Recently, we have been coming across a number of art galleries including a ‘non-resale’ clause in contracts for the sale of works involving their artists. Such non-resale clauses can take a number of forms but generally consist of a type of restrictive covenant which places restrictions on the buyer’s ability to resell the artwork. For example, it may prevent the buyer from reselling the artwork within a certain time frame, or require the buyer to offer the artwork back to the gallery to repurchase before it is made available to third parties.
Galleries may seek to include a non-resale clause in purchase contracts in order to protect the value of both the artists and the artwork by discouraging ‘flip’ buyers. However, when selling to individual collectors, galleries may find that non-resale clauses are unenforceable under UK consumer law.
In particular, in sales to UK-based individuals, non-resale clauses are likely to be caught by the Consumer Rights Act 2015 which protects UK consumers against unfair contract terms. An unfair term is generally one which causes a significant imbalance between the parties’ rights and obligations, to the detriment of the consumer. In many cases, a non-resale clause unfairly disadvantages the buyer, who is deprived of the fundamental right to dispose of the artwork on their own terms.
It is important to note that individual collectors acting outside the course of trade – regardless of their experience and history in the world of art dealing – are considered ‘consumers’ under UK law. In the recent case of Soleymani v Nifty Gateway LLC, an individual high-net worth collector with expertise in the field of art collecting was confirmed to be a ‘consumer’ under UK law. Although galleries may view certain collectors as informed purchasers with experience of negotiating contracts, they should be alert to the fact that consumer laws will still regulate their terms of business.
For purchase agreements between galleries and dealers or businesses (rather than consumers), non-resale clauses may still be problematic under UK competition law, as unlimited or absolute restrictions on the buyer’s resale right could amount to an unreasonable restraint of trade.
Non-resale clauses may also be difficult to enforce in practical terms, particularly where a work may be sold in a private sale under a confidentiality agreement, meaning that the gallery may not be aware of a resale. Moreover, non-resale clauses are usually only enforceable against the buyer who was a party to the original sale – rather than a purchasing auction house, dealer or buyer.
If galleries do want to restrict buyer resale rights they will need to think carefully about how to express this in the purchase contract. Non-resale clauses should be clear, unambiguous and generally should include a reasonable time limit and territorial scope on the buyer’s resale restrictions. Ultimately, the enforceability of non-resale clauses will depend on the specific circumstances of the transaction and the parties involved, and galleries should be wary of the practical limitations they may face.
For further information, please contact:
Kenneth Mullen, Partner, Withersworldwide
kenneth.mullen@withersworldwide.com
