The art market has changed considerably over the past 30 years and is now considered a global marketplace. Geographically, its centres are New York, London and Hong Kong, where the most expensive fine art and collectibles are sold. There are also national markets, where lower-priced art and collectibles are sold, together with works by artists with national appeal.
The art market used to be a relatively small club of scholars, connoisseurs and dealers. Most transactions were concluded on a handshake – you knew your counterpart, and honour and trust were paramount. That is no longer the case. The art market has become increasingly anonymous; in fact, the tradition of secrecy that pervades the art market today means that many art transactions are concluded via intermediaries who do not disclose the identity of their client. Often, you simply do not know who you are selling to or buying from.
From an economic perspective, the art market is a collection of sub-markets, each with its own characteristics and trends. The market in Chinese works of art functions differently from the market in European old masters, for instance. The art market can also be analysed by reference to price points: the market for high-end, blue-chip art; the middle market, which covers artworks up to US$5 million; and the lower end of the market, which covers artworks up to US$500,000. Owing to changes in taste, high-end and, to a lesser extent, mid-market twentieth-century and contemporary art and collectibles are doing well. Old masters and older furniture are not doing as well, unless they are exceptional examples. There is also the phenomenon of artists as international brands – Andy Warhol, Jean-Michel Basquiat, Jeff Koons and Gerhard Richter are examples of this.
Prices for iconic artworks have become stratospheric. Following the sale of the painting known as Salvator Mundi by Leonardo da Vinci for US$450 million in New York in 2017, some commentators predict that within just a few years, an artwork will sell for over US$1 billion. There is a relatively small pool of international billionaires and museums competing to acquire trophy pieces. Exceptional prices have been achieved at auction when only two such collectors or museums bid against one another.
In the past 30 years, the main auction houses have become ever more powerful. The four main international auction houses are Sotheby’s, Christie’s, Phillips and Bonhams, and there are well-established national auction houses such as Artcurial in France, Bruun Rasmussen in Denmark and Dorotheum in Austria. Sotheby’s and Christie’s are increasingly leveraging their exceptional networks to broker private treaty sales. The phenomenon of the global art powerhouse has come as a direct result of the encroachment of auction houses on the gallery sector. Such powerhouses include Gagosian, Pace and Hauser & Wirth, each with gallery spaces in many international cities and an extensive network. This has resulted in the stratification of the galleries’ market into four distinct layers, with a first tier of international powerhouses handling the big-ticket artworks, a second tier of galleries with one or two outposts in countries other than that of their principal establishment, a third tier operating at a national level with no foreign outpost, and a final tier that is purely local. Some of these galleries operate in the primary market only – that is, they only sell artworks directly from the artist’s studio or estate – while other galleries also operate in the secondary market, where artworks have been bought and sold more than once. Many art dealers operate only in the secondary market, for example, dealers in nineteenth- and twentieth-century art.
In the past 20 years, we have seen the birth of ‘mega’ art fairs, which occur at least every three months somewhere around the globe. Many of these fairs focus on contemporary art, but the Maastricht Art Fair, one of the oldest and most important fairs, as well as a few others, cater to more traditional tastes. Art fairs remain the preserve of galleries and dealers, with auction houses typically being excluded. Many galleries and dealers now hop from one art fair to the next, and do most of their business there.
Given that the value of certain categories of art continues to appreciate, art is increasingly being regarded by some as an asset class. A few years ago, auction houses and galleries would shy away from promoting art as an investment. This is changing. Some of the differences between art as an asset and other asset classes are that, first, art generates no income; second, the art market is notoriously opaque; and third, transaction costs are high. However, art has certain advantages over other asset classes such as real estate: it can be moved easily across borders, allowing for greater tax minimisation opportunities, and, as the art market thrives on inside information, if you are an insider you have a serious advantage.
From a legal perspective, while it is true that the art market is not regulated in the sense that most countries do not have a state-sponsored regulator overseeing the market, it is not regulation-free. There are international treaties, European regulations and national laws aimed directly at regulating certain aspects of the trade in, and ownership of, art and collectibles, for example in the areas of tax and export controls. There are multiple laws regulating the trade in goods that apply to the trade in art and collectibles, for example laws governing the sale of goods and provision of services. Collectors and art market professionals may need to comply with more esoteric laws such as regulations governing the possession of, and trade in, endangered species. Businesses dealing in art must comply with a broad range of regulations like any other business in areas such as anti-money laundering, data protection, consumer protection, intellectual property, customs, online trading, anti-bribery, fraud and criminal law. One of the main challenges facing lawyers working with art collectors, art businesses and not-for-profit art organisations is the fact that every situation is likely to involve the laws of more than one country. This requires a sound knowledge of conflict-of-law rules, and a good enough understanding of how different legal systems address a given situation. If an artwork was stolen in Germany, sold in Switzerland and then again in France before making its way to a New York auction house, who has the better right to the artwork: the victim or the current possessor? Which law applies to the different facets of a gift of art by a UK-based individual holding the art in an offshore trust to a Canadian museum? Such situations are common, not exceptional. This second edition of Art Law in the Getting the Deal Through series offers legal practitioners a snapshot of how the laws of other countries address some of the most common questions that arise when buying, selling and lending art and collectibles. While it is not a substitute for legal advice on specific situations, this volume was prepared in the hope that it will provide practitioners with a framework that will help them ask the right questions of practitioners in other jurisdictions and give them a flavour of how other legal systems might address those questions.
The editor wishes to thank Sabine van der Linden for her invaluable assistance in putting this edition together.