While establishing and operating a small business in the UAE comes with great potential, it also requires a firm grasp of the legal terrain. This is where business contract law comes into play, as a contract is essentially the backbone of almost any business relationship.
This relates to how you can also have written agreements with suppliers, clients, or even employees to ensure not only clarity but also peace of mind. Knowing the basics of business contract law helps you steer clear of disputes and keep your business running smoothly.
Understanding What a Contract Is
——————————————————————————————————————————-
Offer:
A proposal to set forth terms between two parties.
Supported by law: Give it not just legality but also law: Under UAE Civil Code (Federal Law No. 5 of 1985) Articles 1130-1131, it is important that an offer unequivocally indicates that the offeror intends to be bound by its terms, once accepted, regarding the UAE contract or the UAE employment contract.
——————————————————————————————————————————-
Acceptance:
The other person accepts those terms.
Supported by law: UAE Civil Code, Articles 1132-1133, sets the principle that acceptance needs to be communicated to an offeror to create a binding contract, including UAE contracts and employment contracts UAE.
——————————————————————————————————————————-
Consideration:
A thing of value must be exchanged, like money, goods, or services.
Supported by law: Although UAE law does not specifically include the term consideration, it is necessary to have an exchange of value for the formation of a valid UAE contract (Article 1123) be it a UAE employment contract or any other UAE contract.
——————————————————————————————————————————-
Intention to create legal relations:
There must be an intention by both parties for the agreement to have legal ramifications.
Supported by law: Article 1123/Title 5 (UAE Civil Code) requires that both parties have an intention to be bound by their agreement in order for it to be legally enforceable–this applies to UAE contracts and employment contracts UAE.
——————————————————————————————————————————-
Legality:
The contract’s topic cannot be illegal or contravene public policy.
Supported by law: Contracts for illegal purposes or that violate public policy are void under the UAE Civil Code (Article 1132), including both UAE contracts and employment contracts UAE.
——————————————————————————————————————————-
Understanding Contracts in the UAE: A Guide to Business Contract Law
——————————————————————————————————————————-
Written Contracts:
These are highly recommended to ensure clarity and serve as evidence in disputes.
Supported by law: UAE Civil Code (Federal Law No 5 of 1985), Articles 1130-1131: Written contracts are favored for their clarity and legal enforceability.
——————————————————————————————————————————-
Oral Contracts:
These are recognized in UAE law, but can be more difficult to prove and enforce.
Supported by law: According to UAE Civil Code, Article 1134, oral contracts are permissible, albeit without written evidence it can be difficult to prove in court.
——————————————————————————————————————————-
Implied Contracts:
The terms of these contracts are established through actions or conduct but are open to interpretation.
Supported by law: Article 1136 of the UAE Civil Code recognizes that contracts can be implied by the conduct of the parties involved even if it is open to debate how the two parties had interpretation.
——————————————————————————————————————————-
Overview of Common Contract Types in the UAE
Employment Contracts:
These contracts are governed by UAE Labour Law.
Supported by law: The UAE Labour Law (Federal Law No. 8 of 1980) prescribes minimum requirements for employment contracts, such as compensation, working hours, vacations, and grounds for termination, to comply with regulations.
——————————————————————————————————————————-
Commercial Agreements:
These are contracts with vendors, suppliers, and clients.
Supported by law: Federal Law No. 5 of 1985 (The UAE Civil Code), Articles 871–884, deals with commercial agreements including terms like payment and delivery and service scope.
——————————————————————————————————————————-
Commercial Lease Agreements:
These contracts govern the rental of commercial spaces or offices.
Supported by law: The UAE Civil Code, Articles 692-694, sets out the legal framework for lease agreements, including payment.
——————————————————————————————————————————-
Non-Disclosure Agreements (NDAs):
These agreements are used to keep sensitive business information private.
Supported by law: UAE Penal Code (Federal Law No. 3 of 1987) and UAE Civil Code, Article 950, protect confidential information and prevent unauthorized disclosure of trade secrets and proprietary data.
——————————————————————————————————————————-
Service Contracts:
A service contract outlines the services to be performed, the duration of the contract, and compensation.
Supported by law: UAE Civil Code (Federal Law No 5 of 1985) Article 879-888 governs service contracts and ensures transparency.
——————————————————————————————————————————-
Conclusion
Working knowledge of business contract law is essential for any small business in the UAE to run efficiently and prevent disputes. Key points include:
For a contract to be valid, its essential elements which include offer, acceptance, consideration, intention to create legal relations, and legality must be clear.
Contracts are formal agreements that can help outline business relationships, and written contracts are the most clear-cut way to go, being easy to enforce through the legal system, but oral and implied contracts are still recognized in the US, although more difficult to prove.
Examples of an employment contract, commercial agreements, lease agreements, NDAs, and service contracts are common in the UAE where the UAE directions govern them.
Following these principles, and properly structuring contracts, will protect businesses from noncompliance and the dangers.
Having said that, Contact Khairallah Advocates & Legal Consultants and benefit from our free 30-min legal consultation.
*Disclaimer: our blogs, law updates and FAQ’s are freely distributed for educational purposes and to showcase recent updates and regulations in the UAE’s framework.
If you have any questions and need assistance, contact us at our number or book an appointment online.
