Wrangling Over Resales

Wrangling Over Resales
At the Christie’s evening auction of postwar and contemporary art in London this past June, a choice work by Takashi Murakami, Flower Ball Blood (3-D) V, 2007, was withdrawn at the eleventh hour. No reason was given, but Murakami’s production company, Kaikai Kiki, had stopped the sale of the picture with a court order tied to its pending lawsuit in Tokyo against the consignor, the Japanese real estate firm Cerulean. The suit alleges a breach of the sales agreement and demands that the company return the work.

Cerulean had acquired the painting in January for 68 million yen ($630,000) with the stipulation that it could not be resold for 10 years in order to prevent speculative art deals. However, as alleged in the Tokyo District Court complaint, Cerulean consigned it barely six months later to Christie’s London, where it was estimated at £300,000 to £400,000 ($600–800,000). Efforts to reach Cerulean were unsuccessful, and a spokesman at Christie’s  London declined to discuss the matter, apart from confirming that it was the consignor’s decision to withdraw the picture.

The case shines a spotlight on the little-known but widespread practice of so-called artist/gallery resale agreements in primary market transactions. As a source close to Murakami explains, such pacts offer “a way for the artist to control and protect his intellectual property in the marketplace.”

For their part, dealers from Matthew Marks, in New York, to Stuart Shave, in London, use them to at least attempt to govern where an artwork goes once the collector decides to part with it. Top-tier galleries typically seek to maintain the career of a major artist or rising star over the long term, and high auction prices aren’t always matched in the larger market. In addition, works at auction may not fetch stellar prices and can easily wind up in the hands of anonymous collectors, or worse, speculators unknown to the original dealer.

“Dealers don’t want you buying something from them today and flipping it in six months at Sotheby’s or Christie’s,” says the Dallas collector Howard Rachofsky. “They want to get a competitive edge in the marketplace.” He describes resale agreements as “annoying but not objectionable” and points out that “if the numbers weren’t so big in today’s world, this would be a moot point.”

Although the wording varies, these clauses basically require or request the buyer to agree, in writing or otherwise, to give the gallery or artist the right of first refusal, usually for a limited time, when the work is about to be resold. A typical clause appears in the invoices of the Chelsea dealer Friederich Petzel: “If the purchaser decides to sell this work within five years of purchase, the gallery will have the right of first refusal to buy back the work at fair market value. Fair market value shall be determined by the gallery’s retail price for works of similar scale and significance at the time of resale and/or auction house estimates, if applicable.”

Petzel, whose stable includes such sought-after artists as Wade Guyton and Sarah Morris, says that the agreements have their place, “especially with clients whoare less familiar with our gallery space. It’s useful to establish a new business relationship where it’s clear that a collector takes on a responsibility by buying awork of art from us.”

Some buyers, however, find such terms onerous. Todd Levin, of the New York–based Levin Art Group and the longtime curator of the Adam Sender collection, says that certain gallerists seem to believe that the resale of primary artwork for any reason is gross negligence. “In the case of gallerists who feel this way, what they should really write on the invoice is: ‘If you resell this piece for any reason at any time in the future, you will be judged to be in default of this contract, and you will never be allowed to step foot in the gallery again, and we’ll never speak to you again under any circumstances.’ That’s something that I would at least understand.”

Levin made his somewhat satirical comment after describing the aftermath of the November 2006 sale by Sender of a group of guaranteed works at Phillips de Pury & Company that caused considerable consternation in the art world. As one well-connected adviser put it, “Sender was given priority because the dealers believed he was a true collector, and now he’s viewed as a speculator and a seller.”

In the collector’s defense, Levin says he personally called every dealer whose artists’ works were going up at auction, giving them the heads-up required in the resale agreements and even offering a 10 percent discount—the same markdown Sender had received from the galleries—on the prices Phillips had guaranteed. Only one dealer, whom Levin didn’t identify, decided to buy back a work before the auction; the rest exercised their option not to.

One of the works, Richard Princes Tender Nurse, 2002, made $2,256,000. Sender had bought it at a 2003 exhibition at Barbara Gladstone, where the prices ranged from $40,000 to $95,000. 

A number of dealers and players in the market believe that resale agreements are unenforceable, but several prominent attorneys contradict that notion. “I do believe they are enforceable,” says John Silberman, a leading New York entertainment and intellectual-property lawyer. “You just have to do it right and make it very clear.” The New York art law attorney Peter Stern says, “They are enforceable in the case ofthe first buyer, but it gets more tenuous” with subsequent owners.

For collectors, the prospect of being blackballed by an important primary market dealer is a strong incentive to honor the agreements .At the same time, galleries may be cautious about alienating big clients, especially when the market slackens. “If someone chose not to come to me and resold a work, I would not question them,” says a New York dealer who has used resale clauses. “I may never sell them work again, but I may—it’s an open discussion.”

The use of resale agreements started to flourish in 1990, at the peak of that era’s contemporary-art boom, when increasing numbers of collectors were auctioning works or selling them privately in order to maximize profits on investments in art that had been promoted by primary-market dealers. In one case, Mary Boone sold an important Eric Fischl painting in 1986 at a discounted price of $70,000 to a client who told her that he was going to donate it to Canada’s National Gallery in Ottawa. Years later, Boone learned the collector was offering the picture to another individual for $1.4 million. She declined to comment about the matter, but one of her gallery directors, Ron Warren, says she began using resale clauses after that.

Another powerful New York dealer, Marianne Boesky, has gone in the opposite direction. “For many years we did use resale agreements for most primary sales of major works,” she says, “but in the past few years, I have come to use them very, very infrequently.” She believes the agreements are legally binding but says  that “the process of enforcing them was very uncomfortable.”

Boesky declined to cite any examples for this article, but she is known to have interceded in a 2006 Christie’s New York sale of a painting by Lisa Yuskavage, whom she represented at the time. It made just over $100,000—approximately double what Boesky had sold it for six months earlier. After the dealer contacted the auction house, the  consignor, who apparently hadn’t offered Boesky the right of first refusal, wound up being forced to give  her part of the upside. Boesky then gave a percentage to the artist, as is her usual practice with resales. 

The bottom line, of course, is money, and with it the dealer’s desire not to upset artists involved in secondary-market transactions. Still, many players bristle at the very notion of the right of first refusal, given the logistics of dealing with restrictive clauses in a timely and practical fashion.

“Look, here’s half the industry putting these terms  on the bottom of the invoice, but I think it’s a restraint of trade,” says one New York  dealer who asked not to be named. “As a collector myself, if I bought a Richard Tuttle, say, 30 years ago and the dealer is out of business or semiretired, do I  have to call him and resell it to him? It also gets to an extreme when the artist has left the gallery where the original transaction took place—what are you supposed to do?”

The New York art adviser Allan Schwartzman, who works with Rachofsky and other high-end collectors, sees the situation differently. “If you choose to sell [a work], you—the dealer—get the first shot at it. I think that’s fair and appropriate.” Josh Baer, the New York private dealer and publisher of the art industry newsletter Baer Faxt, says, ”In my opinion, you’re either for the open market or you’re not. If you think these guys are going to sell the stuff down the line, don’t sell to them.”

The debate over the merits of resale agreements isn’t likely to diminish, even if the Murakami case ends up setting a precedent. To the commonly invoked phrase caveat emptor, one could add a new one: caveat vendor.

"Wrangling Over Resales" originally appeared in the October 2008 issue of Art+Auction. For a complete list of articles from this issue available on ARTINFO, see Art+Auction's October 2008 Table of Contents.