Artist's Resale Rights- The controversial royalty returns to the spotlight- Are you prepared?

Artists, and art market professionals who deal in contemporary and modern works should already be familiar with the Artist’s Resale Right Regulations 2006 (the Regulations). The Regulations provide a right of an artist of an original piece of work to receive royalties on their work when it is sold.  The Regulations received a mixed reception when they originally came into force and opinion remains divided. To compound the issue the Regulations have now returned to the spotlight.

The Regulations were brought in to standardise the market in qualifying states and provide a royalty to the creators of certain works. The overriding intention was to give artists a share in the escalation of their work's value as they are subsequently resold.  Up to 1 January 2012, the Regulations which implement the EC Directive 2001/84/EC, applied only to the work of living artists (where all the required conditions are met). However on 1 January 2012, an exemption (known as a derogation), that had been in place in the UK was be lifted. This now means that the royalty applies to qualifying works of deceased artists within the 70 year post-death copyright period. Therefore beneficiaries of artist's estates and their heirs now stand to benefit from the royalty in relation to any onwards sales made since 1 January 2012.

If not already done, art market professionals and artists need to take note and prepare for this change. This will mean that the Regulations will now apply to a much larger body of works, purported to be a fourfold increase. It is therefore likely that the consequences will be strongly felt by those working in the art market, and the impact more visible to those who look on.

If you are an artist, auction house, dealer or other art market professional, there will be different implications and you should ensure that you have a plan in place.

Artists and their heirs need to consider their legacy and probate position:

• Could they be eligible for the royalty?
• Has an inventory of the artwork been created?
• How are the works resold- where and for how much?
• Has a collecting society been elected to collect and pursue the royalty on their behalf?
• Have they written a will and made necessary provisions within it? 
• Are there any sales which they can properly challenge for payment of the royalty?

Auction Houses need to look at their existing administration infrastructure and consider:

• Will they be able to cope with the increased volume of qualifying works?
• Will they be able to fulfil their obligations under the Regulations?
• Do they have the necessary means in place to ascertain parties' eligibility?

Art market professionals in contemporary and modern art need to be aware of their obligations under the Regulations and start planning for the changes in 2012 now.

Question they should consider are:

• Do they operate their business from an EEA or Schedule 2 (ARR) jurisdiction?
• Does their method of business practice mean they would be liable to pay any royalties?
• Do the type of works they deal in make them qualifying works under the Regulations or will they become qualifying works on 1 January 2012?
• Are they administering and fulfilling their reporting obligations under the Regulations? If not, what could they be exposed to?
• Will their current set up and business practice be able to cope with the increased volume of qualifying works?

The Regulations in their current form polarise opinion as to their efficacy and application. The removal of the derogation on 1 January 2012, means that the Regulations will be more sharply felt. Those in the art market need to start assessing their position and planning now for this change.

For further information and advice on Artist's Resale Rights please contact:

Metal Thefts - The Threat to Heritage

What has been happening?

Scrap metal theft has been a blight on the UK economy for a number of years and is estimated to cost the country £770 million each year. The number of thefts has doubled in the past five years as global metal prices continue to rise. Police have discovered ladders, tools and vans specially adapted for stealing metal items demonstrating the lengths thieves will go to, to cash in on this increasingly lucrative trade. The epidemic impacts on a wide range of victims from rail and electricity networks to churches and private homes, some often becoming repeat victims.

Artworks are now increasingly becoming the target. In December 2011 thieves stole Barbara Hepworth’s seven foot high sculpture Two Forms from Dulwich Park, Southwark. While the sculpture was insured for £500,000 experts say that if the work is melted down, it may fetch a mere £750. Southwark suffered another loss in 2011 when a bronze statue of former MP Alfred Salter was stolen from Cherry Garden Pier in Bermondsey. Similarly, in 2005 Henry Moore’s Reclining Figure was snatched from the grounds of the Henry Moore Foundation in Hertfordshire. Police later reported that the sculpture worth £3 million was melted down and sold off for just £1,500.

For collectors and galleries this growing trend is developing into a real concern. If you have works that may be at risk you need to consider what safeguards you can put in place.

What measures are the government taking?

Many have claimed that existing legislation in the form of the 1964 Scrap Dealers Act is out of date and insufficient. Amid growing calls for reform, on 26th January 2012 the home office announced their plan to amend the Legal Aid, Sentencing and Punishment of Offenders Bill. The Home Secretary Theresa May stated that the Government will create a new criminal offence to prohibit cash payments to purchase scrap metal and increase the fines for all offences under the existing 1964 Act. The Government may also introduce measures requiring all metal dealers to maintain records of all their sales and provide proof of identity when carrying out transactions.

The police are also cracking down on the problem. Scotland Yard has created its first unit devoted to combating metal theft based in Bexley, South East London, one of the most badly affected areas. Meanwhile, a pilot scheme named Operation Tornado has begun in the North East of England. This 6 month project will require those selling scrap metal to provide photographic proof of identity.  

How can you protect your property?

While the government and police are mobilising on this specific trend, owners of metal belongings- be they church roofs, artworks or gates of family homes should be looking to take preventative steps before theft occurs as theft frequently ends in destruction of the item taken.

We recommend the following precautions:

• Maintain a detailed inventory of your property including photographs;
• Prevent easy access by securely fencing your property and blocking vehicular access, without vehicles thieves cannot easily remove heavy and cumbersome items;
• Store items such as ladders and cutting machinery in secure locations;
• Consider installing security systems such as Closed Circuit Television or battery operated  detector systems linked to a rapid response service;
• Avoid placing valuable sculptures on view in grounds and consider moving vulnerable pieces from isolated locations; and
• Consider replacing valuable works on display with replicas and keep original works in storage.

For advice on how to safeguard your collection contact Karen Sanig or Amanda Gray .

The legacy of the Accidia Foundation case - Art Dealer Commission Structure Acceptable Only with the Fully Informed Prior Consent of the Principal

The obligations of art dealers and intermediaries were put under the microscope last year by a judgment which makes obtaining the fully informed consent and authority of the principal vital in protecting the commission structure and ensuring the transaction is lawful. The effect of this judgment still ricochets throughout the art industry.

The case of Accidia Foundation v Simon C Dickinson Ltd [2010] EWHC 3058 (Ch) was a case brought by Accidia, the owner of a valuable drawing attributed to Leonardo da Vinci, against Dickinson, an art dealer who found the buyer for that drawing. In the judge’s view, there were actually three vital players, but – inexplicably - only two were joined to the litigation. The third was Luxembourg, the third party agent who provided the common thread between claimant and defendant, having first been engaged by Accidia to sell the painting and then in turn engaging Dickinson. 

Dickinson agreed a sale price with the buyer of US$7 million, taking US$1 million commission directly and only revealing a net return price of US$6 million to Luxembourg. Although the judge found that Luxembourg must have known Dickinson would take a commission on top of the US$6 million being returned (as she did not share her commission), she agreed the arrangement between themselves and did not tell Accidia about any arrangement. Consequently, Accidia believed the painting had sold for their suggested price of US$5.5 million, added to which Luxembourg invoiced for her US$500,000 commission. Six months after the purchase, the buyer raised concerns over the drawing's authenticity and the actual sale price - which up to this point had been known only to the buyer and Dickinson - was revealed to Accidia.

The judge held that the art dealer was acting as agent for the undisclosed principal, Accidia, and not for the buyer. He also held that Luxembourg, the third party agent, did not have actual or implied authority from Accidia to instruct Dickinson.

The art dealer’s commission arrangement had been fixed by Dickinson himself, without seeking or obtaining consent from either buyer or seller. Dickinson’s submission that this was common international art market practice was not accepted by the judge, who was not satisfied that any custom or practice existed whereby art dealers agree a return price without informing the principle or agent of the ultimate sale price or level of commission taken. The judge went further, holding that not only was this contractual practice not customary but in fact was unlawful and unreasonable unless the fully informed consent of the seller had been obtained or the dealer accounted to the principal for the secret profit secured.

Dickinson would have been well advised, the judge said, to ensure that the ultimate seller understood the net return price arrangement that it had agreed with Luxembourg. The fact that he did not left him personally exposed, though he did not find that Dickinson had acted surreptitiously or dishonestly. While Dickinson should have done more to ensure that Accidia understood the arrangement, Luxembourg was also at fault for failing to properly report to Accidia.

The judge considered that it would be inequitable for Accidia to recover the whole US$1 million from Dickinson, but that it would also be unjust to allow Dickinson to keep it.

Based on the evidence, the judge would have expected Accidia to agree to pay 10% of gross sale price in the present market. That 10% of US$7 million would have been split between Luxembourg and Dickinson, and as the former was paid US$500,000, Dickinson’s just allowance was US$200,000. Accordingly, Dickinson was ordered to reimburse the difference to Accidia, namely US$800,000 less restoration costs of £2,500 which Accidia would have been obliged to pay), plus compound interest from the date of sale.

This litigation, and the unpicking of the commission arrangements of the art dealer, could have been prevented had there been transparent, clear agreements between the parties. Coming on board as a dealer or intermediary, it will be vital to interrogate any existing contracts between the parties and ensure that your position is robustly protected by appropriate legal agreements reflecting the extent of your authority to act and your commission structure.

You need to consider your position in any transaction:

• Are you dealing direct with the principal or are there a number of intermediary parties?
• What commission arrangement is in place and is the principal aware of the arrangement?
• Who will be paying your commission?
• Are you protected?

If you are an art dealer or intermediary, please contact Karen Sanig or Amanda Gray to discuss how to protect your position and safeguard your business.

Gifts of Pre-eminent Objects and Works of Art to the Nation - News for Collectors

At Budget 2011, the government announced its plan to boost philanthropy through a new scheme aimed at encouraging individuals to donate pre-eminent objects or works of art to the nation. This will be of interest to those who hold works of art or antiques.

When is it happening?

On 29 June 2011 the government launched a consultation on Gifts of Pre-eminent Objects and Works of Art to the Nation. The consultation period ended on the 21 September 2011. Following this, draft clauses that implement the new scheme were included in the Draft Finance Bill 2012. The scheme is expected to come into effect in April 2012.

What is happening?

The Gifts to the Nation scheme provides a reduction in income tax, capital gains tax, or corporation tax where individuals or corporations donate qualifying gifts of pre-eminent property to be held for the benefit of the public or the nation. A gift that qualifies for the tax reduction must be registered and accepted under the scheme set up by the Secretary of State. Jointly owned property is not eligible for the scheme. Trusts, trustees and personal representatives are also not eligible to apply.

How would the scheme work?

• If an individual makes a qualifying gift, then a proportion of that individual's tax liability for the relevant year is deemed to have been paid, thus reducing the individual's tax liability for a relevant tax year. The tax reduction available for an individual making a qualifying gift is equal to 30% of the value of the qualifying gift. The individual can elect whether to apply the reduction to income tax or capital gains tax. The individual can also choose whether to apply the tax reduction in the year the offer is registered or spread the tax reduction across the succeeding four tax years. The individual must decide during the year that the offer is made exactly how he/she plans to allocate the tax reduction in advance of each relevant tax year- therefore one cannot say that one plans to distribute £400,000 of the tax reduction over 5 years without specifying exactly how much will be used in each year.
• If a corporation makes a qualifying gift, the tax reduction available is 20% of the value of the property forming the gift. This must be applied in the year the donation is registered.
• Such donations will also be exempt from capital gains tax and corporation tax.

What is a pre-eminent gift?

• The definition is tight in scope and is set out at paragraph 16 of schedule 1 of the Draft Finance Bill. It includes pictures, prints, books, manuscripts, works of art, scientific objects or any other thing that the relevant minister is satisfied is pre-eminent for its national, scientific, historic or artistic interest. This definition is intended to reflect the definition which applies for the Acceptance in Lieu from Inheritance Tax Scheme (s230 Inheritance Act 1984) but it excludes land and buildings. The decision as to what falls into this definition will initially rest with a Panel of experts appointed by the Government.
• If the Panel believes that the object meets the requirements it will recommend the application to the relevant minister. Generally, the relevant minister will be the Secretary of State for Culture, Olympics, Media and Sport. However if an object has a strong tie to Scotland, Northern Ireland or Wales the Minister of that country will be involved in the decision.

What institutions can accept an object under the scheme?

• The Department for Culture Media and Sport defines an eligible institution as any museum, art gallery, library or similar institution having as its purpose or one of its purposes the preservation for the public benefit of a collection of historic, artistic or scientific interest. Donors may suggest an institution of their choice provided it meets the approval of the Panel. The transfer of the object to the Institution will be subject to the Institution agreeing to certain conditions, including agreeing to insure the work, to maintain the work in good condition and not to sell the work without the consent of the relevant minister.

How will an object be valued?

• Applicants will provide information regarding the object's estimated value. The aim is to ascertain what price the object could reasonably be expected to fetch in an open and unrestricted market. The applicant should provide valuations supported by substantiating evidence.

Annual Limit

• The gifts of pre-eminent objects scheme coupled with the acceptance in lieu scheme will exist under a cap of £30 million a year for both schemes. Therefore the annual reduction in tax liability accepted under both schemes cannot exceed £30 million in each tax year.

How does the scheme change the status quo?

• There is presently no similar tax relief available for lifetime gifts of pre-eminent objects to the nation. The Inheritance Tax Acceptance in Lieu scheme applies to gifts of pre-eminent objects from estates, and operates in respect of Inheritance Tax only. There is also no philanthropic element to the Acceptance in Lieu scheme.

How has the government integrated suggestions produced during the Consultation Period into the Draft Finance Bill?

• Many organisations criticised the proposal that the Pre-eminent Gifts scheme would operate under the same £20 million budget as the existing Acceptance in Lieu of Inheritance Tax scheme. The government has responded to this complaint by increasing the combined annual cap for the two schemes by 50% to £30 million.
• The initial proposal also suggested that individuals would only be entitled to a tax reduction equal to 25% of the donated object's value. Critics felt that this was not a sufficient enough tax incentive and accordingly the government has increased the tax reduction to 30% of the donated object’s value. In addition, having suggested that the scheme would be only be open to individuals the government are now allowing corporate donors to take advantage of the scheme.

Only time will tell if the new scheme succeeds in meeting the Government’s aim to encourage philanthropy and support charitable giving. The Government has emphasised that this is only the beginning and it will continue to monitor the scheme to ensure its success.

If you are interested in taking advantage of the scheme contact Karen Sanig or Amanda Gray.

The Fleming Collection

by Amanda Gray

The Fleming Collection has become known as the embassy for Scottish art in London. The collection comprises over 750 oils and watercolours that span from 1770 through to the present day including works by Raeburn, Ramsay, Wilkie and the iconic paintings of the Highland Clearances, The Last of the Clan by Thomas Faed and Lochaber No More by John Watson Nicol.

It is particularly noted for its works by William McTaggart, the Glasgow Boys, DY Cameron, Anne Redpath and a superb group of paintings by the Colourists. This year marks the tenth anniversary of the opening of The Fleming Collection's public gallery in Mayfair.

The collection has two very different exhibitions taking place this year. W. Barns-Graham: A Scottish artist in St Ives, held in association with the Barns-Graham Charitable Trust, runs until 5 April 2012. This major exhibition marks the centenary of Barns-Graham's work and is currently being held at The Fleming Collection at 13 Berkeley Street, London W1.

The forthcoming exhibition Made in Scotland celebrates Scotland's contemporary artists and craftsmen at the Fleming Collection. This exhibition will run from 17 April to 2 June 2012.

Read full article »

Willie Christie: Limited Edition Collection

The relaxing and intimate ambience created by low lighting, comfortable leather sofas and private rooms at Eight Club – a private member's club situated in the heart of the City – make it an ideal venue for Willie Christie’s unseen, seminal photographs by British style icons. Guest blogger Elvira Patruno, MvF Managing Curator, gives us an insider’s perspective.

Limited Edition Collection showcases a selection of groundbreaking works across fashion, music and film during Christie’s decade as a fashion photographer. A tribute to polished 70s romanticism and emboldened 80s glamour, the show includes, among others, intimate portraits of Christie’s former spouse and one of his favourite subjects – Grace Coddington.

Read full article »

About Lawfully Chic

A blog for art-lovers and adventurers, fashionistas and culture vultures, who believe in fair play, fair trade and fair travel.

Created exclusively by Nueluxe and Mishcon de Reya

Visit the website »

A glass act

by Amanda Gray

Halcyon Gallery opens its new New Bond Street gallery on 5 December 2011 with an inaugural exhibition by Dale Chihuly. The exhibition will occupy all three levels of the new gallery space and will feature new site-specific work such as a 24-foot long Mille Fiori garden of glass and a two storey Gold and Quartz Two Tier Chandelier, as well as drawings and paintings by the artist.

Works across Chihuly's glass series since the 1970s will be represented in the exhibition. His exotic forms, which burst with rich, vibrant colours, include Cylinders and Baskets in the 1970s; Seaforms, Macchia, Venetians, and Persians in the 1980s; Ikebana and Chandeliers in the 1990s; and Mille Fiori in the 2000s.

The timing of this exhibition is significant for Chihuly, as 2012 will mark 50 years of the International Studio Glass Movement, of which he is a founding member and leading protagonist.

Read full article »