Many aspects of the art business world attract criticism or attack for being slippery and opaque, none more so than in the realm of sales transactions where privacy and discretion are paramount.
First sales of artwork directly by artists or via their agents/dealers are known in the contemporary art market as studio or primary sales to distinguish them from secondary sales or resales. Forty years ago this column examined legal and business problems related to such sales by considering the so-called Silent Contract, a phenomenon which UK law would judge to have been created even when a purchase agreement had not been recorded in writing (Artlaw AM7). In those days, it was common practice for primary sales to be completed without any written documentation evidencing that the deal had taken place, let alone recording its terms and conditions.
Such silence continued to be common primary sales practice through subsequent decades, but procedures have improved in recent times – chiefly because first buyers came to realise that when they wanted to resell, secondary buyers and art market professionals required written authentication signed by the artist. However, such authentication certificates do not customarily include terms and conditions of primary sales, which continue to remain unspoken and unwritten.
The consequences of this continuing silence about terms and conditions of primary sales can be profoundly damaging: to the lives of the artwork and artist through their journeys into the future; to first and successive secondary buyers (and their heirs/estates); to art market professionals involved in transactions; to acquiring museum and gallery institutions; to investors; to authentication experts, researchers and academics; and to conservators and restorers. The following typical recurring scenarios illustrate reasons why.
Artwork inevitably deteriorates over time, especially when created using non-traditional and ephemeral materials, and guidance for its ongoing care and maintenance (including sound environmental conditions) should be provided by the artist at the time of sale. Similarly, assembly and disassembly instructions may be needed for safe transportation and display, and artists and new owners should also agree arrangements for future restoration/repair and/or replacement of parts.
Silence on these matters at point of sale leaves artists and new owners without agreement on the best course of conduct to address future problems, and exposes artwork to risks of being neglected or treated inappropriately. Such risks can damage an artist’s reputation and standing: a new owner may complain directly to the artist (or more widely) alleging failure to exercise professional skill and judgement in making and selling work. Or an artist may allege that a new owner has deliberately or carelessly mistreated an artwork, and thereby damaged its integrity and that of the artist. These risks could be avoided or mitigated through use of written conditions of sale agreed between artist and new owner, especially if the artist provides a care and maintenance manual to accompany the artwork.
When making a direct studio sale, artists will sometimes agree a percentage discount from the normal market price for an artwork (on the basis that a percentage of the purchase price would not be lost as a commission fee owed to a selling agent/dealer). And in return artists might ask collectors to agree a condition of sale giving the artist (or their estate) first option to buy the artwork back at a fair market value in future. Many collectors will agree to such a buy-back condition’s inclusion in a written contract of sale; but some do not agree, which for the artist may be a deal-breaker. Other collectors agree verbally to a buy-back condition, but refuse to include it in a written contract of sale; this may also be a deal-breaker for artists, because they do not want to risk such collectors reneging on their verbal promise in the future.
Sometimes artists rely on a belief that they have an automatic legal right to buy-back even where there is no recorded agreement to do so (especially where there is a substantial rise in the resale purchase price).There is no such automatic legal buy-back right, which is one of the key reasons why Artists Resale Rights were introduced into law on a consistent basis throughout the EU in 2006, giving EU artists an automatic legal right to be paid a small percentage of the price of works resold by art market professionals in the EU.
There are also common myths and misunderstandings about copyright, the principal intellectual property right automatically given by law to artists. For the avoidance of future disputes it is good practice to include in written contracts of sale that the artist owns and retains copyright and all other intellectual property rights in the artwork; and that the collector needs the artist’s prior written consent for any reproduction or other merchandising of copies of the artwork (or versions of it) in any dimensions and mediums (mechanical or digital). Collectors are then well informed about what they have bought and now own: the artwork; but not the legal right to reproduce or otherwise merchandise it.
But the contractual silence is breaking, for a variety of reasons. It is now becoming increasingly common for buyers (especially of high value artworks) to require written conditions of primary sale. For example, collectors and/or investors often wish the fact of the sale, and especially its purchase price, to remain secret; in which case confidentiality provisions should be included in a written contract of sale. And under the Anglo-American legal system, written or oral agreements or representations or undertakings between the transacting parties may be taken into account by courts deciding disputes; for this reason it is common business practice to include in a written contract a term stating that its provisions contain the whole agreement between the parties and supersedes anything previously said, written or done in relation to the transaction.
The contemporary art market’s global reach substantially increases the likelihood that parties to a sale are located in different continents or countries or states, in which case their respective interests are best served by including in a written contract of sale a term agreeing their ‘choice of governing law’ in the event of legal disputes. This requires the parties to choose and name one state whose laws and courts they agree to use in the event of legal action being taken by either party. For example: a London-based artist selling directly to a New York City-based collector could agree to name the laws and courts of England and Wales, or of New York State, as the chosen legal jurisdiction for disputes. Such arrangements avoid expensively complicated legal diagnosis and advice from each party’s own lawyers to determine which legal jurisdiction is appropriate, before the merits of each party’s case can then be addressed according to the laws of that jurisdiction.
In current trading conditions artists who have an established reputation and standing in the contemporary art market place have greater bargaining power than less established ones when negotiating conditions of sale themselves or via their agents/dealers. Such artists can and increasingly do persuade eager purchasers to agree to written conditions of sale. Less established artists and virgin collectors would be wise to consider doing likewise, because it is now high time for this continuing silence to end.
© Henry Lydiate 2017