Pre-Contractual Good Faith and Disclosure
Articles 121 to 123 of Federal Decree-Law No. 25 of 2025 — new duties with no equivalent in the 1985 Code

The 1985 Civil Code said nothing about how parties must behave before a contract is made. Negotiation was governed by the general law of obligations and, in practice, by the maxim that a party dealt at arm's length until it signed. On 1 June 2026 that changed: Federal Decree-Law No. 25 of 2025 introduced a codified pre-contractual regime at Articles 121 to 123 — good faith in negotiation, a duty to disclose, and a statutory duty of confidence.

This is the most consequential addition in the new Law for transactional practice, and it is under-appreciated because it sits in the general part rather than in any nominate contract. It applies to every negotiation governed by UAE law: share and asset purchases, joint ventures, franchise and distribution, finance, supply, construction tenders and off-plan sales alike.

1. Article 121 — good faith in negotiating, and in walking away

Article 121(1) states the duty broadly: "The proposal of pre-contractual negotiations, their conduct, and their termination must be in accordance with the requirements of good faith."

Three stages are caught — proposing, conducting, terminating. Breaking off negotiations is as much within the duty as entering them.

Article 121(2) then preserves freedom of contract: "If a contract is negotiated, the negotiations do not create an obligation on the parties to conclude such contract." There is no duty to sign, and no implied agreement from advanced negotiations alone.

The remedy is deliberately limited

Article 121(3) is where the provision shows its design:

So the measure is reliance, not expectation. A party who incurs due diligence costs, adviser fees, travel, or who takes an asset off the market, can recover those. A party who hoped to make a margin on the deal cannot recover it, and cannot recover the value of an alternative transaction it says it passed up.

That is a sensible limit, and it shapes how the claim is run. The pleading has to be built on vouched outgoings and demonstrable wasted expenditure, not on a model of the deal that did not happen. For the party breaking off, it also bounds the exposure: bad-faith termination is expensive, but it is not a route to the counterparty's lost profit.

What bad faith looks like

The Law does not define it, but the structure suggests the paradigm cases: negotiating with no intention of concluding; continuing negotiations to keep a counterparty off the market while pursuing another deal; and terminating for a reason that was known and concealed throughout.

2. Article 122 — the duty to disclose

This is the provision that most changes transactional practice.

The duty has three limbs and each must be worked through.

Note that the trigger is disjunctive. A party cannot defeat the duty merely by showing the counterparty was well advised, if that counterparty placed its trust in them — which is the ordinary position where one side holds the operational history of the business or the asset.

It compounds with misrepresentation

Article 171 provides that deliberate silence about a fact or circumstance is misrepresentation where it is proven the deceived party would not have concluded the contract had it known. Article 172 then allows annulment where misrepresentation is coupled with gross lesion — defined by Article 173 as an imbalance falling outside the range of valuation by experts, as opposed to slight lesion within it.

So non-disclosure runs on two tracks of different strength:

• Article 122 — a freestanding duty, sounding in damages. Lower threshold, lesser remedy.
• Articles 171 to 173 — annulment, but only where the silence was deliberate and the bargain falls outside the expert valuation range.

Article 179 adds a third route where one party exploits another's urgent need, obvious recklessness, unbridled passion, lack of experience, apparent weakness or a moral influence, and the contract involves an exorbitant disproportion between obligations and benefit. The remedy there is annulment or reduction of the obligations — and the reduction limb is the practically useful one, because it does not require unwinding a completed transaction.

3. Article 123 — a statutory duty of confidence

Short, and widely missed:

Four features are worth drawing out.

• "Uses or discloses." Misuse is caught as well as leakage. A party that takes a target's customer list or pricing model into its own business, without telling anyone, is within the provision.
• "During negotiations or the contract." It covers the pre-contractual phase, which is exactly the period a signed NDA is meant to cover and sometimes does not reach — preliminary conversations, teasers, management meetings before documentation.
• "Anyone." Not limited to a party. On its face it reaches advisers and others who obtain the information in the process.
• No NDA required. The liability arises from the Law, so a party that failed to get a confidentiality agreement signed, or whose NDA expired, is not without a remedy.

Article 123 does not displace the value of a well-drafted NDA, which still does work the statute does not: defining what is confidential, setting a duration, specifying permitted recipients, providing for return or destruction, and fixing remedies and forum. But it does mean the absence of one is no longer fatal, and it gives a claimant a statutory anchor alongside the contractual claim.

4. Good faith does not stop at signature: Article 221

Article 221(1) carries the duty into performance: "A contract must be performed in accordance with its contents and in a manner consistent with the requirements of good faith." Article 221(2) adds that a contract binds the parties not only to its express terms but to its requirements "in accordance with the law, custom, and the nature of the obligation".

Together with Articles 121 and 122, that produces an unbroken good-faith obligation from the first approach to final performance — which is a materially different landscape from the one practitioners worked in before June 2026.

Article 221(3): added terms beat the printed form

This is a rule of construction with real commercial consequences, because the UAE market runs on templates: developer sale agreements, landlord leases, bank facility documents, supplier terms, insurance policies.

• A typed-in special condition or a schedule amendment governs over the inconsistent printed clause, without the printed clause being deleted.
• Negotiated side letters that vary a standard form are strengthened, not weakened, by sitting outside the body of the document.
• For the party issuing the template, the discipline is to reconcile added terms with the base text rather than relying on an entire-agreement or order-of-precedence clause to do it.

5. What this changes in practice

Due diligence

The historic UAE position — no centralised public company register, no general statutory disclosure duty — made buyer-side diligence structurally harder than in common law jurisdictions, and warranties and indemnities carried the whole load. Article 122 narrows that gap without closing it. It does not reach negligent or innocent misrepresentation, so warranties, indemnities and price-adjustment mechanisms remain essential. What it adds is a statutory floor beneath them.

The practical move for a buyer is to convert the duty into a record. Article 122 bites on information the seller is aware of; a specific written question makes any subsequent silence deliberate, which moves the claim from Article 122 into Article 171 territory. A broad request for "all material information" does far less work than twenty precise questions.

Auction and competitive processes

Running a competitive process does not dilute the duty, and Article 121 reaches the termination of negotiations with each bidder, not only the winner. A seller that keeps an underbidder engaged purely to pressure the front-runner is exposed to a reliance claim for that bidder's wasted costs.

Documentation

Two clauses deserve rethinking:

• Non-reliance and entire-agreement clauses. They continue to operate on contractual claims, but Article 122 is a statutory duty and Article 224's "any agreement to the contrary shall be null and void" shows the drafter is willing to disapply contrary agreements where it intends to. Do not assume boilerplate disposes of the pre-contractual regime.
• Order-of-precedence clauses in template contracts. Article 221(3) already gives added terms priority. A precedence clause that reverses that outcome is working against the Law.

Transitional

Article 4(1) preserves non-retroactivity: the Law does not apply to facts and transactions preceding 1 June 2026. Negotiations conducted and concluded before that date are not retrospectively subject to Articles 121 to 123. Negotiations that straddle the date are the live question, and parties on both sides should assume the duty applies to conduct after it.

6. Checklists

Buyer / recipient of information

• Ask precise written questions rather than general ones. Specificity is what converts later silence into deliberate silence under Article 171.
• Keep the record of what was asked and what was answered; the Article 122 claim is built on awareness and the file is the evidence of it.
• Do not treat Article 122 as a substitute for warranties and indemnities — it does not reach negligent or innocent misrepresentation.
• Price your reliance costs as you incur them. Article 121(3) recovers actual damage, so vouched outgoings are the claim.
• Read any template contract knowing that your negotiated additions prevail under Article 221(3), even over printed terms left in place.

Seller / holder of information

• Run a disclosure exercise and record it. Article 122 bites on what you are aware of, and the file is the defence.
• Identify information with a "direct and necessary connection to the content of the contract or the status of the parties" — title and encumbrances, solvency, authority, regulatory standing, known claims, programme risk.
• In a competitive process, terminate with each bidder in good faith and on a recorded basis; Article 121 covers termination.
• Do not rely on a non-reliance clause to displace a statutory duty.

Everyone

• Treat Article 123 as a baseline duty of confidence that applies with or without an NDA — and still sign the NDA, for scope, duration and remedies.
• Note that Article 123 reaches use, not only disclosure.
• For negotiations straddling 1 June 2026, assume the regime applies to conduct after that date.

Primary sources

Every provision quoted above is taken from the instruments below. Links go to the official consolidated text, not to secondary commentary.

• Federal Decree-Law No. 25 of 2025 issuing the Civil Transactions Law — Arts 121–123 pre-contractual duties; 170–173 misrepresentation and lesion; 179 exploitation; 221 good faith in performance
• UAE Ministry of Justice — laws and legislation — consolidated Arabic text, which governs over any English rendering
• UAE Government Portal — justice, safety and the law — federal legislation and the Official Gazette

Questions we are asked

Related guides in the library

• Off-Plan Sale and Developer Obligations
• Limitation, Hardship and Impossibility
• UAE Shareholder Disputes

Published 2026-10-03. General information only — not legal advice. Contact us for matter-specific advice.