Right of First Refusals
The issue is actually much more mundane than the article's title or any of the lawyers' quoted concerns would suggest. In a nutshell, dealers want two things out of right of first refusal agreements: 1) to ensure their artists' prices rise at a pace that doesn't harm their careers and 2) to ensure their artists receive a percentage of the appreciation price in any resale.
Peter R. Stern, an art lawyer at the New York firm McLaughlin & Stern, LLP, says that a dealer’s exclusive right to repurchase “is largely intended for galleries to obtain a percentage of any resale proceeds”. Often, a gallery may give the artist a share of the proceeds, he says, adding that, “In my experience, the clauses are most often used by dealers in representing highly sought-after artists where demand exceeds supply”.
Some may object that the buy-back provision distorts the market for works by any particular artist.
With a right of first refusal, buyers “can’t get the best price for the work on resale because they only have one place to sell it—back to the dealer”, says John R. Cahill, an art lawyer with the firm Friedman Kaplan Seiler & Adelman LLP, New York.
What the first concern boils down to is illustrated by the example of speculators hearing that an artist's reputation is rising and buying up some of their work with the hopes of turning it around quickly and making a profit at auction. Why this is potentially a bad thing for the artist is that "buzz" doesn't always translate in the secondary market, and artists have seen their work rushed to auction where it does very poorly, thereby undoing the price advances all the speculation had artifically spurred and significantly hurting their careers.
The second concern boils down to plain fairness. Unlike writers or actors (etc.) who can receive residuals for their work for the rest of their lives, visual artists currently get screwed royally after their work sells the first time. Only those who are reselling it see any profit from the advances in that artist's career. Dealers, as the artists' primary advocates, are seeking ways to ensure that resold work, particularly at seriously appreciated prices, profits the creator of said work as well. Right of first refusal contracts enable dealers to cut the artists in.
One dealer notorious for not selling work without the right of first refusal clauses in the terms of the sale is Chelsea's Andrea Rosen (who, until Gagosian snagged him, represented John Currin [see image above]). Andrea indicated recently that she's finding an absolutist approach to including such clauses may not be the best thing for all artists, but she stands firmly behind the concept in general:
“I have used these clauses on every invoice since I opened the gallery in 1990”, says Andrea Rosen, of Andrea Rosen Gallery in New York, adding that the provision applies to any artist she represents. In the 1980s, an unspoken taboo existed against collectors reselling contemporary art, Ms Rosen says, and even now, dealers may refuse to deal with a collector who has resold a work by an artist the dealer represents. Instead, Mr Rosen says, the right of first refusal spells out her expectations that “if a collector wants to resell a work, they’ll bring it back to the gallery. I never anticipate that this would be disadvantageous to them”, she adds.California already has a law that protects artists (the California civil code 986 [Resale Royalty Act Code]), which states: "Whenever a work of fine art is sold and the seller resides in California or the sale takes place in California, the seller or the seller's agent shall pay to the artist of such work of fine art or to such artist's agent 5 percent of the amount of such sale." Until such time as other states have similar laws (including most importantly New York), dealers will need right of first refusal clauses and other tools to ensure their artists get what they deserve.
I think we'll be hearing much more of this in years to come.