Judd Grossman is a major player in the world of fine art, someone many art dealers, auction houses, and even museums have to deal with. But he is not a collector, museum director, or art consultant. Rather, he is a lawyer in Manhattan, and many of his clients are high-end art collectors who turn to him when they are considering buying, selling or loaning a high-value work of art. Whatever these clients want to do with their art, they rely on Grossman or lawyers like him to legitimize the deal, often with long contracts.
These sales contracts cover every conceivable contingency, clause by clause. Does the seller own the artwork free and clear, with the right to transfer ownership? Who pays sales tax? What happens if there is a change in attribution years after the sale? Does the buyer have the right to reproduce the image? Who is responsible for legal costs if the title of an artwork is contested? What is the price, and how will the artwork be paid for…in cash, Bitcoin, or over a period of time? When does the title transfer to the buyer? Does the buyer and the guardian have the right to inspect the artwork before possessing it? Who pays for packing, shipping, and business insurance? Does the merchant guarantee that the name of the buyer and the price paid will not be revealed? What happens if this information becomes public? Who pays the commission to the technical advisor? There are paragraphs dealing with warranties, provenance, condition reports, indemnities, and escrow accounts. The list goes on and on.
“A big part of our practice is writing purchase agreements, consignment agreements and loan agreements,” Grossman said, describing the sales he has been involved in as “paper-documented.” Lots of paper. William Pearlstein, a New York City attorney who also represents many art collectors, told the Observer that the sales agreements he writes for gallery purchases “usually include about seven to twelve separate pages.”
Welcome to the world of expensive art sales, where the traditional “handshake and invoice” idea has largely disappeared, replaced by an invoice combined with a formal contract that runs down the pages and attempts to account for every conceivable contingency. The shift is being driven by “a new group of art collectors over the last 20 years, who are very wealthy people, who are used to doing business a certain way, who are used to having their own way and who like to spend legal money,” art lawyer Susan Duke Biederman told the Observer. One of her clients was handed a 27-page art sales contract (she referred to that buyer as “crazy”), but more and more of the sales she is involved in now involve buyers and sellers accustomed to “running everything through the law.”
Our world is a litigious world. Lawsuits arise when the terms and conditions of a sales agreement are violated, but these disputes are likely to occur even if there is no contract. “If the contract clearly states the rights and obligations of the parties on these issues, that would reduce the scope of legal issues that could arise,” said Amelia Brankoff, a Manhattan attorney with a large arts law practice. The most common disputes, she noted, “generally involve which party is responsible if the work is damaged in transit from seller to buyer, which party is liable if the work is later discovered to be fake or counterfeit, or what happens if a third party later claims to be the ‘true owner’ of the artwork.” In the latter case, the artwork may be put up for sale while still collateral for an unpaid loan.
Some sales agreements also address anti-money laundering laws, noted Megan Noh, co-head of the arts law practice at New York law firm Pryor Cashman, and require “a written assurance that the parties are neither themselves (nor associated with sanctioned persons or entities) nor using the proceeds of criminal activity, and that conducting the transaction will not lead to any unlawful end such as money laundering or tax evasion.” She added that art trading can sometimes be murky, and a clause like this “may be particularly important” when one or both parties are working through an agent and their identity is ambiguous.
If buyers rely on their attorneys to draft sales agreements, art dealers must hire attorneys to review, approve, and negotiate those same contracts, all of which increases the cost of purchasing art. There doesn’t seem to be any real alternative. As one New York City art gallery director said: “People want it in writing, otherwise there’s no agreement.”
Naturally, the gallery owners themselves have become more legal in their work. A number of gallery owners require buyers of certain artists’ works in the primary market to sign agreements ensuring that the works will be resold exclusively through them, rather than through an auction house. New York gallery owner Andrea Rosen noted that she has included these terms in every invoice since opening her gallery. Artists may impose their own terms on the resale of their work, as James Turrell and Sol LeWitt have done, requiring owners to apply to them (in LeWitt’s case, his estate) for “transfer” documents that allow the artist to approve or disapprove the sale to a new owner. South African artist Marlene Dumas and Scottish-born artist Peter Doig both want buyers of their paintings to agree to donate their works to museums rather than resell them. These terms are stated and enforced by traders. When collectors went against their wishes, lawsuits followed. In 2010, Dumas directed galleries that represented her work to refuse to sell any more of her paintings to a collector who had sold one through a New York gallery, and that collector sued the gallery, essentially for slander. (This lawsuit was dismissed in federal court in Manhattan.)
“Sometimes lawyers overstate things,” Grossman said, and some lawyers have only a limited understanding of the art their contracts are supposed to govern. Lucy Mitchell Innes, a former Manhattan gallery owner who is now a private art dealer, recalled a sales agreement filed by a collector’s attorney for a 1952 Barnett Newman painting she was selling. One of its clauses stipulated that the deal would be canceled if it turned out that the artwork had passed into the hands of the Nazis in Germany. “I had to explain to the lawyer that Barnett Newman painted this painting after the war ended, and that it was painted in the United States,” she said. The effort to dot every “i” and cross every “t” can sometimes go too far.
“I’ve heard some dealers say, when they’re handed a 20-page contract, ‘Are you crazy? That’s not how we do business,'” Biederman said. “I ask clients who want me to write a purchase contract, ‘Do you want to piss off the dealer? Do you want this deal to go through quickly? How much do you want to spend on legal fees?'” She added that more and more dealers are concluding that nowadays “this is the way you have to do business. And that’s good for me. I’m making money.”
More for art collectors
