Martin Shell: Commercial Leases in the Art Context


Commercial Leases in the Art Context: Survival Guide

{Audio transcript} It’s a pleasure to be here. As my introduction discussed I’m in real estate litigation, and I do a lot of landlord tenant litigation. So, from that fire I have some tidbits that I think can help anyone who is negotiating a lease. We’ll start with the premises that you have made it to Williamsburg, you’re ready to set up shop, and the landlord hands you this piece of paper. Now, certainly let’s start with the premises that you want a lease. A lease gives you the right, legal right, to occupy the space. If you don’t have a signed writing, a contract, a lease (it can have many names), you arguably have no right to be there, and it would be very easy for somebody to remove you. So, if you’re confronted with this situation, you certainly want to say to whoever is about to give you the space: “I want a lease.”

Leases start out as a general form. The form is about six pages that’s been used probably for over twenty years. But, of course, in New York, things aren’t that simple. So, the six-page lease attaches to a forty-eight page rider. The rider is attached to the lease and you have to worry about all the terms and conditions in there. So, I think it’s helpful to go through a couple of those terms and how they may affect you in a court at some point.

So, let’s just talk about who is going to be signing this lease. You have the owner of the premises – the landlord – and you. Now, you do not want to sign any lease individually. Why? Because you are individually liable for all the money due under that lease. It’s much better if you have a company that is responsible, because then that company can shelter you from liability. And there’s the magic takeaway term called a ‘Good Guy Guarantee.’

You want a Good Guy Guarantee that states you are agreeing to pay the landlord a certain amount of money should, unfortunately, things go bad and the landlord wants to remove you from the premises. In that case, at least you are not on the hook for the whole term. Most leases are five years, could be ten years. If you enter into a lease in year one, and unfortunately things don’t go as planned and you have to leave, you are liable for the remainder of those four years, depending on the length of your lease.

Now, it just so happens in New York, that most likely a landlord will find somebody else to take over that space. However if they can’t, and there’s no obligation, repeat no obligation that the landlord does that, you are on the hook for those remaining years. It’s far better to have a company on the hook, that you could potentially put in bankruptcy and not care about, than you individually. Thus, the Good Guy Guarantee. Basically the way it works is, you would say to the landlord, “look, when I leave I’m going to be kind. I won’t owe you any money, but I’m going to leave before the lease ends and you agree not to come after me individually.” One good takeaway.

Another thing is, any lease is going to require you to give a security deposit. Footnote here: generally, security deposits are one to two months, maybe three months. Security does not apply to rent. A lot of people think, oh, I’m going to leave, I’m going to just use my security deposit. Doesn’t work that way. Security deposits are for your destruction of the property. So when you leave, if something has to be cleaned up, that’s what the security deposit is for. Otherwise, the landlord is supposed to return it to you. In practice, I understand a lot of times it does get applied to rent, but that is actually not the way it’s supposed to work.

You certainly want to make sure that the amount of rent is clear in the lease. So, if you’ve agreed to pay $1,000.00 a month, you want to make sure the lease says $1,000.00. The lease is also going to have an escalation clause. Every year the lease money due is going to go up; you’re going to have to pay more rent. So, you want to make sure that’s correct.

The next big thing on the lease is the use of the lease. And, in this particular instance, you’re going to be using it for commercial purposes. So, it is important when thinking about commercial purposes that it is used for such. That means you generally cannot sleep there. You don’t get to sleep there, you don’t get to have your friends sleep there. It’s not your apartment; it’s used for business purposes.

If you’re not using the lease the way it’s supposed to be used, you may be considered in breach of the lease. Now, the takeaway with this is, whatever the use clause says, you want it to be as broad as possible. So let’s say you’re an artist and your going to make, going back to my high school days, wicker baskets. I know every professor I had used wicker baskets, but you don’t want it limited to just wicker baskets. Because, let’s say the world doesn’t want to buy wicker baskets. You want to make something else, so you want broad use terms. You want to say, I want to use this place to create art. The landlord shouldn’t care.

Let’s talk about another big provision in leases: assignment and sublease. Every lease includes such a provision, and in general, every lease says you cannot do either without the Landlord’s consent. Let’s talk about it – what is an assignment? An assignment basically says that somebody else is going to come in, take over the space and pay the rent for you. Rather than the rent coming from you personally, it’s going to come from the person who’s taken over. That person is called the assignee, you are the assignor. Generally, that’s not allowed without landlord consent.

The other big thing is called the sublease. That is, when I rent out the space to someone else. They pay me and I’m still generally paying the landlord. Assignment and sublease both kind of overlap, because the principle is the same. You’re no longer occupying the space, and somebody else is there, and it becomes their burden to pay. However, the kicker is, if they don’t pay, you’re still on the hook to pay. It doesn’t necessarily matter.

Now, in general, both of these are not allowed. And people get into trouble with this all the time. Especially with services like Airbnb. You think, oh great, I’m going to leave for the weekend and get somebody else in here. Generally it’s not allowed, and if the landlord wanted to enforce the terms of the lease, that would be considered a breach. So, without going into great emphasis on AirBnB, my general recommendation is it’s probably not the best idea with a commercial space.

Let us talk a little bit now about defaults, which is how you end up in court and potentially talking to somebody like me. So, generally it’s a failure to pay, usually rent. Now let’s talk about this, because this is another important takeaway. Under New York statute, if you fail to pay your rent, a landlord may send you a three-day notice. Only three days. You have three days to pay your rent or they’re going to take you to court and then they’re going to (again, this goes against your record, because this is a public record) try and collect the money from you in court.

So, what do you do? You want to negotiate a longer cure period in your lease. You don’t want just three days to pay rent on demand. I would argue you want 30 – 60 days, try and get as many days as you can. There is no set rule here, but hopefully you can negotiate something longer than three days.

Now, regardless of what you negotiated, if you haven’t paid your rent, you are likely going to get some sort of notice. That notice may be called a demand for payment, or it may be called a ‘Notice to Cure.’ You have a period of time in which to cure. So you have to pay your rent. What happens if you don’t? You are going to get a legal action brought against you. You’re going to be served with papers. Here’s a very important thing: the landlord cannot lock you out without a court order. So, he can’t scare you and say, “I’m changing the locks, you didn’t pay the rent.” I would love it if landlords did that because then you could sue them for damages.

Rest assured, you cannot be locked out. It is a very lengthy process before you would actually be removed from the premises. Probably takes two or three months. But, taking that a step further, once you fail to pay your rent and are now in court, the landlord sued you for a very important non-payment of rent. Generally, what’s going to happen in court is the judge is going to want you to enter into some sort of settlement. The agreement is likely going to provide for a longer term to pay the rent. Most landlords are not going to kick a tenant out immediately for failure to pay rent. There’s going to be some sort of extension of time period.

If you fail to pay during that period, you will be removed from the premises. A lot of tenants that I get will ask, “Can I avoid that?” The answer is no. No landlord is going to agree and just say, “I got it, I took you to court, you failed to pay your rent, I’m just going to give you another chance and start the whole proceeding over again.” Doesn’t work that way. The landlord wants the space. More importantly, they want their money. Unfortunately, that’s the world we live in.

So, you’re going to set up some sort of payment plan and if you pay you’ll be allowed to stay. Let’s say you don’t and you can’t agree on the payment terms and you just can’t afford to pay. Ultimately, you will be evicted. How does that process work? Very quickly, it works in this sense. The judge enters a judgment of possession for the landlord and claims a warrant of removal shall issue. Then the landlord has to go to a marshal. The marshal goes to court and submits the paperwork to get the warrant of removal issued by the court and the judgment of possession. Only a marshal can do this. The landlord cannot do this personally. The marshal then comes, puts a notice on the door, and says you’re going to be evicted. And generally – I think it’s six days – the marshal says, “I’m coming back in six days to remove you.” You have now six days to try and make some sort of stay, which you could do by paying the rent at any time to stay longer, or, ultimately, you may be locked out of the premises.

But, keep in mind, once the marshal comes, you definitely want to come see me, if you want to continue to stay in your space.

Now, some overview of the notices that we’re talking about here. You have:

The Notice to Cure starts everything (or, demand for payment). So, you want to try to comply with that. At the very least, you want to call your landlord and say, “I know I haven’t paid, I need more time.” I think a lot of time, the reaction is to run for cover and think nothing’s going to happen, and bury your head in the sand. Generally, it doesn’t work. The landlord is going to come after you, unfortunately. They are either going to want your money or somebody else’s money, right. So I recommend trying to make a deal.

After you get this Notice to Cure, what will likely come down the pipeline is a Notice to Terminate. This is a very important one: Notice to Terminate. You don’t want one. If you get a notice to terminate and it becomes effective, you’re going to have no rights. The court is not going to be able to help you do anything to continue to stay in that property. I’m going to talk about the notice to terminate again in a little bit, because it comes up again, but I just wanted to mention that.

Then after this notice to terminate, you get some court papers. The court papers that are filed are called the Notice of Petition, followed by a Petition. You get served with the papers. Ultimately, then there’s the Warrant of Removal that gets served on you by the marshal. It’s quite an extensive process.

In Kings County, I can tell you that it could take anywhere from three to four months to get an eviction. Manhattan’s a little quicker, and generally you can get evicted in about two months. Now, you only get evicted – very important here – for a breach of your lease. So, obviously a non-payment is the most frequent, and the courts are familiar with this and there are procedures in place to offer forgiveness. So if you’re not paying your rent, what may happen is that a landlord goes to court and asks for non-payment of rent, and the judge is going to encourage you to work out something to allow you to stay.

There’s also a breach which doesn’t involve non-payment. These are a bit harder to deal with, and let’s just talk about some of the things that result. You’re paying the rent but you can still be in breach of your lease. How can that occur? Number one: you’re assigning your lease or subletting your lease. This happens all the time and all that I can say to you is the best advice is don’t let your landlord know.

Okay, and if your landlord doesn’t know it’s not going to hurt you, but if your landlord knows and doesn’t like it? Well, landlords like to be in the business of being a landlord. They don’t want tenants to be landlords. So if you have a landlord that thinks, well, I’m charging $2,000.00 and now your subleasing and making $1,000.00, well, I want that money. And by the way, most leases will provide a provision that allows them to recover such money, even in a court of law. So, assigning and subleasing generally constitute a breach.

If you fail to get the necessary permits to operate your business, that is a breach. If you fail to maintain insurance – big one. Landlords want to know their space is correctly protected with insurance. They usually require proof of insurance every year. If you don’t provide them that, that is called material breach, and it could result in removal. If you’re serving food and you need a health permit, for example. Or, if you alter the premises without consent. In fact, I’m in a landlord / tenant trial right now where the commercial tenant painted the facade white and the landlord is incredibly upset.

So, you don’t want to make alterations without the landlord’s approval. Now, these are all breaches that don’t include payment. What is going to happen in these sorts of breaches is very similar to non-payment of rent. You’re going to get a notice to cure. It’s going to give the time period that is provided in the lease to fix the situation. Obviously, from a tenant perspective, you want as much time as possible. Let’s say you cannot fix the cure within the time frame. If you cannot do so that is going to allow the landlord to terminate the lease.

Remember I discussed this earlier: termination of the lease is a bad thing. The court can’t do anything for you once your lease is terminated. So, it’s very important to extend your cure period. The courts allow that by something called a Yellowstone Injunction. The takeaway here is that you can extend your cure period. You want to make sure your cure period is extended before your lease is terminated. You go to court and say, “I got this notice to cure, I’m going to fix this, I’m going to get insurance, judge please don’t let them terminate my lease, I want to stay in possession,” and the court will grant it, almost always. As long as you can fulfill the requirements, you’re going to get it.

The requirements are very low, for a reason. The judges in the courts want to give tenants the ability to cure. But if you don’t do it, if you fail to cure in a timely fashion without it being extended and the termination notice is triggered, then you’re not going to have any defense. You will ultimately have to be removed. So, the Yellowstone Injunction is very important.

I wanted to mention one other thing, one final little tidbit to take away from this is to negotiate attorneys’ fees. Obviously, we all like to get paid. So, every lease includes a provision where if the landlord has to remove you, pursue you, they get their attorneys’ fees back. So even if you owe $10,000.00 in rent, now you are going to have to pay their attorneys’ fees as well.

What you want to always include is reciprocal attorneys’ fees. You always want to have a good offense if they’re pursuing you, and you can countersue them for something. Say the landlord breached the lease and didn’t provide some sort of service that he was supposed to. Then you could try and get your attorneys’ fees back. It provides leverage down the road.

So when you’re negotiating your lease, I’ll leave it at this: try and get your attorneys’ fees reciprocal, as long a cure period as possible, a Good Guy Guarantee, and don’t sign the lease in your own name. And if you want more tidbits, call me.

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Interview: Ed Winkleman


 

Selling Contemporary Art: How to Navigate the Evolving Market

Hi, I’m Richard Lehun. I’m here with Ed Winkleman at Bruce Silverstein’s Chelsea Gallery. Ed has just released his follow up to his best seller, How To Start And Run A Commercial Art Gallery. Ed, can you give us some context on the new book?

Ed Winkleman: Selling Contemporary Art, How To Navigate The Contemporary Market was just published by Allworth Press in September 2015. The book is the second in a series of books, hopefully. I started talking to my publisher about a revision to my first book about two years ago, and we decided rather than rewrite that book – because not a lot has changed in that field – it would be interesting to do a follow up that was more the graduate level, more about the strategies, than the simple logistics that are discussed in the first book.

RL: It’s a big commitment to write a book. What was it that motivated you to choose to do this right now?

EW: Well, to talk about the themes of the book, it may help to say that I realized a little into it that what I was doing was both deconstructing my first book, as well as trying to answer the question is whether “the Leo Castelli model” is still viable. The Leo Castelli model is essentially the model that I used to write the first book, and Leo Castelli [1907-99] was a New York art dealer who didn’t innovate much about the way that one sells art, he sort of consolidated it and set it up as a set of best practices. And virtually every young dealer who was influenced by Castelli, approached their gallery thinking that that’s simply the way it’s done.

And a lot of the dealers operating right now began their galleries thinking indeed, the Leo Castelli model is the way that it’s done. But the various themes I’m looking at in the new book begin to pull that model apart. And so, as I was writing each chapter I was thinking in the back of my mind, “How does this affect what I wrote about in the first book, is that model still viable given these things that are evolving and changing?”

RL: Is the Castelli model sustainable in light of market developments?

EW: The Leo Castelli model is a phrase that somebody coined long before I started using it as a framework for my book. Very specifically, that author used it to describe a gallery approach which included: discovering artists that very few other people knew about, building and protecting a market for those artists, and with the centerpiece of that model being that there was loyalty between the artist and the dealer, that they were in it for the long haul, and the hope was that they would grow old and rich together. And that arrangement, that gentleman’s agreement, if you will, was the heart and soul of what people meant by the Leo Castelli model.

Very specifically, that permitted a dealer to invest a lot of money up front in an artist, to help create a market for them, take some risks, do some shows that wouldn’t necessarily pay for themselves, because the thought was that “we’ll be together many many years from now, and what we’ll do today will benefit us down the road.”

One of the things I discuss in the book a fair bit is how there is a threat to that model coming very specifically from the rise of the mega-gallery. And the idea of whether or not artists and dealers are loyal to each other in the same way they were when Leo Castelli built his gallery.

RL: You extensively discuss issues of globalization. Can you give some examples of the challenges?

EW: In the chapter on globalization, I discuss several strategies a mid-level or a small gallery might take to deal with the ongoing globalization of the art market. One that I spend a fair time on is collaboration. And collaboration is being explored more and more by galleries in both a defensive, as well as an offensive sort of way.

A gallery from Paris that I know teamed up with a gallery in Berlin, very specifically to keep bigger galleries from poaching their artists. And the idea is, “if I have an artist, and I have a gallery in New York, my artist really wants international attention, and so a big gallery in London starts to show that artist, if that gallery has more resources than I have and one day open up a space in New York, I might lose my relationship with that artist.” So, the strategy is to team up with a smaller gallery in London and kind of share that artist with them, knowing that they don’t have the resources to come to New York and eclipse you entirely, that you can have this mutually beneficial relationship move forward.

A really good example is the Paris gallery Jocelyn Wolff, who collaborated with a bunch of friends and other dealers on a space called KOW in Berlin. I think that initially they were very tightly collaborating on that. I believe that Jocelyn pulled back a little and isn’t as involved, but they have shared artists. And that model is a really good example for other galleries to follow. And again it’s a defensive move so that the bigger galleries in Berlin weren’t giving the Paris gallery these artists a show here and there, and the next thing you know, representing them exclusively.

We’re seeing a lot more of are two galleries proposing and then presenting an art fair booth in collaboration. And another example would be, one gallery has a very well established artist and one gallery has an emerging artist, there’s a very interesting dialogue between the two of them. These types of proposals are very popular with the selection committees of the fairs. And it’s a win-win for the galleries participating. They split their costs, and they double their exposure, and so they get into these bigger fairs. And there were a few art fair directors that I interviewed for the book who say that that is actually a very popular thing among the selection committees. So, it’s another strategy in terms of collaboration.

There’s another idea about collaboration that I think we’re going to talk a little bit later – joint events between galleries. It’s happening because galleries in small pockets of the world feel the need to attract an international audience, to let that audience know that they exist. Perhaps, they meet some of these international collectors at the art fairs that they get into, it’s really important to them to bring those collectors back. The most successful of these is Gallery Weekend Berlin. It brings collectors from around the world. And there was a joint event in collaboration among galleries there that were just not seeing those collectors any other time of the year.

RL: Can you discuss the impact of the mega-galleries, and the stage of the phenomenon that we are at right now?

EW: So, the phenomenon is something that’s constantly ongoing. It impacts on each individual artist. Art is very often a slow boil. An artist may take decades before they’re making the work that will enter the canon and be culturally very significant. The mid-level gallery system has, for the last 40 or so years, provided the support system for artists, so they could experiment at a pace that didn’t necessarily have to match the goals of a mega-gallery, the goals of the art fairs, etc. There was a built-in capacity for galleries to have some artists who weren’t necessarily covering their costs, but they believed in their work. The artists still participated in the system, still get regular exhibitions, still get press, opportunities for sales.

And the rise of the mega-gallery has started to make that model or that support system pull apart at the seams. It doesn’t make any sense if profit is your goal or your need, actually, as costs continue to rise. More and more, because of the pressure of the mega-gallery, dealers are finding out that they do not have the time to have the conversations with those artists to discover whether or not they fit into the category of the slow burning sort of “future artists in the canon.” The financial pressures don’t really permit that to happen much anymore either, and the number of dealers I respect who have closed their galleries recently have cited exactly that: their inability to have that relationship with artists. And that is part of the reason they got into the business in the first place.

RL: Do you believe that these developments [of galleries closing due to financial pressure and inability to have relationships with artists] are inevitable?

EW: A lot of the people that I know who opened galleries, not because they every thought they were going to get rich, but because they believed that art dealing was a calling for them, are saying “Okay, this isn’t the business for me anymore.” I don’t think a lot of them are looking forward to becoming more corporate. I think they’re hoping that it is a blip, that it will sort of fade and they’ll figure out a way to survive, kind of continuing to do what it is that brought them into the business in the first place.

RL: Can you give an example of how these challenges are affecting established gallerists?

EW: A really good example of a dealer who found herself in that situation was Nicole Klagsbrun. She had a great line in the press release she sent out about why she was closing the gallery that she had had for over twenty years which was “I’m not sick, I’m not broke, this just isn’t interesting for me anymore.” And, Nicole is the textbook example of someone who had a great eye, and an amazing conceptually rich program. But she felt that in order to continue to succeed and to not lose her artists to bigger galleries, she needed to do the sorts of things that she wasn’t interested in doing. She needed to operate more like a corporation, and lose the ability to talk to her artists, to be in studios the way that she wanted to. So, it wasn’t a financial issue for her. It was really that this model, this business, had evolved to a place where it wasn’t what she wanted to do anymore. She has since gone on to a number of projects and collaborations.

So I do see a big trend in dealers who say, “You know what, the brick and mortar sitting there, while I compete at the art fairs really doesn’t make any sense to me anymore, but I have the passion, I’m still very interested in these artists and their projects and I will find a way to kind of bring their projects to the public.” So, there’s a chapter in the book on the post brick and mortar dealer, and there are a few examples of high profile dealers who are doing very interesting things in that vein, and with more time would have added Nicole to that list as well.

RL: How can gallerists best respond to these challenges?

EW: The second part of the book looks at things the dealers actually have control over. And it begins discussing a conversation I’ve had for a number of years with the art dealer Elizabeth Dee, who has been an inspiration to me in the way she has approached things since the recession. The only way that galleries can deal with the paradox that they are faced with now is to not let somebody else define what success means for them. So very specifically, what I try to communicate in the second part of the book is that there are people who are defining success on their own terms, and those are the only terms that should matter to anybody who is an entrepreneur and starts their own business. And letting the system define what success means to you, especially in something that can be as individualistic as running a gallery, just makes no sense to me. I think people have gotten caught up in the glamour and the press, and all the rest of that mega-gallery system, and let that led them to make decisions that they would have never made were that not happening.

RL: How has the rise of the mega-gallery affected collectors and connoisseurship?

EW: It is definitely having an impact on connoisseurship, if only in the way that it’s eliminating the need for individual collectors to develop connoisseurship. In regards to the buying strategies at the emerging level, the prices are so low, it’s a no brainer, just buy a bunch of them, your are not really going to lose that much. In the mid-level where the prices have risen, this is real money for you now; you want an assurance that you are making a smart investment. At the blue chip level, and this is the level where the mega-galleries are operating at, the assumption is that most of these artists, if not all of them, are already in the canon. They’ve been vetted and your money is safe buying that work. So, if all you do is buy from mega galleries, you don’t really need to develop your own eye, you don’t need to study art history. Every choice you make seems, at the moment at least, to be a sound investment. Some of the mega-galleries’ artists won’t pan out, it’s just not possible that they all will, but the majority of them probably will. And so, the mega-gallery existence itself has eliminated the need to go out and learn and study on your own. Of course, at that price level, not a lot of collectors can actually buy consistently from the mega-galleries, and so I am kind of optimistic that the mid-level galleries will continue be a force. And the mid-level galleries can only continue to exist if connoisseurship remains in place and part of the collecting culture.

One other thing about mega-galleries is that I have to praise them for the quality of the exhibitions they create, as well as the fact that they have increased the overall size of the contemporary art world to an unimaginable size. I’ve seen a few mega-galleries do what I think is the right ethical thing, which is to collaborate with the smaller galleries from whom they’re poaching artists. I won’t name names, but one of the mega-galleries is really great at this. They will let the smaller galleries who discovered and nurtured and actually built the market of the artists that they’ve poached, have access to that work over the course of several years. That money is the only thing that helps the smaller galleries survive. So that mega-gallery is doing both, the program that they want and charging prices that they want. By letting that smaller gallery have some of that access, they’re keeping that mid-level gallery healthy. And if that happened more then the mid-level gallery system could keep doing its job of finding the artists and feeding them up to the mega-galleries – that’s all fine – but when the mega-gallery just cuts off the connection of the artist and that smaller gallery, that’s where the real existential threats starts to come in.

RL: Is the poaching of the Mega-galleries dis-incentivizing the mid-level gallerists from investing in artists?

EW: Zooming in and looking at the gallery system holistically, there’s no question in my mind that young gallerists will continue to pop up constantly. We’re not going to see the death of the gallery system below the mega-gallery any time soon. And the mid-level of the gallery system will probably continue in much the same way. What I do see the mega-galleries influencing are the type of people who will be willing to be a mid-tier gallery. I do think what I would call the true believers may make career changes. They won’t sit there knowing that every time they discover an artist, the artist is just going to be poached, and the payoff and the investment they put into it is never going to come back to them. I can’t see sensible people doing that unless they are extremely wealthy, and it’s more a hobby for them than an income.

RL: Are art context ethics strained by the market developments?

EW: Ethical standards are not universal; they’re unique per industry by definition. So, when we talk about ethics in the art market, I like to bring that point to the forefront very clearly, with regards to what defines honesty in the art market, and what could make somebody be honest in a way that the book discusses – being required to reach the mega-gallery stature – is treating your collectors the same way you’re legally obligated to treat your artist, which is to ensure that everything you do is in their best interests. Now, I don’t believe in New York State you have the same legal obligation to collectors as you do to artists, because you’re acting as the artists’ agent, but I think the dealers who still treat their collectors that way benefit from that.

RL: Are art fairs now a necessity for even the most idealistic of gallerists, in order to remain financially sustainable?

EW: How essential are art fairs to any given gallery success varies depending on who you are talking to. And the more I think about it, the more I talk to dealers, I think it relates very specifically to their goals. Very few galleries that I talked to don’t feel the pressure to do fairs. They all are hearing from their artists that their artists think they should be doing fairs, even if they are not doing them. And a lot of galleries will tell me point-blank the fairs are the only way they survive. They’re not making anything close to enough sales through the gallery itself, even through their online efforts, as they need to pay the rent, their overhead and themselves and everything else. So yes, we have reached a point where a lot of galleries do rely on sales they make at the fairs to sustain the business, no question whatsoever. But again, I know a lot of galleries who don’t do fairs, and I think they just manage the expectations, whether they’re losing artists, or are more ambitious than other galleries, is another question. That model is viable, you can eschew the entire art fair system, but you’ll probably will never get really wealthy doing that, unless you have a niche market where the whole world has to come to you. If you’re playing the same game across the board with everybody else, the art fairs are almost critical.

RL: Are galleries providing ambitious content, while blue-chip galleries monopolize the earnings at the art fairs?

EW: There is a phenomenon happening lately, where the big art fairs, very expensive air fairs, that a lot of smaller galleries clamoring to get into are only benefiting the big galleries that are doing them. Partly because it comes to the fact that to get into fairs you have to impress the selection committee, and to impress the selection committee you have to bring something that stands out. Very often galleries translate that into something spectacular, maybe a site-specific installation, or something like that, which really doesn’t have much of a market. Annette Schönholzer, former director of Art Basel, talks in my book about a gallerist virtually in tears at the end of the fair because they had brought something and it didn’t sell, and what were they going to do, this was all the money they had. They’d rolled the dice on this one thing. And she replied, “Well look what you brought? Did you think that was sellable in any context? Why would you think that was sellable here? We only let you in with that because you said that was what you wanted to present.” And her point was that the fairs can let you present it, but they can’t sell it for you. I mean that the younger galleries are expected to bring the new sensational, and literally just to bring the street-cred to the fair, while the bigger galleries get to cash in by more or less selling the brand names that they’re known for.

RL: How can gallerists best respond to this?

EW: The best advice to a gallery who wants to get into the big fairs but doesn’t want to lose their shirt on it, is to propose a booth of one of your artists who is sellable at the time when they’re about to have a major museum show or major magazine cover. That’s the key. Don’t think too much about making a big splash. Time it so that the selection committee has heard of that artist, their show’s coming up and it would be embarrassing for them not to have that artist in the fair. Be a little more strategic, but definitely don’t do the spectacle if you can’t afford to do it. That is a bad way to go.

RL: In the book you cite Tom Weinrich about the breakdown between art criticism, scholarship, and market value. What does this mean to you?

EW: Very specifically, when a gallery would get a New York Times review on Friday, that Saturday they would be flooded with new people. They would come in with clippings of that review, and they would generally sell a lot more that day than they had sold throughout the run of the show. That phenomenon has more or less evaporated. And I think to a large degree when that was really important, when a review would help bring the crowds in and help sell the show there weren’t as many channels to learn about art as there are today. I think The New York Times and Art Forum and ARTNews in America were the only ways that collectors could learn about what was perceived as good. Now they can get information constantly. Those reviews aren’t as critical, so they are not leading directly to sales the way they used to. That has done two things, I think; it’s made the dealers care less about those reviews, and it’s sadly made the collectors also care less about those reviews. And so I am a little concerned about the role that art criticism can play in the art market. Most art critics would say they don’t have a role in the art market. But the fact that they’re talking about their lessening influence suggests that they would pride themselves if they did have an impact in the art world.

RL: Has your relationship with art criticism changed?

EW: My relationship to art criticism has unquestionably changed over the past 20 years. I, in addition to being an art dealer, also do a little art collecting, and I don’t know that I necessarily pay much attention to art criticism when I’m buying. I’d like to flatter myself with saying that’s just because I’ve developed my eye, but that’s the same argument I hear from every collector. With regards to being a dealer, my relationship and thoughts about it are exactly the same. It’s still really important to me that there be a historical record of the exhibitions that we do. That the dialog be out there, that people debate the work that the artists are presenting, and art criticism, really well-written art criticism, is still the best means of having that conversation.

RL: What can you tell us about emerging trends of post brick and mortar gallerists?

EW: There are some great examples of what I would call post brick and mortar dealers, and some of the things that they share as key characteristics. First and foremost, they still have the spirit of a gallerist. They approach presenting artwork the way gallerists present artwork, in a space. They usually kind of sweat the details about the entire experience for the viewer. The other thing that perhaps separates them from a private dealer or an advisor is that these folks still have a boatload of credibility in the commercial art market. No matter what they do, and no matter how they frame it or contextualize it, the bigwigs in the commercial art world still pay attention, because of their track records.

RL: What are Jeffrey Deitch, Mari Spirito and Jay Gorney doing right in your eyes?

EW: The Characteristic that defines Jeffrey Deitch is his own personality. He is larger than life and he’s interesting in and of himself. So, what he’s interested in, a lot of other people find interesting. And he’s got the track record to prove that what he’s interested in is going to be fabulous and worth your time.

The major characteristic of Mari Spirito, other than she is brilliant, is that she’s a true believer. She will find and show the great artists that took her years to develop and discover. And she’s in the trenches. She will show historically very important work; but also some brand new artists coming from someplace nobody knew there was an art scene. So, Mari is a total true believer.

Jay Gorney for me is probably the most interesting, in that I think he’s going to start changing the perception of what somebody can do as a dealer post brick and mortar. Not only is he curating really great exhibitions that are selling very, very well, he’s being accepted into art fairs because of his history and because of his knowledge. The art fairs are still saying that if you don’t have a space we won’t let you in. Jay Gorney is going to break that down, and this is going to have a big impact and implications for other dealers.

RL: Excellent. Do you want to add anything?

EW: No, except these were really great questions. Your attention to this is really impressive. Thank you.

RL: Thank you Ed, thanks for this wonderful conversation.

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Perelman Gagosian Lawsuit: Judge Kapnick admits Fraud Claim


"Popeye" by US artist Jeff Koons

In the latest development in the Perelman Gagosian Lawsuit, Judge Kapnick has dismissed all causes of action, except for fraud related to exchange transactions that included Cy Twombly’s “Leaving Paphos Ringed With Waves.”

The amended complaint had included six claims: breach of contract, breach of fiduciary duty, fraud, breach of the covenant of good faith and fair dealing, unjust enrichment, and deceptive business practices under section 349 of the General Business Law.

This case is important because it raises the question of whether a dominant art context actor like Larry Gagosian has a higher legal burden of accountability and transparency, even that of a fiduciary standard, because of the influence he wields.

Judge Kapnick reinforces that “allegations of superior knowledge or expertise in the art field are per se insufficient to establish the existence of a fiduciary relationship.” The majority of knowledge and power differentials in the art world remain immune to fiduciary review. However, the fiduciary question is central to the complaint, and is referenced twice in the decision, each time dismissed not on substantive grounds, but rather on the specifics of this case. Larry Gagosian’s potential fiduciary exposure appears to be strongly connected to the objective status of the buyer.

The court argues that the “essential elements of a fiduciary relationship are ‘de facto control and dominance.'” There is no question that Larry Gagosian, and those working with him, have at times dominance and control over the market for certain artworks, or even for those of specific artists. Judge Kapnick stresses several times that Perelman contracted through MAFG Art Fund and Macandrews & Forbes Group LLC, and that together they are legally represented, “experienced and sophisticated business investors who entered into negotiated, arm’s-length transactions with defendants.” These facts preclude the finding of fiduciary obligations.

But the decision does not explicitly rule out that someone with comparable influence could be found subject to fiduciary obligations with another buyer. In fact, the court even makes the distinction that the specifics of the relationship between Perelman and Gagosian, who “were friends for 20 years, ‘socialized together,’ were ‘business acquaintances,’ had ‘worked together’ previously and invested together, cannot be addressed because […] Perelman is not named as a party.” Not because such a consideration would be in and of itself impossible. Of course, the finding of a fiduciary standard would not be conclusive in and of itself. Once a fiduciary relationship was established, relief would depend on showing misconduct, and that damages directly resulted from it. These factors can be difficult to prove, and remain a built-in hurdle to uncontrolled fiduciary exposure.

Despite opening the fiduciary door, and then shutting it on these facts, Judge Kapnick focuses on overlapping considerations. The court cannot deny by law that Gagosian “has enormous power to influence, and even set, the markets for the artists he represents because of his impressive roster of artists and his access to and knowledge of the largest private art collections in the world.” As a result, a buyer may be entitled by law to rely on Gagosian’s representations regarding the art market and the value of particular works of art, even if they are sophisticated art collectors and investors.

The potential for increased exposure, based on de facto control and dominance, that can equitably cut through private ordering and force a party to exercise a higher standard of care – call it what you will – feels to me like a harbinger of fiduciary duties to come.

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NYSBA Art Gallery Ethics Panel


Everything You Wanted to Know About Art Gallery Ethics (But Were Afraid to Ask)

Monday, October 21, 2013 from 5:30 PM – 7:30 PM

A slew of cases involving some of the art world’s most prolific figures have raised the ever-growing specter of fiduciary obligations of gallerists and dealers. Gallerists are by definition fiduciaries on a number of levels, often without being aware of this. What most art context actors don’t know is that fiduciary duties trump contracts or oral agreements, and are imposed by courts. In fact, the core of gallery ethics cannot be understood without knowing what fiduciary obligations are.

This interactive panel discussion will present cutting edge insights into best practices for gallerists and dealers and how they can limit their professional exposure. It will also explore many other ethical issues that gallerists, dealers, and artists need to understand now more than ever.

Panelists:

, Andrea Crane Fine Art

, Stropheus Art Law

, Marianne Boesky Gallery

, Sotheby’s Institute of Art

Judith:       We’ve organized questions into three categories.

The first category is Artist Representation.

The second category is Client (Collector) – Gallery Relations.

The third category is Due diligence (provenance and authenticity).

Let’s assume you are the principal of a gallery in New York. You work predominantly in the primary market and you represent several artists in the early part of their careers. An artist whose career is on the rise, approaches you and says she is contemplating leaving her current gallery and would like to be represented by you. Describe your discussions and negotiations with her and the types of arrangements you would consider between you and the artist.

Serra:        I think the initial question that this brings up is when an artist is represented by another gallery. The correct response is that you ask the artist whether they would like to terminate the relationship with the first gallery. Then you can engage in a discussion afterwards. To do otherwise is basically poaching and bad business practice, and elicits a lot of negative feelings with your colleagues as well. That’s just a basic practice.

I think you’ll find most galleries don’t actually have written contracts with their artists, even though I think the legal community would like to encourage that to change. In general, it may be about as informal as a follow up letter agreement encompassing the things you’ve discussed. It might just be completely done orally.

For most primary market artists the commission is 50%, and as an artist gets further along in their career it might be 60/40 and can even be something as little as 10-15% depending on [the artist’s leverage].  An artist whose primary prices are well over a million dollars can make those sorts of determinations in their agreements. But the norm is 50%.

You might also discuss the percentage an artist will share for discounts. There are also the gallery’s responsibilities, which generally include transport, framing, crating and certain basics such as photography, and insurance.

If you are the primary gallery you’re likely going to be the one who is also responsible for maintaining the artist’s archive – and there’s a lot of responsibility with that. You want to keep a good record of who is buying the artwork because later on, assuming the artist’s career grows to museum shows, you want to be able to borrow pieces from collectors.

If you are the primary gallery – and if the artist also has a gallery, let’s say in London – you might be the one for the first few years who consigns the work to the other gallery, which very often entails a 60/40 to the other gallery. So that would still be 50% to the artist, 10% to you just for managing these little extra things.

Judith:       This discussion also includes duration and early termination.

Serra:        In general, I think this is one of those conversations that probably doesn’t get covered too much with the artist. It is just assumed the agreement goes on until one person decides that it doesn’t work.

I think fundamentally from the gallery point of view, we like really to think about it as a partnership. And the partnership is only going to work as long as you both want to be doing it together. I think that’s one of the arguments against locking people into all of these binding terms. That being said, I know some galleries liken it being an indentured servant if you have these locked-in terms. I don’t think the norm for a gallery is to dictate how many paintings it is expecting every month, but I think it would be helpful to have some of these other terms outlined more fully.

Region tends to be another conversation. So if you are at the New York gallery, and the artist has a Los Angeles gallery and a German gallery – you might have discussions about not selling to the other markets.

Andrea:     Actually it’s more of a question to the panel in terms of what are the artist’s obligations to the gallery. For instance, you have an artist who is working in a particular style and has created a certain number of pictures in this style and they are well known for that style and say “I’m not going to do any more of these, that’s it.”

And you go to your collector and you say this is it, there’s no more of this particular kind of painting coming out and then you find out six months later that the artist has changed their mind. Indeed, they are creating more of this particular kind of artwork. So what is the obligation – maybe this is a question for you Richard, what is the obligation of the artist in that case?

Richard:   This is a thing traditionally – as has been succinctly described here – the artist gallery-relation is one perceived as being flowing like the gallery chooses in a very complex dance and there is a mythical space in which the gallery takes on a kind of paternalistic role, the artist gives themself over to this role in the hopes of being freed of a lot of suffering and uncertainty.

The difficulty is that from a legal standpoint, the gallery is an agent, which means that the artist technically speaking – and I’m not saying ethically, morally, or otherwise – the artist can simply say, “I want other agency.” There is no real legal basis for the relationship as it organically has evolved over time.  Now why is that a problem?  Because if that legal regime starts to surface like Atlantis rising out of the sea – then lot of artists confronting situations or difficulties with their galleries are going to say, “well, wait a second, according to the law you are an agent and I have the absolute, unlimited and unfettered right to chose different representation.” So that’s actually just a build-up what I’m about to say, It has traditionally been very useful for galleries to move in a mythical space of undefined relationships.

My message moving forward is that we may be in a historical period of time where it may be a very significant thing to sit down and say, “what are the artists’ obligations?” and to create a minimal or threshold of transparency and professionalism, so that you do have to give up certain mythical real estate. I’m arguing that gallerists may stand to lose a significant amount if they don’t embrace that, until there is recognition of that level of exposure.

Judith:       But specifically to Andrea’s question, you know the promise made by an artist not to create any of such-and-such a style, and turning around and doing that, I mean how would you explain that to your collector, to your buyer that had previously bought something assuming that it was rare?

Richard:   The complexity of the relationships we are talking about is a difficult question to answer. People are motivated by a variety of indicators in their lives. Do they have an emotional tie, and do they have a material tie, do they have a character that has evolved in a certain way? What I am saying is centrifugal forces are increasing such that we need to be cognizant of the fact that we are not talking about 1990 or 1980. We are talking about 2013 we are talking about a rapidly changing, almost unrecognizable market.

Let me just throw another thing to think about – if it has been the mythical space that the gallerist is the one who is producing the structuring, we can’t anticipate artists going out and seeking counsel and trying to legally structure the relationship in a sophisticated way with the gallerist.

So there is a noblesse oblige question for the gallerists, even if they are not interested in saving their own skin. The  initiative has to come from the gallerists in order to produce the kinds of obligations because your question is this – “How do I get a good commitment from individuals that involves both legal and ethical dimensions to work?”

And in the past there are all kinds of informal discipline and methods that are exercised. Ostracism is the most popular one in the art world [laughter], to control anti-social or asocial elements. It’s a big world now, and I don’t know that ostracism is that efficient any more in lot of cases.

So, what I’m saying is that if you actually want a trusting relationship, you may actually have to give up some mythical real estate. You don’t have to give it all up, right?  But you may have to give up some of it. Otherwise you may not have leverage of the kind necessary to maintain that mythical space. If mythical spaces produce enchantment and magical relationships – and I’m not making fun of that – I think there is an enormous amount of emotional energy required for these life paths.

Serra:        Just one other thing is that part of the same conversation and is one of the big problems for a gallery – to find out one of your artist is selling directly from the studio. And that’s a real violation to what your relationship is and supposed to be, but as Richard is saying, I mean, I don’t think ultimately there’s too much a gallery can do other than say I won’t…

Richard:   Unless you have something on paper and the artist understands, that’s actually a really significant part of the relationship.

Judith:       Well it’s possible to construct the agreement so that it’s the exclusive power to sell. It’s similar to a real estate brokerage contract, so if the artist does sell from his or her studio in violation of that agreement, then that artist would owe the commission to the dealer even though the dealer had nothing to do with that particular sale.

However, in your experience I don’t know either of you has ever constructed a contract where you are the exclusive seller of an artist or whether it’s an exclusive agency where you might have a regional exclusivity or a exclusivity in terms of medium – for example, you sell the artist’s works on paper and someone else will sell paintings or sculptures.

Andrea:     Well what I found in terms of representing artists, or certainly in my case, estates of artists, is with the increasingly global nature of the business, fewer and fewer artists and estates want to enter into that exclusive arrangement, because if they meet a collector from Rio for instance and they strike up a relationship with them, they may wish to just transact themselves. I’m finding more and more, that people just don’t want exclusivity; they just don’t want to lock them selves into a relationship. Again, whether it’s an artist or whether it’s an artist’s estate.

Judith:       Maybe we can move to the next question, which is whether you as a dealer purchase works of art from the artist you represent.  What kinds of legal and ethical considerations are at play?

Suppose you buy works of art from an artist – and this happens quite frequently – in the early part of that artist’s career when the works are not very expensive and then later on, due to your work as a gallery, the artist’s works become very valuable and at some point you may decide to sell. What would you do? Do you owe any obligation to the artist?

Serra:        If you look at the gallery relationship coming out of historical patronage, I think it’s a very normal part of the process. It’s an artist you represent, so you do invest your own funds, and I think it’s a very normal expectation – it benefits the gallery as well as the artist.

And, again, you would let the artist know that you are the owner of the work – it’s that sort of maintaining the archive and keeping that information available – and this is where we go back to Richard in terms of fiduciary duties. If you are purchasing an artist’s work that you have a fiduciary relationship with. I think I think that’s the main obligation

Richard:   Going back to what we’ve been discussing, the thing is we have a big confrontation between the informal and formal. An agent is somebody who has to account for every profit. That means, if your agent gets a dime for every apple that person sells, if that person keeps an apple and sells that apple for fifty cents then I say the forty cents are actually due to the beneficiary, the entrustor – that’s the law. So again, these are gray zones. That’s the legal side of that,

The other side of that is the question of self-interest.  If you are holding onto a work because you believe that work is exceptional and there is probably no other reason to hold on to the work, you are already in sense depriving a good faith buyer, or a third party, from transacting with your beneficiary as an agent. That’s a first order conflict of interest.

So what is the problem with the conflict of interest if you are a statutory fiduciary actor?  That means that a court can come in at any time and find a self-interested breach, which means whatever benefit that accrued – let’s say you legitimately as a gallerist have factored that into your proper dealings with the artist so that the legitimate profit that you want to achieve from representing the artist is achieved through that type of transaction. If the court later finds that it’s a self-interested transaction, you may be deprived of your legitimate gains.

The problem with fiduciary obligations is that they are court determined. But a great measure of security would be created, if at that specific transaction, the artists recognized that this was part of your agreement set forth in a document signed by the artist – two paragraphs saying yes, whatever the value that accrues to this particular work I consider part of the equitable compensation on the part of the gallerist. That won’t necessarily save you entirely, but it will be a huge barrier to uncomfortable surprises in the future.

Serra:        I think in most situations, I don’t know that most galleries or people go back and give the artist a percentage when you’re later selling the work if you bought a work in 2003 for forty thousand it’s now worth two million and you sell it, I can’t think in most situations where somebody goes back to the artist and gives the percentage. It sounds like…

[interjection]:  Well in California, you have to – it’s [or at least, was] the law.

Andrea:     Yes, in California you do, but I mean it sounds like the resale laws.

Judith:       But that’s a different percentage according to the resale royalty, this is not the commission. And actually there’s a case that is presently on appeal in which a federal district court of California [Estate of Robert Graham et al. v. Sotheby’s, Inc., Sam Francis Foundation et al. v. Christie’s, Inc., 2012 U.S. Dist. LEXIS 77262 (D.C. CA., May 17, 2012)} found that the California resale royalty right law is unconstitutional because it violates the Commerce Clause of the United States. But that remains to be seen, that’s a very good comment.

Richard:   Well, Judith is right to make this distinction – one is the statutory resale right provision- there’s nothing to do with the fiduciary obligations, this is why I am saying I am using the “F” word as many time as possible today so that it gets rooted firmly in your minds: the fiduciary obligations are not to be confused with anything to do with contract at all. Or statutory rules.

Female voice:    Why did this come up in the first place? Because lots of things were being sold at profit and the fiduciary responsibility wasn’t being taken care of, if you will.

Serra:        I think though in that situation as well with the resale rights and what happens in Europe as well, is you’re also not just looking at your primary dealer making a profit, it’s any of the concurrent secondary market trading of the work.

Female voice:    If you buy something and you hold on to it as an entity, then it’s no difference than if you are an individual.

Richard:   I will beg to differ only because if a good faith third party buyer buys it he doesn’t have any fiduciary duties. Therefore a questionable resale from a good faith buyer cannot be mapped onto a fiduciary breach – and I really caution trying to keep these concepts clear in your minds because otherwise you’ll be disabled from understanding the risk and exposure.

Judith:      I think what [Serra] is observing is that this is where the first buyer (the gallery) is also selling it.

Richard:    The real caveat here is that this really requires deep, deep focus. The problem again with fiduciary duties, is that when there is a breach, everything that fiduciary has done – not just the things related to the breach – are subject to review.

This is something that really needs to be fundamentally understood, so if you done 99 ethically perfect transactions and one transaction involves an egregious breach of fiduciary obligations, all of those 99 transactions could be subject to something even called the worst word beyond the “F” word, is that it was a equitable tracing, which means that good faith buyers in the chain that acquired works, their works may be pulled away from them, because the person who disposed of the work didn’t have the right to do it.

So what I’m saying is, once the “F” word is there, one is on a different territory entirely.

Judith:       (To the audience) Are there any questions about the artist representation?

Male voice: If you buy a work from your own beneficiary, is there any third party process to protect the beneficiary in terms of the price being set?

Richard:    We just have to see what can be done once you get onto the fiduciary terrain, it’s very open to litigation and court interpretation, but what you can do is produce transparency about benefits that are transferred.

Judith:       In the contract.

Richard:    Yes, the contract won’t eliminate a potential for a fiduciary review, but if an artist says, “I willingly give up the added value that will accrue over time to this work because the gallerist is doing xyz, and that is for me an equitable deal. That is from a fiduciary standpoint miles away from an interested fiduciary simply acquiring the work, nothing on paper, no open discussion about the accrual of any benefit in the future – these things are miles of miles apart in the fiduciary analysis.

Did I answer your question?

Male voice:        I was more focused on… I actually came out of estate work where anyone who is a fiduciary always has the court protection.

Andrea:     The gallery world is pretty informal.

Female voice:    I want to ask about situations where a gallery repurchases work from a third party buyer, either during the representation or immediately thereafter and turns around and sells it after representation terminates. I want to know what you think about what the gallery’s obligations are to the artist that turns around and then resells that work at a higher rate whether that gallery owes the artist that 50% of the appreciated value on the resale treated – is it ethically a re-consignment under those circumstances?

Serra:        We treat it just as a normal secondary market transaction.  Most galleries, if you represent an artist, part of what you do is also manage their secondary market as well, so ultimately an artist benefits – and this gets back into the resale question – but ultimately as the overall market for an artist increases through the secondary market, that will ultimately push up the primary market.

Female voice:    My question was necessarily directed at a gallery’s activities in supporting the secondary market or repurchasing that work at auction or in some other ways – I’m talking at a slightly lower echelon on where there the artists have a little bit less power and protection.

Serra:        I can’t think of a specific situation where at that point you would give the artist another [commission] if you are purchasing the work [on the secondary market]?

Richard:    Now we’re into this really murky territory where we have to collectively discuss our experiences. Going back to what I was saying about proscriptive and prescriptive. [If a fiduciary has merely the duty from refraining from things like self-dealing, then the standard of care is largely proscriptive. If on the other hand, a fiduciary must be pro-active in producing outcomes for a beneficiary, then the duties are more prescriptive in nature.]

If you have a very strong representation relationship with an artist, it could be understood that everything you are doing is for the benefit of the artist’s good, then that transaction might be subject to scrutiny. Otherwise if you are buying on an open market, acquiring a good and reselling it – barring the existence of a statute to the contrary – there is not a clear cut obligation there, there is no proscriptive obligation, nothing on the list it says you can’t do that.

But for example there are certainly going to be cases in the real world, where there is a particular artwork whose disposition in some way might have a fundamental market effect on an artist’s career standing or pricing, and if some how a gallerist were to dispose of work for a personal gain, and that causes an impact on the artist’s career, certainly that goes back to the fiduciary corner.

Andrea:     There are certain scenarios where a collector who might have purchased a particular work would come back to a gallery, ask the gallery to repurchase it – if one were to repurchase every single piece of artwork, they would have to have very deep pockets, and then what might happen is that someone would sell something at auction That does create a bit of a problem between the gallery and the artist, and certainly for the collector. So what are the obligations there?  If the gallery says ok I’m not going to buy this back because I would be broke – and then it shows up at auction. That relationship becomes somewhat tenuous, as you probably know.

Judith:       And one more and we’ll go to the next topic.

Male voice:  It seems underlying this whole discussion is this informal relationship that the galleries have with the artists, and I wonder – speaking from the legal perspective – if being so informal is really a sustainable model. If you look at the Knoedler Gallery situation, the forgeries, and galleries by and large not having in-house counsel, maintaining this comfort level of being informal, whether this is something that is really sustainable going forward?

Serra:         Richard would say no. [laughter]

Richard:      I would say [Richard add this]

Judith:       Well traditionally, the relationships between galleries and artists have been quite informal and it appears to be crass if you sign a contract. It looks like a deal, but that’s really what it is. And it’s good for the artist and dealers to recognize that this is actually a business, and I’m really a proponent of putting these contracts in writing. I think that everybody benefits. Not necessarily a long, written document with a lot of legal terms. It can be just a simple email or a letter memorializing the understanding that you’ve reached.

I think that can lend a lot of clarity to the relationship and get the parties to really identify what the terms are and what their understanding is, before something goes wrong because this is the point where they really want the deal to work. Later on, if there is some misunderstanding, they are upset with each other and it will be more difficult for them to agree to anything.

Richard:    Let me describe why what Judith said is exactly on point.

Ninety-nine percent of contractual breaches are not litigated, which means they never makes it to court, but what happens if people are in a breach of contract situation and they’re pissed off – they won’t want to work together again, or they will be in a long, drawn out, emotional conflict.

The fascinating thing is that there is a common misperception that legal documents are somehow going to be pulled out, and you are going to be whacked over the head with them. In the vast majority of cases, nothing like that ever happens. So this deep-rooted fear of having some type of piece of paper with some type of guidelines about the relationship – even if it was just structure: these type of fiduciary duties, for example – when you say, “Listen I’m your dealer but I’m not representing you. This is not part of my business model or the opposite.” So you get some kind of basic agreement about what people are expecting from each other. That would actually reduce the aggravation and a lot of the loss of productivity and the animosity created in this informal business, because these informal relations only work as long as everything is going fine.

The problem is if you had some kind of anchoring document that you could go back to, if there’s a conflict you could go back to your common ground. You can go back to your overlap, and then use that as a bridge to try and negotiate your conflicts.

If you have nothing, then there are just spiraling irrationalities, and that in the art world is the problem that we deal with.

All I’m saying is spiraling irrationalities plus the fiduciary exposure we’re talking about – that’s a very explosive mixture.

Judith:       Moving to the next topic – collector relations with the gallery, a segue from our previous discussion.

Let’s say one of your clients acquires a primary market work, and by primary market, I mean the artist’s or estate of the artist’s first sale of a work (the resale would be the secondary market). One of your clients acquires the primary market work from the gallery with the understanding that he will not resell for five years and then if he does the resell, he’ll go back through the gallery and not at auction. You discover that a work you sold to a client is up for an auction, and featured prominently in the auction catalogue. The artist is upset at the gallery and the collector. How do you handle this?

Serra:        As a preliminary matter, sometimes you will see on invoices, there will be a statement where that will be written at the end of it where you sign. From what I understand, it’s not actually an enforceable clause, even though people include it with some frequency.

Andrea:     Well I think something that we have discussed as a panel before is sometimes the word of the law, or what is appropriate goes against what you believed to be appropriate business practice. So I have been in situations where I sold a collector a piece, which ends up in an auction catalogue.

Yes, you get into somewhat interesting situations where you really are making your best decision about the people with whom you are working and you want very much to place something in the good collection and then all of a sudden it does appear in an auction catalogue and the artist is probably not that pleased – so again how you resolve it? I think it’s really dependent upon your relationship with the buyer and your relationship with the artist and I think every case is very different. I mean you can ostracize and not work with that person again, but that’s not necessarily realistic all the time.

Judith:       Yes, of course. But the art world is quite small and it’s possible that word may get around.

Serra:        And we’ve had situations where we’ve been able to get a client and get something pulled from auction, or we might work out a private sale with the auction house before hand; or, we’ll jump in and protect it, if that becomes necessary.

Andrea:     I would like to pose another scenario that actually has been eating away at me for some months. Let’s say you have inherited a 1936 Picasso from your grandmother, it is the only asset you have. You go to the auction houses, you negotiate a price. You are very excited, it’s going to be in the upcoming Impressionist and Modern sales in November.

At the preview, hanging beautifully, lit beautifully – Mr. Smith comes in from Park Avenue and he says “I like this 1936 Picasso.” A specialist says to Mr. Smith, “I’m glad you do like this.  I have something in private sale for you, also a 1936 Picasso. Come to the back room and let me show it to you.” That specialist gets a commission from his private sale but not from the auction. What is his fiduciary responsibility in that case?

Richard:    Well this is an easy question because the auction house is also in an agency relationship, and therefore they are obligated to have only the best interests of the seller at heart, and if they are conflicted, and that conflict is made visible, they owe you any damage that you suffered, and the loss you suffered, by virtue of the duties that are owed to you by the agent. And it could be probably be vicarious responsibility, because that person is not acting on his or her own, they are acting under the umbrella of the auction house. The auction house is without question a 100% liable on any loss of income to you derived from that type of self-dealing. No question.

Andrea:     But do the specialists understand this?

Richard:    The problem is this. We’ve had events here, and we’ve had auction people here as well, and we go through this same fiduciary analysis and chins drop. The question that you are posing, again, flies in the face of custom, as we understand it. There are a lot of murky practices and these murky practices have been cleaned up somewhat in the course of time.

The auction houses have gone through enough litigations in regards to some of these fiduciary duties that they are aware of it, but the short answer to your question is, no. There are a lot of things that are almost impossible to detect and there are lot of things that, in addition to being impossible to detect, are political. So as we all know – some sellers, some buyers are going to be treated one way, and others another way within the business model of both galleries and auction houses – and all of this is subject to fiduciary review.

Now I’ll try and come to a useful closure on that. All of that won’t matter for ten thousand dollars, or even fifty thousand dollars. But once we start moving up into the territory where the lost value is such that – and the actors are sophisticated enough – it can definitely, definitely be an increasing issue.

And the last bit of an answer to that is the auction houses will tend to historically wait for the bomb to explode before they build the bomb shelter.

Judith:       So many auction regulations have taken place because of a lawsuit; in the past 25 years I would say almost every new regulation in the auction house practice has been the result of a lawsuit.

Richard:    I mean just to add that you as the seller – again it’s one of these mythical relationships, you don’t want to be ostracized, blacklisted, or put on the third tier. The legal situation is that the auction house is your agent. You would have a right to go and look at the books; you would have a significant review if you pursued it by law. You would have to litigate or whatever, but there’s a very interesting disparity between the informal relationships as they are practiced and the legal regime underlying them, trying to give balance to these inequitable power relationships.

Judith:       Turning to the next question in the client category, you have a weekend house in the Hamptons and you socialize with some of your collector clients, and one of your clients wants you to advise her in developing her art collection. She purchases art from your art gallery as well as from others. What obligations do you have to this client and are there conflicts of interest between your client’s natural desire to acquire art at the best price and your obligation to obtain the best price for the artists that you represent?

Serra:        I think this is actually a pretty common occurrence within everything we all do. In general on the primary market, I think most galleries will more or less stick to a 10-15% discount.

In other cases, you could work out a retainer situation and so it doesn’t matter what you are negotiating. You already have your retainer. I find this to be one of the cleaner ways to do things if you are not being from the advisor side but from the gallery. I know a lot of times when we have an advisor come back to us after the fact and ask for both the discount and the commission.

Sometimes someone just thinks their friend is taking them around. In general for primary we try to say it’s either the discount or your commission.  We cant usually accommodate both.

Andrea:     I think it’s less straightforward in the secondary market and that many of the prices are owner-driven in many ways. That is, a particular collector might say “well I would sell it if I got X price for it.” So you are representing them to a certain extent and saying ok I’ll represent you to sell it but then with the buyer I think you have to be very clear that this is a full price and here are the market comparable, and I certainly don’t know how low he really would go, but you need to know that this is an aggressive price because you are looking for a Max Ernst for a certain period and he is got it. And the rules are pretty different for secondary and primary.

Serra:        There are sometimes more people involved in the equation than just the gallery, collector, and artist. I have a situation I’m dealing with. A gallery sells a work of art to the collector, an art advisor is involved, and the gallery represents the artist. A few months later, in my role as collections manager for the buyer, I look at this sculpture and say, “hmm, I see condition issues.”  So now we want to resolve these issues, and of course we go back to the gallery, and we go back to the living artist to see how we can resolve it. But the client’s unhappy, because they don’t want to have to pay to resolve these condition problems.

So I guess I’m asking about this in terms of fiduciary responsibility. Who’s responsible in this case, if there’s an art advisor  involved? Is it the advisor’s job to have checked condition issues? I wasn’t involved in the transaction at all, I came along later.

Serra:        Excellent question thank you, I’m glad you got to ask it!

Judith:       The layers of responsibilities of an art advisor. Do you want to start?

Richard:    OK I’ll do my two cents and then…

Very briefly. The consigner, or the person selling the artwork, and the person representing that person, be it an auction house or gallery, they have a fiduciary relationship to that seller. The art advisor also has an agency relationship, but we have to go back to the sliding scale between prospective and prescriptive. How dependent is the buyer on the art advisor? Is it a sophisticated buyer, or is it a non-sophisticated buyer? And, something that art advisors are very well advised to consider their agreements so that they really circumscribe what it is, what duties they are taking on.

So in the case of damage to the work, let’s say the person buying the work is unsophisticated, then the art advisor could have significant fiduciary exposure because the art advisor is holding out to be an expert, the buyer client is reasonably relying on that opinion and as a result of the negligence of that person there’s damage to the buyer.

Most advisors are going to try and structure the relationship such that they don’t have too high a burden of diligence, because it’s going to destroy the business model, and you can’t be responsible for everything. The

Andrea:     Have they asked for condition report? The art advisor?

Serra:        I don’t believe so. I saw nothing in the record that I have seen.

Andrea:     It is just my opinion that if this person was, had retained or was involved with an art advisor that one of the most basic things that you do is to ask for condition report. And whether again it’s a contemporary piece or it was something painted in 1740, one of the most basic things to do is to check condition. It is paramount. It’s just what you do. I think that does show a little bit of negligence.

Serra:        With a living artist, do we consider repair or do we remake, which can be done as well. There are costs involved.  Whose responsibility should that be?

Richard:    Let’s just go back to the schematics. The person who would litigate is the person who suffers the damage, here the buyer. It is the buyer who suffers the damage. So did the buyer act independently or did they depend on somebody’s judgment?

In this case, typically, we have to argue that if the art work came to the person through the art advisor. “But for” the activity of the art advisor, “but for” the negligence of the art advisor, the person wouldn’t have acquired the work, on the face of it, without expressing any legal opinion here, the art advisor is going to talk to the insurance company, if they have insurance, because this is a clear case of what you would call “professional” malpractice. It doesn’t mean that anybody consciously made an error, or maybe they just didn’t exercise appropriate diligence and involvement. Remember these are exponential scales.

Do you need to go to the ends the earth with an electron microscope and encyclopedic knowledge of all chemical composition of paints? There is a limit to what an individual can do. I’m not commenting on particular facts in the case.

The artist is not relevant. If the work is open for inspection and nobody requested it. Now, there is a legal regime that says that if the defect was invisible, entirely invisible, or requires significant effort to discover, that may say that the seller was not forthright, or the seller was aware of or should have been, of such defect. We are getting into some specific commercial terms for the sales of goods.

So that may play a role but, let’s say the seller says nothing to the art advisor, who has no indications as to the defect in the work, to the extent that their knowledge extends, and they understood the work to be intact and complete as it was, and they made no statements beyond that.

Judith:       Absolutely, it depends also on whether the seller has asked the buyer to examine it and the buyer either refused or didn’t take advantage of that opportunity. It would also depend on how visible the damage is.  If there is a slit down the canvas . . .

Andrea:     Then it’s a Fontana! [laughter]

Serra:        What if the artist knew because she has one that these things will fall apart, which does the artist have responsibilities?

Richard:    Artist has no obligation. The artist is not party to the sale.

Judith:       Moving to the final topic is the one that everybody has been waiting for. . .

What are your due diligence obligations to purchasers when selling works consigned to you by a collector with respect to authenticity and provenance? What questions should you ask an intermediary who would like to provide you with artworks new it to the market, for example, but the intermediary refuses to disclose the origin of the work, and explains that the seller insists on remaining anonymous.

Serra:        You call an insurance company and see if you are covered. (Audience laughs)

Andrea:     The first thing you really have to do is go through checklists, is it in any catalogues, is it in the catalogue raisonné? Has it been any shows, are there any label on the back, in any literature, is it signed, what’s the condition? There are very simple things you can do. If you have been in this business for a while, I know the questions to ask under certain circumstances. If something comes up, and you are a little bit unsure about it, I might be tempted not to touch it. If there’s a gap, for instance, in provenance, you do everything you possibly can to figure out where it’s been. With restituted works, and with German pictures and Austrian pictures, where there might be a gap in provenance from 1938 and 1945, you do everything you can and to make sure this that there isn’t a claim. This in relation to things that just appear out of nowhere.

Judith:       What are those types of things you would do?

Andrea:     Well you contact the Art Loss Registry, you make sure that there is an Art Loss Registry certificate. If you can’t do the due diligence, and if you can’t prove that it’s been in these hands, and when, I think you just have to figure out a way to not transact. That’s my opinion.

Serra:        It’s not unusual to request anonymity, that’s normal. You have to do your research, and part of that is exhibition history, literature, and provenance. It’s not good enough if they just want to be anonymous.

Judith:       How much due diligence do you do if the consignor is new to you?

Serra:        I had situations where you see things that look really off. I had a situation where somebody came in and said they bought a David Hockney at some random gallery that I had never heard. I looked at the picture and it did not look like Hockney to me. But I didn’t want to say “oh, I don’t think you have a Hockney.” At that point, I just said, unfortunately we are not interested. That ends up being the statement we use, if it is something that we do not think is authentic, to protect against liability. I never comment or disparage the work itself. I don’t just don’t take it on consignment.

Andrea:     I think that there are other red flags as well. Someone who comes to a gallery with a major picture, and you ask them whether they spoke to the auction houses as well. And they respond, no, they want to be really discrete. Well that’s a red flag. It could be a divorce situation. I’ve certainly been in situations where someone is trying to sell something and it’s co-owned. So you rely on your own experience and own brain to assess out a situation. Divorce is certainly a red flag, and you just want to make sure there are no liens or encumbrances on a piece.

Judith:       Why would some desire to deal privately, as opposed to through auction?  There could be a debt, or they may not want people to know that they are deaccessioning from their collection.

Andrea:     Absolutely, discretion. There are good, there are very good things about selling privately, as opposed to the auction houses. Again, discretion. It can happen much faster than the auctions because there is a cycle with the auctions. And also personal relationships. I have a number of people with whom I have worked for twenty years, and they will say, Andrea, I want you to handle this for me, because I know you, and I know how you are going to do business. So there is a number of reasons why you go private, and there are also a number of off reasons why you would, and there are a lot of people who will turn a blind eye to those.

Judith:       What advice can you give to a mature artist who is not yet represented?

Serra:        One of the things that happens quite frequently is the rejuvenating of a career. It has to be a situation where there is a desire on both sides, that it is a good fit.

There have been some amazing examples of artists who have almost fallen into obscurity, or their market are much below what it should be. It’s always really wonderful if it happens while the artist is still alive, as opposed to the estate being rediscovered. I[JP1]  don’t know that it is that different from other situations. In general, when we take on representation, one of the places where it usually comes from is our own interest, but also when another artist we work with or respect recommends an artist. Maybe one of our collectors recommends an artist, or a curator that you respect. Those are the sorts of references that you take most seriously. Unfortunately, the worst one is the person who walks in and drops off their portfolio.

In terms of a mature artist, let’s say a curator who always had an interest in an artist who had a major career and now doesn’t. Sometimes they look at what you are doing in the program and they think that you should really take a look at this person.

Judith:       Unfortunately the opposite occurs, where an artist you represented for a long time is in decline. How would you handle that type of situation?

Serra:        In a couple different ways. Sometimes, it just becomes an obvious situation in your relationship. You are not making sales for them, and/or they are not making it on to the calendar. We work off a three-year calendar. So you should expect to get your solo show in the main space every three years. If you are not, that is a sign that things are not going great.

We have negotiated things for an artist that doesn’t make sense for our program any more by speaking with another gallery, and making a nice easy transition. That is the most amicable and nice way to work. But the straight dropping of an artist, it does happen, but one of the bigger questions there becomes the responsibilities to your collectors. If you placed a lot of the artist’s works and now you don’t want to work with that artist any more also sends a signal out. You’ve advised a lot of people to invest on an artist. So lot of times it’s a very tricky, delicate situation. It looks like you have lost the faith as well.

Judith:       Thank you all for your participation. We can continue our discussion at the reception.

 

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15 Minutes on Emerging Artist Survival


 

Talk given by at the Presentation Party Night at Bat Haus in Bushwick

Click here for the Stropheus YouTube Channel

Transcript:

In this post I am going to be talking about survival as an artist in 2014 – Below are five main points that you should have in the back of your mind as you are trying to make your art capable of having a sustainable career.

1. An Emerging Artist Is More Than Just The Work.

I am going to start with the premise that while everything you are doing as an artist may appear like purely play and enjoyable, there’s a lot of significance going on with what you are carrying forward with your work. There are two aspects, two memes here that I want you to bear in mind.

The first thing: both your life and your work are obviously valuable. But for your life and your work to be carried out through situations that could be ambivalent or difficult you’d better be prepared. You’d better have some equipment on and you better know what you’re doing with that equipment in order to carry those things that are really important to you forward.

So what I’m going to try to do here is work in a metaphor, Some minimum knowledge, some minimum capacity, some minimum equipment that you will want to bear in mind before you continue to deal with the process of being an artist in a world that is at times both ambivalent or at best agnostic to your efforts.

2. An Invoice Can Mean A Lot

Here I’m going to go through the notion of ‘an invoice’.  All of you who are artists produce works – works you are going to be giving to other people at some point for money – for less money, for more money, for whatever it is that you want to have for those works in some type of exchange, or some type of compensation – as opposed going into the world of contracts.

Everybody hates contracts, that sounds very legal and very demanding.  I’ll just talk about the notion of always doing something on paper in the form of an invoice. It could be on a serviette or in any form possible. You will want to put a couple of things on that simple piece of paper which will help you as an artist moving forward, which will give you agency, give you the equipment to carry your work forward – carry the things you value forward.

2.1 Title

For example, if you put in an invoice that until you see the money, the title to the work stays with you, that means you have the legal rights over it.  Even if you give the artwork over to somebody until you have received the full amount or whatever you are asking for, you retain title.  You write that on the invoice

An invoice, which is a contract, can be a simple piece of paper on which rests the contingency: the title of the artwork passes after payment. That means that if that is simply there, and it accompanies your artwork, the artwork is still yours officially until you are compensated. It means it’s comparatively easy to get your artwork back if full compensation isn’t made.

Think of it as if you’ve got your baby’s on a leash.  They’re not going anywhere until that money is paid.  Metaphorically, they’re not going to get lost, or run out into traffic.  You got your work on a leash, until you’re compensated or until such time as you decided that you’ve been adequately compensated and you can move forward.

2.2 Copyright

What else can go on the invoice?  Don’t forget, we’re entering a period where a significant amount of visual art will be consumed online, will be consumed in various electronic forms in the future. You produce a visual piece of art today and you give it away to somebody, on the invoice point out the fact that they can have the object, they can enjoy the object, but you enjoy the copyright. Copyright includes all the things related to making reproductions of your work, adapting it, assigning the rights, exploiting the work, Make the work available by technological etc.

So, even a serviette with just these two phrases written on it will facilitate the value of your work and your career.

2.3 Availability

At some point, if you struggle long and hard enough you are going to have a body of work. Interestingly enough, the first works you do even though they may not mean much to you, in the course of time they will to people who want to understand your work. You may have emotionally moved on, but somebody, whether it’s a gallerist, a curator or someone else will really, really, want to know where your first works are, or the first works of significance that you’ve made. Why? Because they provide context, they provide history to your production.

A lot of what you are doing is just what you’re doing in the moment and that may be fantastic and that might work for you, but a lot of cases it won’t be enough for the people who want to support you and be behind you.

So, your invoice should contain at least as much information about the buyer as possible, in order for your gallerist, a curator, a museum – anybody you are professionally dealing with to later be able to find your work.  And also, it this ensures the person you’re giving the work to is made aware of the fact that you may want to get that work back – want it loaned back to you in the future for maybe a retrospective or some kind of contextualization of your work. So you should include these terms in the invoice – that the buyer agrees to make the art available upon reasonable request For exhibition at the artist’s studio, galleries and museums. Remember, if all your works gone, the people who care about what you are doing can’t bring the work back, can’t reconstruct your narrative.

2.4 Right First Refusal

So, your work goes out. You’re five years, maybe ten years later in your artistic career now. You may have representation or something similar at this point.

You don’t want works that are meaningful to your body of work, just randomly floating out there in space. This can be very, very disruptive for your gallerist’s or your representation’s ability to work well with your career, Stabilize your career, ensure you have a solid footing beneath you.

Again, metaphorically, do you want your work speeding of along the highway, or do you want it taking the off ramp, perhaps to your current gallerist?

So, if you include another provision in your invoice, again on that serviette with one line, to say something like this:

“For the artwork held by the buyer or any transferee of the buyer may be sold or otherwise transferred, the artist has the right of first refusal.”

What does that mean? It means that the person who has the work comes back to you, and asks you, “do you want to match the price I can get for this or should it go onto the highway of commerce?”

These are the four elements that – if they are included in any type of documentation, which you should for your own interest, will be very helpful for the people who want to help you.

3. Gallery Representation

How do you get representation? Here is the top ten list of where and how you can recruit representation:

1.   Artist recommendation

2.   Curator recommendation

3.   Solo or group show

4.   Art fair

5.   Slide registry or flat file

6.   Submission or open call

7.   Other Recommendation

8.   Social Event

9.   Open Studios

10. Jurying a show.

As you can see, the number one way is to get representation in a gallery is to be recommended by an artist already at the dinner table. So, unless you are going to galleries familiarizing yourself with the people at the table and you have legitimate organic overlap with them, you are most likely not to get representation.

If you look at where solo or group shows is (position of three). Now, that doesn’t mean that 1 is maybe forty or fifty percent of recommendations lead to representation, but that number 3 does offer a significantly lower chance than you’ll get with number one 1 and so on.

To succeed with your career as a sustainable artist, it is very important not to confuse production of high quality work with the path to representation.  You must understand how the world works in this way and respect it.  It’s not just about being a sycophant and just hanging around and being a pest. It means finding community who are at the table already and seeing whether it’s a good fit, or developing that fit organically

So this is the notion of recruiting. So what don’t we want to do? Don’t send in blind submissions, this is probably not known to a lot of people, but there’s nobody out there wanting to see stuff. If there’s no connect created organically by hard work, nobody wants to see it typically.

Also, don’t to walk into a gallery with your portfolio asking for “just five minutes”, don’t bring your portfolio to someone else’s opening.  Don’t ever approach a gallerist at a fair, don’t interrupt a gallerist while he’s working and don’t harass people

If you can’t build up the relationship organically, don’t try to impose yourself.

4. The Consignment Relationship

When you as an artist give an artwork to a gallerist, that gallerist does not have title (as discussed in ‘invoices’.  As an example, in New York state the artwork is yours, and you only lend it, effectively, to the gallerist for the purpose of sale

That means that you ‘consign’ it.  The artwork itself is what’s called ‘trust property’, and the profits from the sale of the artwork are trust property.  They do not belong to the gallerist, they belong exclusively to you, the artist, without question by law.

It is almost impossible by contract to change that, whether you’re signing in terms contracts or with the verbal agreements that you may or may not make with the gallerist.

Bear in mind the law is not terribly interested in such agreements. Instead, it has imposed a very high standard on that relationship by law. This means you do not give your artwork up. It does not belong to the gallery, does not belong to the gallerist, it belongs to you. You have title. If that person sells that artwork, that money by law has to go to a separate account for your benefit. It cannot be commingled with the gallerists other moneys.

If that money is commingled, it is considered a crime, for example, in New York. It’s a misdemeanor, but is still a crime as of a year or so ago.

4.1 Fiduciary Obligations

There is a big F word in the art word that many of you will never have heard of, ‘fiduciary’ obligations A gallerist is your fiduciary. That means the gallerist owes you a very high standard of care, in terms of accounting to you and transparency.  In the real world, however, this doesn’t seem to be the case; the gallerists choose you. They may in the obstructed of the relationship be making all kinds of decisions.  Ultimately, however, by law, they are obligated to do what you instruct.

It sounds counter-intuitive, but that’s the law.  They are your agents. That is what the law says about that relationship.  So if you if you find yourself in a relationship where you get into a conflict with a gallerist – I’m not saying that you should seek conflict or try and lord over the agency factor against them – you have significant recourse. And if you have the right vocabulary to articulate that, the law is on your side immensely.

Typical things that the fiduciary duties include:  to deal honestly, to disclose information, to account of any profits and to manage the consigned artwork prudently.

This is the consignment relationship. You must distinguish as artists in a representation between consignment, which means a trust – your artwork is trust property to the gallerists, but you are also in a relationship that is often representation.

That means the meme is: The gallerist must sacrifice their best interests to serve your best interests. That is the law.  That means that if a gallerist can be proven to be serving their interests over your interests, they are actually breaking the law.  That’s not going to help you in all instances, because the law is not going to rush in to save you, but you must be aware that the gallerist, as a professional has to have an understanding of these standards of care for which the law will obligate them.

For example, in the case of the liability of the dealer as an agent or the gallerist as an agent, when the gallerist has undertaken in some form to propel your career forward, to shape your career, to decide your career steps, to place you on the marketplace; that person is an agent of you.  Just like when somebody represents you in any other matter.  They are subject to very high standards of accounting and having your best interests, and all of that is capable of being looked at by the court or by the legal system

Again, this is not the goal, but you just have to bear in mind that the de facto power relationship is not the legal relationship

In short, the gallerists’s fiduciary obligations is to act exclusively in the artist’s interests And must scrupulously give up all advantages beyond the contractually defined compensations for his services. That’s imposed by law and it’s almost impossible to contract out of.

5. You and Art Fairs

Now, imagine a riot at an Apple Store as a meme for art fairs.  Art fairs are a place – you have probably been to one – where thousands and thousands of artworks are shown, hundreds and hundreds of artists are represented, and collectors from all over the world descend to buy the artworks, to the extent that they are available at the art fair, on the spot.

Art fairs are the new normal.

The point here is – a significant part of turnover for galleries, if not the majority of money earned by galleries is earned at art fairs.  Galleries themselves are loss leaders to prop up the brand  So, you have to keep in mind that if you are not selling at art fairs, whether you like it or not, you can’t possibly be contributing – as a rule – to the galleries bottom line.

So, as much as the art fairs are the scourge, they are the economic savior of most of the galleries out there trying to lord their relationships over you.

Bear that in mind, and don’t think just because you are going to get a solo show in a gallery that that’s going to be your career. Your interest to the galleries will depend, now and moving forward, on how much of your stuff is selling at the art fair.

That’s it.  Questions?

 

 

 

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Anatomy of an Artist Invoice


For many emerging artists, the invoicing of direct or studio sales is a hastily filled out form (if there is any invoice at all). This is not as good an idea as it seems. In the absence of a more formalized sales contract, the invoice can define many important obligations between the buyer and the artist. This text will review a few of the critical terms that a relatively simple invoice can contain.

When does the Buyer actually own the Work?

The artist invoice can make clear that the buyer does not actually own the artwork until the artist is fully paid. An invoice containing words to the effect that, “title to the artworks remains in the artist until the artist has received the full amount owing for the artworks,” can make recovery of the work in the case of non-payment significantly easier.

Title is an important legal category. It means that a court can, on the face of it, recognize that someone has a collection of exclusive rights as against other interests. Someone who has retained or acquired legal title has a court enforceable right to exclusively possess, use, sell, or otherwise dispose of an artwork. If an artist retains title, but allows the buyer to possess the work until being fully paid, then the exclusive rights listed above remain with the artist.

The fact that an artist has a strong legal right does not mean that one need to go to court to enforce it. The overwhelming majority of  contract disputes are settled out of court. The best way to prevent litigation (that is, the full process of having a court reach a decision on a matter) is to create and maintain clear legal distinctions around key questions. By doing so there is pressure on a non-performing party (in this case, a buyer who is not living up their side of the agreement) to respond without a court’s intervention. A letter from a lawyer demanding the full payment or return of the works has a significantly higher chance of success if an artist has retained title in the manner described on the invoice. In the case where a problem needs a court’s intervention, the issue of title will be key to an efficient and cost-effective proceeding.

Title does not mean Copyright

Even though copyright is created by law when the artwork takes on a tangible form, it is important to remind buyers that they are not acquiring rights to the creative content.  Copyright is a collection of rights, including making reproductions, adapting the work, selling or assigning rights to exploit the work, or making it available to others by technological means. A buyer can enjoy the unique physical iteration of the work, and has all of the rights associated with title mentioned above, but  may not appropriate the unique creative expression.

There are a number of reasons why an artist should communicate about copyright with a buyer. Copyright gives the artist the exclusive right, for example, to make use of copies of the original work for professional purposes. It is important that the buyer understand that the work is acquired subject to limitations. This effectively means that for the length of the copyright anyone must ask the artist for explicit permission to use the artwork in any way other than simply enjoying its possession. Typically this can be included in the invoice by stating that the artist reserves all rights to the artwork, and that the work may not be reproduced in any form without prior permission.

In the US, copyright is typically life of the creator plus seventy years. This means that not only does the creator have rights until the end of his or her life, but that the creator’s estate continues to have control over the works for decades. In expectation of the increasing value that the electronic reproduction of works will generate, it is important to ensure that a buyer understands what they are getting, and that the artist understands and manages the value of works created.

Let the Buyer know that Works may be needed for Future Exhibitions

Keeping a record of who buys artwork will be imperative as an artist’s career evolves. Gallerists, dealers, and museums will want to show the evolution of an artist’s work and the historical context of production. Every early work that leaves the artist’s hands is a puzzle piece that may have a lot of meaning to future professional partners. For this reason it is imperative that an artist keep records of what they have produced, but even more importantly, who the work has gone to. The invoice should contain as much unique identifying and contact information as possible.

In addition, it is valuable to signal to buyers that they take the piece subject to its use in future exhibitions. The invoice can include a term like “buyer agrees to make the artwork available upon reasonable request for exhibition at the artist’s studio, and in galleries and museums, provided that such does not incur costs for the buyer, or that any such expenses are in the name of the borrowing party.” While not a legal right that can be easily enforced against a buyer, it will put the buyer on notice that this can happen, and that they should be prepared to cooperate in good faith if they want the piece.

The Right of First Refusal

It is a longstanding practice that gallerists carefully control price increases to prevent radical shifts in the market which could be disastrous to an artist’s career. To an emerging artist, this may or may not appear relevant. However, it is important to keep a watchful eye out for the moment when it is preferable to have a collector bring works back to an artist or gallerist before disposing of them on the open market.

The right of first refusal is a contractual provision, and does not enjoy the same kind of statutory protection that copyright has. This means that a court can look at the provision and balance it along and against other contractual claims. Nonetheless, an invoice could include a provision that states that “before the artwork held by the buyer or any transferee of the buyer may be sold or otherwise transferred, the artist or his or her assignee(s) shall have a right of first refusal to purchase the artwork.”

Because it is impossible to predict when the re-sale of works could impact on an artist’s career, there is no harm in including a right of refusal provision in invoices. You can always decline to exercise the right if there is no prejudice in doing so. If a buyer feels uncertain about the clause, an artist can point out that he or she only has the right to make the first offer or match any offer that the buyer has. It will not typically prevent the buyer from selling the work.

Conclusion

These are just a few invoice elements that can have a significant impact on an evolving career. As I tried to stress in the section on title transfer, applying the law does not mean a more confrontational relationship with buyers, but rather that important questions be discussed in a transparent and timely fashion.

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