advice, and UAE court proceedings.
The Old Law Isn’t Current Law Anymore, but It Still Matters
This is worth being precise about. Federal Law No. 5 of 1985 is no longer the current Civil Transactions Law, it was repealed when Federal Decree-Law No. 25 of 2025 came into force on 1 June 2026. That date has already passed.
The 1985 framework, and its termination provisions under Articles 267 to 272, now apply specifically to contracts entered into before that date, as transitional law, not as the current governing framework going forward.
What the Old Framework Actually Said, for Contracts It Still Governs
Under the 1985 Civil Code, Article 267 set the baseline: a valid contract could only be terminated by mutual consent, a court order, or a specific provision of law, not unilaterally by either party. Article 271 let parties agree in advance that a contract would terminate automatically on notice following a breach, without needing a court order first, though formal notice was still generally required. Article 272 gave the court real discretion, even where a party had grounds to terminate, a judge could order performance instead of granting the termination requested. This framework still governs any contract genuinely entered into before 1 June 2026.
What Actually Changed Under the New Law
The new Civil Transactions Law carries forward the basic structure, unilateral termination isn’t permitted, but it adds real, new obligations on top of it. Article 121 introduces an explicit statutory duty of good faith running through every stage of a contract’s life, negotiation, conduct, and termination included. A party that negotiates or ends negotiations in bad faith before a contract is even signed can be liable for the other party’s actual losses, though not for lost profit or missed opportunity.
Penalty and Termination Clauses Are Being Looked at More Closely
Commentary on the new law specifically highlights Article 340(4) in the context of construction and delay-damages provisions, giving courts continued power to review contractual penalty clauses, including how they interact with early termination. Existing penalty and early-termination fee clauses genuinely deserve a second look under the new framework, to confirm they still reflect a genuine pre-estimate of loss rather than a figure that could be challenged.
Which Law Actually Applies to Your Contract
- Entered into before 1 June 2026: Federal Law No. 5 of 1985, including its Articles 267 to 272 termination framework
- Entered into on or after 1 June 2026: Federal Decree-Law No. 25 of 2025, the current Civil Transactions Law
- An older contract being amended, renewed, or newly performed now: Worth reviewing specifically, since the new law’s requirements may apply going forward even where the original contract predates it
Not Sure Which Law Governs Your Contract?
Getting this wrong can undermine an otherwise valid termination. Leaders Advocates can confirm whether your agreement falls under the old framework or the new one, and what that actually changes for your position.
Termination for Convenience Still Isn’t a General Right
Wanting out of a contract simply because it’s no longer commercially attractive isn’t, on its own, a recognized ground for termination under either the old or the new framework. Courts have previously carved out a narrow exception specifically for long-term construction contracts, and this remains a genuinely narrow exception, not a general principle.
Contract Termination Under UAE Law Starts With the Contract Date
The governing-law analysis begins with the contract date, but it should not end there. Identify renewals, amendments, restatements, extensions, and new performance obligations after 1 June 2026. The original source warns that an older agreement amended or renewed after the effective date deserves specific review.
Keep the executed original and every later document in chronological order. A business should not rely on the filename of the current PDF or an internal description such as old contract. The legal analysis needs the actual formation and change history.
Where the parties continued working without documenting renewal or amendment clearly, correspondence, invoices, performance, and notices may become important to understanding what relationship existed after the new law came into force.
- Original execution date and the parties who signed.
- All amendments, renewals, extensions, and replacement agreements.
- Changes to scope, price, term, penalty, or termination rights after 1 June 2026.
- The breach date, notices sent, and opportunity to remedy.
- Any conduct showing continued performance or acceptance after the alleged termination.
Follow the Contractual Notice and Remedy Process
Even where a breach exists, the contract may require a particular notice method, address, level of detail, or cure period before termination can be invoked. Skipping that process can create a dispute about the termination itself.
For contracts governed by the old law, the source identifies Article 271 as allowing parties to agree that termination occurs automatically on notice after breach without a court order, while formal notice was still generally required. The actual clause and steps should be reviewed rather than assuming that any breach makes the contract disappear.
The termination communication should identify the clause, breach, relevant notices, expiry of any remedy period, effective date, and consequences. It should avoid overstatement and remain consistent with the good-faith duty applicable under the new framework where that law governs.
About to Send a Termination Notice?
A notice that skips the contractual method, address, or cure period can create a dispute about the termination itself, even where the underlying breach is real. We can review it before it goes out.
Good Faith Now Runs Through the Contract Life Cycle
Article 121 expressly extends good faith through negotiation, performance, and termination. This means conduct before signature and during exit from the relationship can matter, not only performance of the final written obligations.
The source states that a party negotiating or ending negotiations in bad faith before a contract is signed can be liable for the other party’s actual losses, but not lost profit or missed opportunity. That distinction should be preserved when assessing pre-contract conduct.
During termination, parties should document legitimate grounds, apply contractual procedures consistently, and avoid using notice or delay strategically in a way that contradicts their stated position. Good records help show the commercial and contractual basis for the decision.
Review Penalty and Early-Termination Clauses Before Relying on Them
Article 340(4) is highlighted in commentary on the new law for continued court power to review contractual penalty clauses, including construction delay damages and their interaction with early termination. A stated amount is not necessarily beyond review merely because both parties signed it.
The clause should be compared with the loss it was intended to estimate, the breach, and the proposed termination. Existing delay damages and early-exit fees should be reviewed under the new framework rather than applied mechanically.
Termination for convenience remains outside the general rule. The source identifies a narrow court-developed exception for long-term construction contracts but warns that it is not a general principle available whenever a contract becomes commercially unattractive.
- Identify whether the clause is triggered by breach, delay, convenience, or another event.
- Check notice, cure, calculation, cap, and survival wording.
- Compare the stated amount with the loss it was intended to estimate.
- Assess how early termination affects accrued delay or penalty amounts.
- Do not treat the narrow long-term construction exception as a general convenience right.
Plan the Operational Consequences of Termination
A lawful termination notice should be supported by an operational plan. The parties may need to address accrued payments, unfinished work, return of property, access, data, confidential information, customer handover, and obligations that survive the end of the main relationship.
These consequences should be taken from the contract and documented carefully. Acting as if every obligation ended immediately can create a separate breach even where the termination ground itself was valid.
A termination strategy should therefore coordinate legal grounds, notice, timing, financial calculation, and practical handover. The business team and legal team should work from the same effective date and the same record of outstanding obligations.
Considering termination or challenging an invalid termination? Faris Raian and the team at Leaders Advocates can identify the governing law, review the clause and notice process, and assess the consequences under the applicable framework.
Common Mistakes
- Assuming the 1985 Civil Code is still the current law, when it was repealed on 1 June 2026.
- Not checking whether a contract entered into before that date has since been amended or renewed in a way that brings it under the new law.
- Assuming a breach automatically entitles you to walk away, without following a lawful route to termination under whichever law actually applies.
- Sending a termination notice without identifying the governing law, contract clause, notice method, and any cure period.
- Applying an early-termination fee mechanically without reviewing Article 340(4) and the loss it was intended to estimate.
Relevant Legal Services
A Contract Lawyer in Dubai can review the governing framework and termination clause. A Corporate Lawyer in Dubai can advise on the business and restructuring consequences. A Litigation Lawyer in Dubai can pursue or defend a termination dispute.
People Also Ask
Contract termination under UAE law requires the correct transitional framework, a lawful route, proper notice, and careful treatment of good faith and penalty clauses. A breach alone does not make unilateral exit risk-free.
Considering Termination, or Defending Against One?
Faris Raian and the team at Leaders Advocates identify the governing law, review the clause and notice process, and assess the consequences under whichever framework actually applies to your contract.
