Auction houses and other art vendors have adjusted their business practices to address some of the logistical hurdles caused by the COVID-19 virus. Here’s how the auction houses have adjusted their practices to facilitate the consignment process and sales. We also provide some legal tips for collectors to keep in mind when purchasing artworks during COVID-19.
Consignment Practices
The international auction houses proved that with digital innovation, not to mention flexibility and hard work, during the height of the global pandemic, they could sell billions of dollars of art online. Not only were top prices achieved but also other selling metrics were strong, such as exceptionally high sell-through rates and increased bidder registrations across sales and locations.
These achievements were possible because of certain changes to the auction houses’ business model, which flowed through to the paperwork of consignment agreements. During the pivot to digital sales, withdrawal fees temporarily were waived but rarely invoked. Various amendments as to the manner and methods of sales were quickly made to active consignment agreements, and similar flexibility was built into consignment agreements going forward.
For instance, the auction houses now seek to have complete discretion (to the extent possible) in their consignment agreements as to:
- the format of selling property, in an online, live or hybrid auction, which may be closed to in-person attendance,
- the date and time at which such auctions shall occur,
- the production of paper catalogs or only e-catalogs, and
- whether pre-auction viewings are open to the public, limited to virtual presentations or to in-person appointments.
Due to varying government health restrictions, auctions couldn’t legally or safely be held in person and at times, in-person exhibition previews were prohibited too. New technology compensated for this void—virtual reality-like videos of preview exhibitions were circulated to clients, and clients could see interested lots digitally superimposed on the walls in their homes. Digital catalogs were available on websites without the production of corresponding paper catalogs. Finally, curatorial events occurred virtually on video platforms like Zoom rather than in packed galleries.
Yet, nearly all other aspects of the auction houses’ marketing and advertising plans occurred with a “business as usual” approach, with the houses promoting property online, with videos, high resolution photographs, email blasts, social media, publications, press, personal outreach, scholarly essays and editorial content.
Other practical changes occurred too to make selling property more feasible during the pandemic. For instance, clients were offered the electronic signing of documents through secure software services such as PandaDoc. This made the execution of paperwork fast and easy, while clients were stuck at home without perhaps the ability to scan documents.
While the pandemic didn’t release buyers from their obligation to timely pay for their lots per the conditions of sale, which is typically within a week after the sale date, this didn’t always happen. There were many explanations for late payments—from buyers physically stuck outside of their home country (unable to travel home) to checks actually lost in the mail. As a result, rather than having to obtain pre-auction approval for extended payment terms for reputable buyers, under the new standard terms, consignors may now automatically grant the auction house the discretion to grant pre-approved buyers extended payment terms up to 90 days.
Legal Issues to Consider
Inspection, condition reports and the right of cancellation. As discussed above, sometimes art vendors make works that are for sale online available for physical viewing, and sometimes they don’t. In some cases, sellers may supply condition reports to prospective purchasers or include notes regarding the condition of the property in the online description of the lot. Generally, though, auction terms of sale disclaim any reliance on these reports, as they’re often not prepared by professional conservators and are provided only as a courtesy. The terms of sale also generally provide that the artwork is being sold in “AS IS” condition.1
Consumers residing in the European Union can benefit from consumer protection laws, which generally permit consumers purchasing through online sales to cancel a sale of an artwork sold by a non-consumer within the 14-day statutory period by providing notice of cancellation for any reason and receive a refund of the purchase price.2
When a collector isn’t protected by a statutory right of cancellation, the collector can try to negotiate
contractual protections in private sales to safeguard against the risk of purchasing a work in poor condition. For example, the purchaser can negotiate for the seller to first ship the work to the purchaser’s city of residence (sometimes to a viewing room in a storage facility) and condition the purchaser’s obligation to pay on their confirmation of the condition of the work following personal inspection. As an alternative, a purchaser can try to obtain a contractual right to rescind the sale in the event that, on arrival, the purchaser inspects the work and discovers that it isn’t in the condition it was represented to be by the seller (as, for example, set forth in the most recent condition report). Instead, a purchaser can hire a local conservator to physically inspect the work prior to purchase on the purchaser’s behalf.
Authenticity. Some collectors may worry that their chances of purchasing a fake increase through online purchases.3 In general, auction houses include in their terms of sale a contractual guarantee of authenticity. Under this guarantee, the auction house will promise, for a specified period of time (for some auction houses, five years; sometimes less) that the work is by the artist as indicated in capitalized letters in the auction catalog (subject to some exceptions, including when the auction house includes a qualifier such as “attributed to”). If the purchaser wishes to make a claim under the authenticity warranty and rescind a sale, the purchaser must follow the procedures set forth in the applicable terms of sale.4 For any artwork that’s purchased online, savvy collectors would be well advised to first review the terms of sale (if any) that govern the online sale or otherwise formulate an understanding of their rights, prior to making any significant purchase.
Withdrawn lots. Increasingly, auction houses are foregoing the tradition of printing a hard-copy catalog for each sale, and so in many cases, purchasers can only refer to online auction catalogs, which can change over time. When lots are withdrawn from the sale (either because a dispute concerning the rights to the work has arisen or because of a lack of interest in the work), information about the lot may no longer appear in the online catalog. Some have contended that this “disappearance” of lots has caused a lack of transparency in the market about works that have been offered for sale.5 Those that can harvest data concerning these withdrawn lots, or even aggregate it, may have an advantage in the marketplace by having access to this information, which was once more widely and easily available.
Online Sales Will Continue
Many expect that, once physical distancing measures relax, the art world will increasingly ramp up in-person exhibitions and sales. Nonetheless, we also expect that online sales and many of the digital marketing and sales tools we discuss above will still be used after the pandemic subsides, and the legal tips we provide will remain relevant.
Endnotes
1. See, e.g., Christie’s, “Conditions of Sale for Christie’s Inc. Online-Only Sales: Auction and Buy-Now” (Christie’s Online Terms of Sale), para. A-3; Phillips Online-Only Auction–Conditions of Sale and Authorship Warranty, PHILLIPS: Online Conditions and AUTHORSHIP WARRANTY, London (Phillips Online Terms of Sale), para. 3.
2. See, e.g., “Art Law 2020, Lexology Getting the Deal Through,” Responses to Question No. 51 (cancelling purchases); Christie’s Online Terms of Sale, para. H; Phillips Online Terms of Sale, para. 11.
3. See, e.g., Milton Esterow, “Art Experts Warn of a Surging Market in Fake Prints,” The New York Times (Jan. 24, 2020), www.nytimes.com/2020/01/24/arts/design/fake-art-prints.html.
4. See, e.g., Christie’s Online Terms of Sale, para. E-2; Phillips Online Terms of Sale, para. 19; see also Bonhams, Conditions of Sale (U.S.), https://images1.bonhams.com/original?src=legal/COS_USA_Main.pdf (providing a limited right of rescission).
5. See, e.g., “Withdrawing Lots in the Digital Age With Marc Porter,” No Reserve With Josh Baer,www.youtube.com/watch?v=lfsPKuQ2U0Y(Feb. 6, 2021).