New York auctions have new, unsolicited rules

The Council’s regulatory cuts, designed to help companies affected by the pandemic, were introduced without notice. Auction houses say they will not change their practice, but the move could mean more opaque offers and guarantees

The New York City Council recently adopted a series of deregulation measures that remove government regulations, among other activities, including in the auction industry. Whether this will help or confuse collectors is unknown, but it could fundamentally change the way auction houses large and small do business on New York’s multi-billion dollar art market.

These deregulation measures include the repeal of the municipal permit requirement for auction houses, the auction house’s obligation to disclose guarantees for works made by the auction house or “irrevocable offers” by third parties and the obligation not to bid above the seller’s minimum. price or reserve.

The rules, which had been in place since the 1980s, also required that written contracts with sellers state all commissions, and for the benefit of buyers, that the seller give the ownership to the “final buyer”. In addition, the auction houses were required to keep written records of auctions for six years in the event of any doubt about the allotment and ownership.

The action of the City Council, which was not requested or encouraged by the auction industry, has alarmed many players in the art world, worried that the rules of the auction market have been changed without notice.
The auction industry is based on buyers and sellers being sure that the auction houses comply with the rules.says Thomas C. Danziger, partner at the Manhattan law firm Dan-ziger, Danziger & Wall, which specializes in auction transactions. Without rules, people could lose faith in the integrity of the auction market in New York“.

Leila Amineddoleh, an art lawyer in New York, describes the city council’s actions as “shocking”. “For years, there has been a demand for greater regulation of the art market, no lesssays the lawyer. If I were a buyer, I would like to know if an auction house owns a work. This not only affects the item for sale, but can affect how the auction house markets other works during the same sale.“.

The repeal of these rules came into force on April 10 (with the exception of the removal of licensing requirements for auction houses, which will take effect in May) and aims to help a number of small businesses believed to have been adversely affected by Covid -19 pandemic, including arcades, laundries and car rental agencies. It is not clear why auction houses were included in this group. Requests for comment from members of the City Council and the New York Department of Consumer Affairs, which oversees the auction industry, have not been answered.

One of the now-defunct rules, an ordinance from the Department of Consumer Affairs, which came into force in 1987, allowed an auction house to raise the price of a lot up to the minimum price, which is the undisclosed amount below which the seller will not sell mass. However, the auction house was required to disclose this practice. For example, a recent statement on Sotheby’s terms of sale reads: “The auctioneer has the right to submit consecutive bids or to submit bids on behalf of the seller up to the reserve placed on the lot, however, the auctioneer will not declare during the auction that he submits such bids on behalf of the lot. selling.“.

After the bids have reached the minimum price of the item, the law states that “the auctioneer can not bid on behalf of the sellerWithout this protection, auction houses may place bids on the reserve when no bids have been submitted.
Other practices that are currently partially disclosed, but which may be completely hidden, are guarantees (an agreement between the auction house and the seller that promises that if an item is not sold for at least a predetermined minimum amount, the auction house itself or a third party will buy the item ) and the commissions or discounts offered to certain guarantors if the final selling price exceeds the guaranteed amount. Currently, these actions are revealed to bidders in sales catalogs.

Developing relationships
John R. Cahill, an art lawyer, speculates that the concern for buyers and auctioneers will be whether the clauses in the terms and conditions describing the contractual relationship between the firm and its customers are likely to be changed, and if so, whether will be changed. different for each sale. “It will be interesting to see if what New York City did spread to other cities“, he claims.

A spokesman for Christie’s New York says these concerns are unlikely to be confirmed. “Christie’s adheres to the highest ethical standardssays the spokesman. We have not asked to change the rules and we will continue to function as we have done so far“.

At least for the foreseeable future, auction houses will continue to operate in the same way, according to Michael McCullough, a partner at Pearlstein & McCullough Law Firm in Manhattan, who notes that general consumer protection laws will protect buyers and sellers. “The bidding process and the way an auction house conducts a sale has been standardizedsays McCullough. I do not think that will change“.

But McCullough adds, “there is one area where even the old rules have proved inadequate: information about an auction house’s financial interest in the sale of an item. The upper end of the auction market relies on guarantees from auction houses, backed by investors. Expect the creative use of collateral to continue, and do not expect more transparency in these financial arrangements“.

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