Inside the Increasingly Litigious World of High-Value Art Sales

Judd Grossman is a major player in the fine art world, someone many art dealers, auction houses and even museums have to contend with. But he isn’t a collector, museum director or an art advisor. Rather, he is a Manhattan lawyer, and many of his clients are high-end art collectors who turn to him when contemplating the purchase, sale or loan of a high-value artwork. Whatever these clients want to do with their art, they rely on Grossman or lawyers like him to legitimize the transaction, often with lengthy contracts.

These sales contracts cover every conceivable contingency, clause after clause. Does the seller own the artwork free and clear, with the right to convey title? Who pays the sales tax? What happens if there is a change of attribution years after the sale? Does the buyer have the right to reproduce the image? Who is responsible for legal costs if there is a challenge to the artwork’s title? What is the price, and how will the artwork be paid for… in cash, in Bitcoin or over a period of time? When does the title pass to the buyer? Does the buyer, with a conservator, have the right to inspect the artwork before taking possession? Who pays for crating, shipping and insuring the work? Will the dealer guarantee not to disclose the name of the buyer and the price paid? What happens if that information goes public? Who pays the commission to the art advisor? There are paragraphs addressing warranties, provenance, condition reports, indemnification and escrow accounts. The list goes on and on.

“A big chunk of our practice is writing purchase agreements, consignment agreements and loan agreements,” Grossman said, describing the sales he has been involved in as “papered.” Lots of paper. William Pearlstein, a New York City lawyer who also represents numerous art collectors, told Observer that the sales agreements he writes for gallery purchases “usually run about seven to twelve single-spaced pages.”

Welcome to the world of big-ticket art sales, where the traditional ‘handshake and an invoice’ has largely disappeared, replaced by an invoice paired with a formal contract that runs for pages and attempts to account for every conceivable contingency. Driving this shift is “a new group of collectors within the past 20 years, extraordinarily wealthy people, who are used to doing business in a certain way, used to getting their own way and who like to spend legal money,” art lawyer Susan Duke Biederman told Observer. One of her clients was handed a contract for an art sale that ran to 27 pages (she referred to that buyer as a “lunatic”), but more and more of the sales in which she is involved now include buyers and sellers accustomed to “passing everything through legal.”

Ours is a litigious world. Lawsuits arise when terms and conditions in a sales agreement are violated, but those disputes would likely occur even if no contract had been in place. “If the contract clearly states the parties’ rights and obligations on these issues, that would tend to minimize the scope of legal issues that can arise,” said Amelia Brankov, a Manhattan lawyer with a substantial art law practice. She noted that the most common disputes “generally include which party is responsible in the event the work is damaged while in transit from the seller to the purchaser, which party bears responsibility if the work is later discovered to be a fake or forgery, or what happens if a third party later claims to be the ‘true owner’ of the artwork.” In the latter case, an artwork may be put up for sale while it is still collateral for an unpaid loan.

Megan Noh, co-chair of the art law department at the New York law firm Pryor Cashman, noted that some sales agreements also address anti-money laundering statutes, requiring “written assurance that the parties are not themselves (and are not associated with) sanctioned persons or entities and are not using proceeds of criminal activity, and that the conduct of the transaction is not going to effect any unlawful end such as money laundering or tax evasion.” The art trade can at times be opaque, and a clause such as this “may be particularly important” when one or both parties are working through an agent and their identities are obscured, she added.

If buyers rely on their lawyers to draft sales agreements, art dealers must hire lawyers to review, approve and negotiate those same contracts, and all of it adds to the cost of purchasing works of art. And there does not appear to be any real alternative. As one New York City gallery director put it, “people want it in writing, or there’s no deal.”

Of course, gallery owners themselves have become more legalistic in their work. A number of gallery owners require buyers of certain artists’ works on the primary market to sign agreements that ensure the works will be resold exclusively through them, not through an auction house. New York gallery owner Andrea Rosen noted that she has included those terms on every invoice since opening her gallery. Artists may impose their own conditions on the resale of their work, as James Turrell and Sol LeWitt have done, demanding that owners apply to them (in Lewitt’s case, his estate) for “transfer” documents permitting the artist to approve or disapprove a sale to a new owner. Both the South African artist Marlene Dumas and the Scottish-born artist Peter Doig want buyers of their paintings to agree to donate the works to museums rather than resell them. Those terms are spelled out and enforced by their dealers. When collectors have gone against their wishes, lawsuits have followed. In 2010, Dumas directed galleries representing her work to refuse to sell any more of her paintings to a collector who had sold one through a New York gallery, and that collector brought a lawsuit against the gallery, essentially for snitching. (That lawsuit was dismissed in a Manhattan federal court.)

“Sometimes, lawyers over-lawyer things,” Grossman said, and some lawyers have only a limited understanding of the art their contracts are meant to govern. Lucy Mitchell-Innes, a former Manhattan gallery owner and now a private art dealer, recalled a sales agreement submitted by the lawyer of a collector for a 1952 Barnett Newman painting she was selling. In one clause, the agreement declared that the deal would be voided if it were shown that the artwork had passed through Nazi hands in Germany. “I had to point out to the lawyer that Barnett Newman painted this after the war was over and that it had been painted in the U.S.,” she said. The effort to dot every “i” and cross every “t” can sometimes go too far.

“I’ve heard some dealers say, when they’re handed some 20-plus page contract, ‘Are you out of your mind? That’s not the way we do business,’” Biederman said. “I ask clients who want me to write a contract for a purchase, ‘Do you want to anger the dealer? Do you want this deal to go through quickly? How much do you want to spend on legal fees?’” Still, she added, more and more dealers are concluding that nowadays “this is how you have to do business. It’s fine for me. I make money.”

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