Droit de Suite Leaves a Sour Taste in the Mouth of European Art Professionals

Droit de Suite Leaves a Sour Taste in the Mouth of European Art Professionals

Despite record sales in London over the last month, many in Britain are worried that the golden era may soon be over.

Next year, Britain will have to enact the second half of the EU "droit de suite," or artist resale right, a law which went into effect across the European Union in 2006. The law stipulates that when a living or recently dead artist's work comes up for resale, the artist or heirs of the artist are entitled to a portion of the sale's proceeds.

"It is impossible to put a quantum on it, to know exactly what the effect of it has been," said Matthew Girling, CEO of Bonhams Europe, "But I think the extension of it is something that is totally unnecessary."

The tale of the artist's resale right begins in the 1920's, more or less as a social program for the widows and families of artists killed in World War I who no longer had a means of support. Stories such as that of Jean-Francois Millet, whose heirs had to resort to selling flowers on the streets of Paris while his works sold for millions at the auction house down the street, perpetuated public support for similar laws across many European countries.

After European integration, nine countries had droit de suite laws and six did not. Faced with an economic imbalance, The EU had to make a decision to adopt it across member states or force some countries to get rid of it. It being easier to make laws than get rid of them, they chose the former.

The implementation of the law came in two different stages: in 2006 living artists across the EU were entitled to droit de suite payments, but in countries which did not previously have a droit de suite law (England, Ireland, and Austria, to name a few), paying heirs of artists who have died over the last 70 years does not go into effect until 2012.

There is a set, sliding scale for the levy. Works with a hammer price above €1,000 ($1,450) but below €50,000 ($71,600) require 4 percent of the sale to be given to the artist, with that percentage sliding down to .25 percent of works selling for over €500,000  ($716,000). The price is capped at €12,500 ($17,900).

While the law has been opposed from the beginning by professionals in the art market in Britain, the 2006 version of the law is manageable. According to a study by Dr. Clare McAndrews, an economist with ArtsEconomist in Dublin, the full weight of the directive applies to 64 percent of the fine art market - 13 percent living artists and 47 percent heirs of recently deceased artists. While currently the royalty only affects works in the contemporary sales, many modern artists died after the 1942 cutoff date, meaning those sales will begin to be affected as well. Between contemporary and modern art sales the tax could apply to almost half of the fine art sold in Britain.

While big auction houses will certainly be impacted, smaller dealers and galleries which are not as well diversified may take the brunt of the financial hit. A hit to the art market, particularly in London, could mean a hit to tangential markets such as tourism. With so many different parts of the industry potentially affected, the British Art Market Federation, with chairman Anthony Browne in the lead, is lobbying the government to do something about the legislation before 2012 on behalf of the entire industry. There may be hope yet. McAndrews said that while a complete repeal is unlikely, the European Commission is starting to take notice of the deleterious effects of the legislation, which is the first step toward finding a solution.

"It is at least dawning on them that it's problematic," she said, drawing a parallel with the flight of the art industry from Paris in the 1950's after significant tax hikes.

But the full impact remains to be seen. Todd Levin, a New York-based art advisor Todd Levin doesn't predict a lot of value coming across the pond. For one thing, he said with the levy capped at €12,500 ($17,904), big spenders aren't going to be deterred. "For the €100,000 ($143,233) and up it is a pretty infantesimle amount for people to be concerned with."

Levin went on to note that for the big auction houses, even works consigned in day sales of contemporary art are approaching six figures. "I get that the economists are looking at this strictly as a dollar and cents thing, but I don't think that the economists get how the collectors think," he said.

On the other end of the spectrum, for an EU resident, the cost of consigning a lower-valued work - with shipping and insurance - in a country without a driot de suite requirement like the U.S., Switzerland, or China is quite possibly not worth the amount of the levy.

Even if this levy isn't siphoning off business from London, there is still an enormous amount of money that will have to be collected and distributed according to the law. How that money gets distributed differs from country to country: some have fairly far-reaching collection agencies which collect and distribute the proceeds to artists and their heirs. But others rely on the sellers to do the work. If collecting agencies do pick up the slack they generally take a 12-30 percent commission off the top from the artists.

The average price for the 202 works sold at Sotheby's latest Contemporary Day auction in London was just under €113,000 ($162,000), which translates into hundreds of thousands of euros in droit de suite royalties which need to be distributed to almost 200 artists or their heirs for one sale alone.

In California, the only place in the United States to adopt a similar law, there are similar problems tracking down those who are entitled to droit de suite payments. In 2009, the Wall Street Journal profiled Patricia Milich, an employee at the California Arts Council who works to track down artists entitled to their cut of the resale. She sometimes puts in hours upon hours of work to find an artist owed $80.

Of course, European sales have continued to slide as a percentage of the global art market for years, and this isn't all because of droit de suite. There are plenty of other factors at play here, not least of which is China's booming economy and New York's continual wealth creation posed against a general sluggishness in the European economy. The UK has pulled out of the global recession to some extent, but the rest of Europe faces deep problems. Whether that is at all connected to the same attitudes which led to droit de suite in the first place is a different conversation entirely.