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Are Contemporary Dealers Too Powerful?
In the current superheated market for contemporary art, galleries are increasingly seeking to maintain control over an artist's work, even after it has been sold. Today several dealers of contemporary art are placing a right of first refusal in their sales documents, requiring buyers to offer the art back to the dealer before selling to anyone else. Some, including dealers, maintain that these restrictions protect artists, the market and even collectors. However, critics of these contracts disagree. While the use of such restrictions is not standard practice in the market, it is also not entirely new.
"I have used these clauses on every invoice since I opened the gallery in 1990," says Andrea Rosen, of Andrea Rosen Gallery in New York, adding that the provision applies to any artist she represents. In the 1980s an unspoken taboo existed against collectors reselling contemporary art, Rosen explains, and even now dealers may refuse to deal with a collector who has resold a work by an artist the dealer represents. Instead, she continues, the right of first refusal spells out her expectations that "if a collector wants to resell a work, they'll bring it back to the gallery. I never anticipate that this would be disadvantageous to them."
Peter R. Stern, an art lawyer at the New York firm McLaughlin & Stern, says that a dealer's exclusive right to repurchase "is largely intended for galleries to obtain a percentage of any resale proceeds." Often, a gallery may give the artist a share of the proceeds, he says, adding that, "In my experience, the clauses are most often used by dealers in representing highly sought-after artists where demand exceeds supply."
Restricting the market?
Some may object that the buyback provision distorts the market for works by any particular artist.
With a right of first refusal, buyers "can't get the best price for the work on resale because they only have one place to sell it--back to the dealer," says John R. Cahill, an art lawyer with the firm Friedman Kaplan Seiler & Adelman, New York. That reduces the number of potential offers the buyer might get, compared, for example, with auctions, which can be "the best way for a particular work to realize the highest price. Auction houses can put the work on a catalogue cover and let eight billionaires compete for it," according to Cahill. Foreclosing the auction market can artificially depress both the price and market information about the price for an artist's work, he elaborates.
While such rights can protect the artist by saving a work from a low price at auction, "a price could also go through the roof at auction," points out Cahill. A right of first refusal also restricts the circulation of the artist's work to the dealer's clientele, he adds. An artist could benefit, Cahill explains, if on resale the work passed through a new dealer, who might be able to give broader exposure through contacts with museums or different collectors.
Protecting the artist?
But others close to the contemporary market say that collectors may simply see the restrictions as the way to get access to highly sought-after works. A collector who will never sell anyway, or plans to give everything to a museum, may not care about resale rights, they point out.
More important under this view is the dealer's role in controlling the market to help the artist. "Dealers legitimately are concerned about works of younger artists appearing at auction prematurely and undermining gallery pricing," says Stern.
Gilbert Edelson, a lawyer who is counsel to the New York firm Katten, Muchin, Rosenman and vice president and counsel to the Art Dealers Association of America, says, "If an artist's work is selling at rapidly increasing prices, speculators can be drawn into the market to purchase only for resale, rather than as collectors. The artist's reputation can be damaged if a work goes to auction and does poorly or doesn't sell. A repurchase right gives the dealer some market control and the artist some protection."
Brooke Oliver, an attorney for artists and principal of Brooke Oliver Law Group in San Francisco, notes that she likes to see restrictions in dealers' sales documents that benefit artists, including requirements that buyers notify the dealer of a resale or of loan requests, which she says help the artist maintain information on provenance and exhibition history. But she says that she does "not necessarily buy the idea" that contemporary works should be kept out of auctions as a matter of course, because the value of art is not always negatively impacted by an auction sale. Rather, Oliver feels that the best reason for a work to go back to the original dealer on resale is that the dealer can educate the collector about the artist and the work, and "develop the work's reputation and prestige. The dealer is looking at the art as a work for the ages," and can give it value, which helps the artist, she said. She notes that under California law, artists are to be given a percentage of the price appreciation upon each resale, and a dealer's involvement would help enforce this.
Are they enforceable?
In legal terms, some question whether a right of first refusal is even enforceable if the buyer received nothing extra in return and did not actually negotiate the provision. "Is the price discounted because the dealer got a right of first refusal? I doubt it," says Cahill. Some also question whether such a right would be enforceable if the dealer is given too long a period of time to decide whether to buy.
A dealer's documents may also state that such restrictions apply to all future owners. Some lawyers also ask whether this could be enforced where the new owner has no relationship with the dealer and has not agreed to the terms.
In the forthcoming third edition of Art Law: The Guide for Collectors, Investors, Dealers and Artists (Practicing Law Institute, New York 2005), by Ralph E. Lerner and Judith Bresler, the authors state that while a New York court in 1992 upheld a right of first refusal that had been given to Wildenstein & Co., that particular clause had been negotiated by the parties in reaching the settlement of a dispute. "Different issues" may be presented when a dealer controls the market for an artist and the buyer must comply with resale restrictions to be able to buy the art, the authors say.