A commercial contract in the UAE cannot generally be ended simply because one party no longer wants to continue the relationship. Contract termination under UAE Civil Code principles requires a recognised contractual or legal basis, and the procedure followed can be as important as the reason for termination. Depending on the circumstances, a contract may be brought to an end by mutual agreement, following non-performance, through an agreed termination mechanism, by judicial rescission, or where performance becomes legally impossible.
For businesses, the key question is therefore not merely whether something has gone wrong, but whether the circumstances establish a valid basis for ending the contract under the agreement and applicable UAE law.
This article provides general legal information and does not constitute legal advice. Each situation will depend on the terms of the relevant contract and the particular facts and circumstances.
What Has Changed Under the New UAE Civil Code?
The UAE’s federal contractual framework has changed through Federal Decree Law No. 25 of 2025 Promulgating the Civil Transactions Law (the “New Civil Transactions Law”), which replaces the previous Civil Transactions Law and came into force on 1 June 2026.
For businesses considering termination of contracts under UAE law, the binding nature of a valid agreement remains fundamental. Article 232 provides that a valid and binding contract cannot be revoked, modified or rescinded except through mutual consent, litigation or a provision of law.
Commercial dissatisfaction, a change in business strategy or a deteriorating relationship therefore does not, by itself, release a party from its contractual obligations. A business needs to identify the contractual or statutory basis on which termination is being pursued.
What Are the Main Grounds for Contract Termination in the UAE?
The grounds for contract termination in the UAE that businesses may encounter differ according to the agreement and circumstances. Several routes are particularly relevant under the new Civil Transactions Law.
Termination by Mutual Agreement
Where both parties agree that the commercial relationship should end, Article 233 recognises mutual rescission after the contract has been concluded.
Even where termination is consensual, the parties should determine what happens to outstanding payments, work already completed, goods or property transferred and rights that accrued before termination. Confidentiality, dispute resolution and other provisions may also be intended to continue after the principal relationship ends.
A documented mutual termination of a contract in the UAE arrangement can therefore establish not only when the contract ends, but how outstanding rights and obligations will be handled.
Termination Following Breach or Non Performance
Commercial termination disputes frequently arise when a party fails to pay, deliver goods, provide services or perform another contractual obligation when due.
A breach of contract under UAE law, however, should not automatically be treated as an unrestricted right to terminate.
Article 234 addresses non-performance in bilateral contracts. Where an obligation has fallen due, and one party fails to perform, the other party may, after giving notice, ask the court to order performance or rescission. The legislation also allows the court to grant additional time for performance in appropriate circumstances and to refuse rescission where the unperformed obligation is minor in relation to the obligation as a whole.
To terminate due to breach of contract in the UAE, it is important to consider the nature and extent of the non-performance of contractual obligations. Businesses should therefore precisely identify which contractual obligation has not been performed, assess the significance of that non-performance and determine whether the contract or applicable law provides a basis for termination or rescission.
How Does a Termination Clause Affect the Right to End a Contract?
Commercial contracts commonly contain termination provisions specifying the circumstances in which either party may bring the contractual relationship to an end. This clause details the specific situations under which either party can end the contract. The provisions may establish events that trigger termination, the period allowed for cure, and how notice must be given.
Article 235 permits parties to agree that a contract will be automatically rescinded, without requiring a judicial judgment, following nonperformance of contractual obligations.
There is an important distinction between dispensing with a court judgment and dispensing with notice. An agreement providing for automatic rescission does not itself remove the requirement to give notice. The parties must expressly agree if they intend to waive that requirement.
This makes contractual drafting particularly significant. Before relying on a termination clause, businesses should establish whether the triggering event has occurred and whether all procedural conditions attached to the termination right have been satisfied.
Can a Contract Be Terminated Without Going to Court?
In certain circumstances, termination without a court order in the UAE may be possible, but there is no universal right to terminate a commercial contract unilaterally following a dispute.
Mutual rescission is one route that does not require a judgment. Article 235 also recognises agreed automatic rescission following nonperformance without the need for a judicial judgment.
Where no applicable contractual mechanism exists, Article 234 provides a judicial route through which a party faced with nonperformance can, following notice, seek performance or rescission.
This distinction is particularly relevant to unilateral contract termination in the UAE. A business should establish whether it is relying on mutual agreement, an express contractual provision, a statutory basis or judicial rescission before treating the contractual relationship as ended.
Why Does Notice Matter When Terminating a Contract?
A party may have legitimate concerns about contractual performance but still create additional legal issues by failing to follow the required termination procedure.
Under Article 234, notice forms part of the process before seeking performance or rescission for non performance. Article 235 also maintains the notice requirement for agreed automatic rescission unless the parties expressly agree otherwise.
A commercial contract may impose additional requirements governing the notice of contract termination under UAE law, including who must receive it, the permitted delivery method, the information it must contain and whether the defaulting party has a period in which to remedy the breach.
Businesses should therefore review notice provisions before communicating that an agreement has been terminated. Procedural compliance can be central to determining whether a termination mechanism has been properly exercised.
Can Force Majeure Result in Contract Termination?
Not every failure to perform results from a contractual breach. An external event may make performance impossible.
Article 236 provides that where force majeure makes an obligation under a bilateral contract impossible to perform, the corresponding obligation is extinguished and the contract is automatically rescinded. The legislation also addresses partial impossibility and temporary impossibility in continuing contracts.
However, force majeure contract termination in the UAE should not be assumed merely because performance has become more expensive, inconvenient or commercially difficult. The nature of the event, its actual effect on performance, the statutory requirements and the agreement’s own force majeure provisions require consideration.
The distinction between difficulty and legal impossibility can therefore be critical when deciding whether an external event brings contractual obligations to an end.
What Happens After a Commercial Contract Is Terminated?
Termination may stop future contractual performance, but it does not necessarily eliminate rights or liabilities that have already arisen.
The consequences of contract termination under UAE law may involve outstanding payments, accrued rights, benefits already transferred, continuing contractual provisions and potential compensation. Confidentiality, dispute resolution and other clauses may remain relevant depending on the agreement and applicable law.
Termination and damages are also separate questions. Article 234 permits a court to award compensation where justified, but rescission does not automatically create an entitlement to damages for breach of contract in the UAE. Any compensation claim requires its own legal basis and assessment.
Businesses should consequently consider the post termination position before exercising a termination right rather than waiting until the commercial relationship has already ended.
What Should a Business Check Before Terminating a Contract?
Before taking action, a business should review:
- Governing law: Which legal framework applies to the agreement?
- Ground for termination: What contractual or statutory basis is being relied upon?
- Nature of the breach: Which obligation has not been performed and how significant is it?
- Termination clause: Does the agreement provide a specific mechanism?
- Notice and cure period: Must notice or an opportunity to remedy the breach be provided?
- Court involvement: Is judicial rescission required in the circumstances?
- Financial consequences: What payments, accrued rights or potential claims remain?
- Surviving obligations: Which contractual provisions continue after termination?
Reviewing these issues with a contract lawyer before sending a termination notice can help a business understand both the legal basis for its proposed action and the potential consequences if that position is challenged.
Contract Termination Under the UAE Civil Code: Why the Legal Basis Matters
The new Civil Transactions framework provides several mechanisms through which commercial agreements may come to an end, but contract termination under UAE Civil Code rules does not depend on one universal test. Mutual agreement, contractual termination provisions, non performance, judicial rescission and impossibility caused by force majeure each involve different legal and procedural requirements.
For businesses, the appropriate starting point is the contract itself: identify the legal ground, examine the relevant provisions, follow any required procedure and assess what rights or liabilities may remain after termination.
Businesses considering terminating a commercial agreement, responding to a termination notice or dealing with contractual non performance can seek advice from Davidson & Co on their rights, obligations and available options under the UAE contract law.
