While not new, the use of non-resale restrictions in gallery sales contracts has been particularly embraced over the past two to five years by a generation of artists whose work has come to prominence. subject of intense speculation and reversals. London-based art adviser Sibylle Rochat says “almost all transactions” she is involved in are now subject to a resale restriction. And yet, in every contemporary auction we find barely dry paintings, made since 2020, the sale of which must surely flout such a clause.
What are the resale restrictions?
The most basic restrictions state that a work cannot be resold for a certain period (usually three to five years) and/or that the gallery must be granted a first refusal. Some add that the artist must retain a certain percentage of capital. Sometimes it is even dictated that restrictions be written into the contracts of subsequent buyers. “An interesting question is: how far can you take a resale clause? says US attorney Virginia Rutledge, who has drafted numerous sales contracts. “Can you require the first buyer to pass on all your contract terms to subsequent buyers? We drafted these terms and so far have not seen them challenged.
Rutledge compares resale restrictions in contracts to prenuptial agreements
Galleries approached by The arts journal were reluctant to talk about the resale restrictions they apply, a reluctance possibly due to the fact that the terms vary from artist to artist, requirements which are first set out in their representation contract. Obviously, the more successful the artist, the more normative he can be.
When re-auctioning, sellers must disclose any resale restrictions when asked if the artwork is subject to any claims. Often, however, the auction house is only made aware of the restrictions when contacted by the artist or their gallery. As Jean-Paul Engelen, President Americas of Phillips Auction House, said in a webinar on the subject in 2020: “You usually find out the truth halfway through: after it’s consigned, just before the sale at auction”. An auction house has the right to withdraw a property from a sale in such cases, or sometimes an agreement is made whereby the artist (and possibly the gallery) receives a share of the profits.
Why are they used?
Resale restrictions “make sense when they protect an artist’s career and longevity,” Rochat says. But she adds: “If the clauses are unreasonable, yes, there will be negotiations. For example, I have received contracts from artists themselves stating that the works cannot be resold [ever], only donated to charity, which seems unreasonable to a buyer. Customers, she says, “sometimes refuse such restrictions when it comes to a secondary market transaction or when the deal looks like it should be signed in blood!”
Rutledge equates resale restrictions and other stipulations in sales contracts (for example, conditions for the preservation or assembly of a work) to prenuptial agreements. Discussions of these terms are helpful, she says, in establishing each party’s expectations, even if the buyer ends up backing out because of the commitment involved, which she has seen rarely happen.
Handle with care: although there is very little legal precedent, any “reasonable” terms of resale are likely to be enforceable © Gaucher Kasdaglis
Rutledge also points out that for some conceptual artworks, where there is no permanent physical object, the sales contract establishes the terms of making the artwork. She says that many stipulations regarding resale and other contractual restrictions may “get out of the conceptual box because these artists and collectors are interested in thinking about the terms of a work’s future life.”
Can they be applied?
According to Rochat, non-resale clauses “mainly act as a deterrent…the enforceability of these clauses has not yet been tested by the UK courts”.
Few gallerists would go back to taking legal action against their clients, preferring ‘softer enforcement mechanisms’
This point of enforceability has been much debated by jurists. In the June issue of The arts journal, Jon Sharples, an intellectual property and art lawyer at Howard Kennedy in London, cited the contract for the resale of a work he had purchased from Sadie Coles’ headquarters. He said that, for a period of five years, “we ask that you agree, as a courtesy to our artists, not to put this work up for auction and not to sell the work to anyone without due notice. first offered Sadie Coles HQ the right of first refusal on the same terms and conditions as any good faith offer you make to us.”
Sharples writes that articles by several “heavyweight lawyers have helped reinforce the conventional wisdom that these clauses — in legal terms — are probably not worth the paper they’re written on.” One such lawyer is Martin Wilson, Phillips’ chief general counsel, who argued that for consumers (i.e. collectors) these clauses are likely to fail the “d ‘equity’ of English consumer law. As for commercial buyers, Wilson thinks an English court would consider them an unfair restriction of trade. And, anyway, what financial “harm” can the gallery or artist really say they have suffered in the event of a breach, given that the effect is often to establish a higher market price for the work of this artist?
But Sharples points out that Adam Jomeen, the founding partner of Art Law Studio, posits that “until a court ruling tells us otherwise, resale restrictions seem perfectly capable of being enforceable under English law when drafted correctly”.
Sharples himself thinks that many no-resale clauses, buried in the fine print and presented when the deal is already done, “seem to be unfair and unenforceable.” However, in Sharples’ view, there is a range of enforceability and the more a gallery can establish its terms – and the manner in which they are agreed – “the more likely they are to be upheld by a court”.
Ultimately, few gallery owners would actually take legal action against their clients, preferring, as Sharples puts it, to rely on the “softer enforcement mechanism of a gallery’s blacklist and forever lose access to the little world of talkative art”.
Different principles apply in New York, where case law (rather than consumer law) provides the best guidance. That said, as Megan E. Noh, Co-Chair of the Art Law Group at Pryor Cashman in New York puts it: refusal, but almost nothing on the various types of other resale restrictions.
There is certainly no case law on these sprawling “don’t sell it, ever” restrictions. As in English law, a resale clause must be clear and precise. It must also be “reasonable”. Noh says, “Under US law, a contract must reflect consideration, that is, something of value provided by both parties. If a collector acquires a work directly from the artist’s studio without having to go through an intermediary, or buys from the artist’s gallery but skips the waiting list or obtains priority access to a limited number of works, any of these things is likely to represent sufficient consideration for the collector. And the value that the artist seeks in exchange is clear: the protection of the market.
In Rutledge’s opinion: “I don’t think there should be any problem in drafting an enforceable resale clause. Basically, any contract is enforceable provided the main terms are met – something of value must be exchanged.
How a buyer paid the price
One of the few public cases of violation of a resale agreement is that of a painting by Cecily Brown faeriefeller, which was purchased at Art Basel in Miami Beach in 2019 by Chinese collector Michael Xufu Huang of the Paula Cooper Gallery for $700,000. Huang, the founder of the X Museum in Beijing, sold it almost immediately to another collector, Federico Castro Debernardi, for $770,000.
The resale agreement (which appeared in court documents when Huang later sued Debernardi for $1.3 million in “reputational damages”) stated that Huang was not to sell the work for at least three years without the go first to the Paula Cooper Gallery. If he did, he would be required to pay the gallery the difference between the original purchase price and the “[auction] sale price of similar works of art” — calculated between $500,000 and $1 million.
Paula Cooper might never have known Huang breached the agreement if Debernardi hadn’t sold the painting to another gallery, Levy Gorvy, in 2020. Judging by court documents, the gallery (which doesn’t was not involved in the lawsuit) pledged, warning Huang he could expect to be publicly shamed. The likelihood of a court upholding Paula Cooper’s claim is unknown. But Huang settled for a hefty amount, which he said Bloomberg far exceeded his commission of $70,000. “It was my fault for letting this happen, so I paid for it and took responsibility,” he said.
