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Non-Resale Clauses in Art Sales

Martin Wilson Click here to view Martin Wilson’s profile
Martin Wilson
Chief General Counsel at Phillips
Published Nov 5, 2020
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Empty Threat or Enforceable Right?

A growing phenomenon over the past decade is the use by artists and dealers in the primary art market of restrictive covenants. Artworks are sold to buyers with a legal clause, sometimes buried in the terms printed on the back of the invoice, which restricts the ability of the buyer to re-sell the work by auction or sometimes imposes a complete ban on any form of resale for a fixed period. Some include an obligation on the buyer to re-offer the artwork back to the original seller before reselling it. While there are many variants, the covenant will typically say something along the following lines:

"For a period of 5 years from the date of the purchase the Buyer agrees not to offer the Artwork for sale at auction"

The justification for such clauses include policing the ethical duties and responsibilities of purchasers towards the artwork and the artist, the need for price transparency, a wish to maintain control over the market in the artist's work and the desire to ensure that the artworks are sold to buyers who appreciate rather than speculate.

Interestingly, and perhaps also tellingly, the enforceability of these clauses has not yet been tested by the UK Courts. Once they are tested we will know for sure whether or not they are enforceable - and in what circumstances. In the meantime, because this is a question which is increasingly raised in the art market, I thought it might be helpful to give my view: I do not believe that in the UK these clauses are generally likely to be enforceable. This is particularly the case where consumers are involved.

I am often asked whether I think such non-reselling covenants are generally enforceable under UK law. My answer is that in most cases I do not believe that they are.
The reason for my conclusion is that such clauses seem in almost all cases to be for the overwhelming and sole benefit of the seller of the artwork and, correspondingly, to the detriment of the buyer. Unless the buyer is getting a substantial concession in return for agreeing to such a restriction on his or her ownership rights it seems to me that such clauses are at risk of being viewed by the Courts in the UK as unfair. And this is particularly the case where the bargaining positions of the parties can be argued to be unequal.

What follows is a more detailed explanation of the reasons for that conclusion and some of the considerations if you are seeking to rely on such a clause or if you have bought an artwork which is subject to such a clause.

Full disclosure - as an in-house lawyer for an auction house I do of course have a commercial perspective on such clauses. I have however tried to steer clear, in this article, of discussing the desirability or otherwise of the clauses - focussing instead on how they might be viewed by the law.

If the Buyer is a consumer

I have said that restrictive covenants are unlikely to be enforceable against consumer buyers in consumer contracts. This is because in the UK the Consumer Rights Act 2015 provides for the protection of consumers from unfair terms in ‘consumer contracts’.

In the UK the Consumer Rights Act 2015 provides for the protection of consumers from unfair terms in ‘consumer contracts’.
Is it a Consumer Contract?

The starting point is to establish whether the contract is a consumer contract, and therefore benefits from the protection of the Consumer Rights Act 2015 against unfair terms. A consumer contract is defined in the 2015 Act as a contract between a trader and a consumer.

A ‘Trader' for the purposes of the 2015 Act means a person acting for purposes relating to that person's trade, business, craft or profession, whether acting personally or through another person acting in the trader's name or on the trader's behalf;

A 'Consumer' means an individual acting for purposes that are wholly or mainly outside that individual's trade, business, craft or profession.

A sale of a work of art between an art gallery, dealer or an artist on the one hand and an amateur art collector on the other will therefore be a consumer contract. A sale between two amateur art collectors or between two art galleries, dealers or an artist and an art gallery or dealer will not be a consumer contract.

It is also worth noting that even experienced collectors who trade art will be consumers provided that trading art is not their trade, business or profession.

Is the Restriction unfair?

If the contract is a consumer contract then the restriction must satisfy the test of ‘fairness’ under the 2015 Act to be enforceable. A term will be deemed to be unfair under the Act if, contrary to the requirement of good faith, it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.

A term will be deemed to be unfair under the Act if..... it causes a significant imbalance in the parties' rights and obligations arising under the contract to the detriment of the consumer.
There will be significant imbalance if a term is so weighted in favour of the trader as to tilt the parties' rights and obligations under the contract significantly in the trader’s favour by imposing (i) an onerous burden, risk or duty on the consumer, (ii) which is to the detriment of the consumer and (iii) which is to the advantage of the trader.

When an artwork or indeed any asset is purchased, whether in the primary or secondary market, the buyer usually expects that, having paid the purchase price, he or she will be free to do with the asset what he or she wants. Indeed, the ability of the buyer to own his purchase free of all rights and claims is one of the key warranties expected by buyers in art purchases. In practice also, where art is concerned it is in the nature of collections that collectors expect to be free to buy, sell and exchange as value, taste and interests fluctuate. So, on the face of it a major restriction on that ability to sell or otherwise dispose of the artwork is likely to be a duty which is out of the ordinary and both onerous and potentially detrimental to the consumer. It is no small matter.

The greater the length and extent of the restriction the greater the detriment. But is it to the advantage of the trader? The fact that the trader has inserted it in the agreement means that it almost certainly will be. Unless the trader has made a very significant and genuine concession (significantly beyond the usual price discounts) to the consumer in return for the consumer’s agreement to the restriction it is likely that the advantage to the trader is simply at the expense of the consumer.

It is also easy to imagine that a Court looking at such a clause will consider whether, objectively, the trader's justification for imposing the clause is reasonable, when balanced against the restriction of the consumer's rights.

The difficulties in enforcement increase further if there is room for the purchaser to argue that he or she was unwary or an inexperienced consumer and was taken advantage of. This will depend on the particular circumstances but relevant considerations will include the level of experience of the consumer, whether the consumer is able to purchase a similar artwork from another source, where the clause is prominent or buried in the small print, whether prior to the sale it was highlighted, drawn to the attention of and discussed with the consumer, whether the clause was added as a last minute afterthought - or even after completion of the transaction and whether the restriction has been acknowledged in writing by the consumer.

With all this in mind it seems to me that where consumers are concerned there is a risk and in many cases a likelihood of the Courts concluding that the clause is unfair.

Wouldn’t buy it out of general principle after the run around I got off them previously.

What’s the price?

Had a offer around 6.750 euro lined up with the other buyer.

DM'ed you

I thought you were scared you would damage it... Ill pay 4000 if you need funds

This is often the best time to get the best deal.

Fack. Hahaha

You signed a NSA. Not that it matters, can't even sell it.

I will pay cost - 4000 euros

I think it's gonna be yours given others have sold at cost. Prob a good investment

Lol