Frequently Asked Questions about the Artist’s Resale Right

May 14, 2013 Comments Off on Frequently Asked Questions about the Artist’s Resale Right News

How much money will this mean for artists?

Most auction houses have two sales of Canadian art each year, and there are other smaller auction houses not included in this total, so it is reasonable to assume that with auction houses alone, living artists are missing out on about $250,000 in royalties. In addition, other sources of ARR would be from online auctions, auctions that take place abroad, sales at commercial galleries, and estate sales. This is a substantial amount of money, but it should be noted that it is only 5% of the total sales. Auction houses charge a fee known as a Buyer’s Premium, and in Canada those fees usually amount to 15-20% of the hammer price of each Lot, which is added to the winning bid and is payable as part of the total purchase price. Similarly, art dealers typically take 50% of the retail sales price on work that they sell.

What does this mean for individual artists? As an example, four pieces by Joe Fafard were sold in November 2011, including one piece that went for $48,000 – more than three times what he received for it when he originally sold it in 1989. He could have received almost $4,000 in ARR royalties. Most royalties that Canadians would receive are modestly low, by comparison to the overall hammer price, ranging generally from $200 to $4,000. The largest would have been $64,350, payable to Alex Colville for a piece that broke a sales record for a living Canadian at a Canadian auction: $1,278,000 in 2010. It is unlikely that Colville was paid that much the first time it was sold. Further, the other royalties in that same sale would have ranged from $351 to $4,387. While these royalties are relatively low, it is an important income source for artists, and an acknowledgement of the growing importance of their work’s value.

Do all artists support the Artist’s Resale Right?

Since 2010, a number of consultations with artists on the issue of the ARR have taken place across the country, and artists have been in favor of it. We have received several endorsements from artists and other artists’ associations. Even artists who spoke against it in the UK have since deposited their cheques. These artists may have felt pressure from their dealers to denounce it publicly before it was put into law. It is for this reason that we recommend the right be inalienable so that artists, who are often pressured not to exercise their rights, cannot be convinced to waive it. If an artist truly does not want the payment, there is nothing to stop them from donating the money as they see fit.

If I sold my house, I don’t expect to receive royalties on future sales. Why do artists deserve future payments on something they already sold?

With copyright, ownership and duration of rights are more complex than they are for most other physical objects. You do not own copyright in your house, car, etc. Artists retain copyright even when their work is sold, unless they sign those rights over to someone else. When it comes to visual art, the intellectual property is related to a physical object. That is what sets visual artists apart from other artists. They are usually the creators of a singular, original object. By comparison, writers and performing artists have the ability to disseminate mass quantities of their copyright-protected work through books, CDs, DVDs, etc., and are able to receive royalty payments for as long as copies of their work sells, and as their fame grows. Other artists retain the right to financial benefit from subsequent uses of their work. The ARR similarly enables artists to earn a living from their work as its success grows, and allows artists to share in its ongoing value. The artist is an important contributor to their work’s value, and without the artist, the artwork would not exist.

Will the right only benefit a few wealthy heirs of deceased famous artists?

No. While the ARR was initially set up to assist destitute families of deceased artists, most countries have designed their laws to have a greater impact for as many living artists as possible. It is for this reason that we recommend a minimum threshold of $1,000, so that more artists can benefit from the right – not just those who command high sales prices. The UK Intellectual Property Office reported in 2014 that nearly half of all artists who have been paid had work sell between €1,000 and 3,000. The $1,000 threshold enables more artists whose work is often valued at lower prices to collect the royalty, such as photographers, illustrators and craftspeople. While we propose that estates be included, recent figures from countries such as Australia and the UK indicate that about 60% of royalties are paid to living artists. Both countries also report that most royalties are paid for lower valued work: 49% of royalties in Australia have been between $101 and $500, while 53% of British artists and estates paid in 2014 received less than £500. In Canada, higher sales figures often come from sales of work by deceased artists, such as the Group of Seven. However, thousands of living artists would benefit every year, as is the case elsewhere.

Will all sales be eligible for the Artist’s Resale Right?

No. The right only applies to secondary sales of original works of art protected by copyright. It does not apply to first sales, or sales between private individuals. It does not apply to sales of works by artists who have been deceased for more than 50 years. It does not apply to works that sell for less than the qualifying threshold of $1,000. It does not apply when a work by a Canadian artist is sold in a country without the ARR, or if an artist is from a country without the ARR.

Does it apply if the work is donated and then resold?

Yes. While the royalty is called the Artist’s Resale Right, it is actually applied to the second transfer of ownership. This is standard practice in other countries that have the ARR. The reason for this is that a lot of artists donate works to museums or give works to friends, and when it is later sold, they receive nothing from that sale. If the work is donated or gifted to a friend, the ARR is the only opportunity for the artist to receive income from that work.

Will ARR be difficult to administer?

No. The right has been successfully administered in many countries for decades. Countries that provide successful administration models are usually those where collective management is compulsory, as it has been demonstrated to keep costs down for the art market professional, while also ensuring maximum compliance with the law. In Canada, we recommend that CARCC be the primary collecting society. CARCC has 20 years of experience administering the payment of copyright royalties to artists resulting from exhibitions, reprography, and other copyright related use of their works. They have systems in place that will enable them to successfully administer the ARR. Businesses regularly report on sales for tax purposes, and consider it a cost of doing business.

Will ARR be too costly for the art market?

In order to keep costs low, established systems can be used to administer the ARR. We recommend that art market professionals declare sales twice yearly, and royalties are similarly paid by collectives twice yearly, in order to keep costs low. Most of the administrative work would be handled by a collective. The collecting societies will carry out the work involved in locating artists, and distributing the submission requests, invoices, and payments to artists. In most countries, the cost of administering the royalty range between 10% and 20% of the royalty – an amount that is deducted from the royalty itself, not paid separately by the art market. In other countries, the cost and time commitment involved in reporting was relatively low for art market professionals. In 2014, a survey of art market professionals conducted by the UK Intellectual Property Office reported that the average time required to determine whether an ARR payment is due, and to complete the royalty submission, amounted to 25 minutes per fiscal quarter. Another study of the ARR conducted in the UK in 2008 indicated that, “the cost of administration does not appear burdensome relative to the benefit to the artists”, and that half of all art market professionals spend less than £10 per transaction. A 2011 report from the European Commission said that even in those countries that have seen higher costs, the benefits to artists are much higher.

Won’t this drive the art market to places like New York, where there is no ARR?

No. This trend has never materialized in other countries which already have the right, including the UK, which has the largest art market in Europe. The royalties are too modest to remove incentives to relocate in order to avoid paying it. The cost of exporting an artwork is invariably higher than the royalty. For example, a work sold for $5,000 would generate a royalty of $250, at the proposed rate of 5%. The cost of packing, insuring, and shipping an artwork to a country without the ARR would likely outweigh the benefit of avoiding the royalty. Similarly, the rates of commission commonly charged to sellers and buyers by art market professionals are considerably higher, often amounting up to 20%. Art will always be sold where it’s likely to get the best price. We see no real threat of the art market moving abroad, as the Canadian art market has specialized expertise, and buyers are more likely to purchase Canadian work in Canada. While the United States may be nearby, there are movements to introduce the ARR at the national level there. Similarly, China and Switzerland are also looking at adopting an ARR.

What if the work has actually decreased in value?

A collector is unlikely to put art back on the market if s/he does not have a reasonable expectation that they will make money on the sale. Sellers can insist on a minimum bid at auction, and they have the ability to set sale prices when working with a gallery. The other costs of a sale do not change depending on the outcome. The dealer or auction house charge the same commission rates regardless if it sells for more or less. The standard practice is that the royalty applies regardless of price fluctuation. An artist should be able to benefit whenever their work has sufficient market value to be resold. It can also be argued that the artist is receiving a royalty the same way that an author receives a royalty on book sales, so whether a profit has been made is irrelevant. Further, in many circumstances it may be difficult or impossible to determine what the original sales price was, particularly if the seller received it as a gift. Rates of inflation are difficult to determine over time, especially if the date of creation of the work, or sales dates are unknown.

The ARR won’t help every artist. Doesn’t it just benefit a privileged few?

Artworks enter the secondary market every year. Many artists are well known yet they may still struggle financially. In Canada, most royalties would range from a few hundred to a few thousand dollars, and most of those artists have several works resold throughout the year. A lot of the money logically goes to those who have a high volume of sales in the secondary market. The royalties are not split evenly among all artists – they are dictated by the market value of an artist’s work. Not every artist has work in the resale market, and so not everyone will benefit from the ARR. It will only benefit those whose works resell. Similarly, not everyone will get an exhibition fee, a teaching position at a university, a grant from an arts council, or a Governor General’s award. Most artists are self-employed with income from various sources contributing to the artist’s ability to earn a living and maintain an art practice.

If these artists are popular, can’t they just earn money in the primary market?

When people hear that an artist’s work broke an auction record, they assume that the artist made money on that sale, and that they are rich. It has also been argued that auction sales boost the artist’s primary market. This does not reflect the reality of most artists. In 2006, Waddington’s sold a Ron Bloore painting for $55,200, breaking a record for the artist. While it is great news that his work increased in value, he received nothing for that sale, and his work was not selling in the primary market. This is common. Buyers want to buy work in the resale market because there is less risk involved, and they want to buy the art that made the artist famous. Even if he was doing well financially, why should that be a penalty? Artists’ incomes should not be capped, and we do not believe that we should deny royalties to most artists because a few artists may be doing well financially.

Will the ARR destroy an already fragile Canadian art market?

While CARFAC is interested in working with the sector to find ways to strengthen the Canadian art market, it is not reasonable to assume that a 5% royalty will cause an industry to fail. It is similarly unlikely to cause sales to move to the black market, when other fees, such as buyer’s premiums and commission rates continue to be far higher. In order to keep costs low, we will endeavour to work with established systems to administer the ARR. In 2011, the European Commission released a study on the impact of ARR on the EU. They reported that while the UK lost some market share, countries that already had ARR such as France and Germany, had a slight increase from 2008 to 2010. Other countries that adopted it at the same time as the UK saw an increase in their market share of the European market. The UK lost market share on sales of deceased artists’ work, but that was long before the eligibility of estates in 2012, which suggests there are also other factors at play (ie: the global financial crisis, VAT rates, changes in global distribution of wealth, etc). According to Artprice, over the last three years, revenue from contemporary art sales in London has increased, despite the recession and introduction of ARR, and DACS estimates that it has increased by 23% per year.

The reporting process seems like an invasion of my gallery’s privacy. What information needs to be submitted to the collective and the artist?

CARFAC and RAAV propose that collectives monitor secondary sales of Canadian artists’ work. They will contact the art market professionals twice yearly, asking for details on sales. If certain works meet all eligibility criteria, the collectives will send an invoice on the artist’s behalf. The full details of the sale will not be disclosed to the artist. The artist will be informed if the work was sold at an auction house or gallery, and will receive the details of the work sold, ie: its title, the date it sold, and the royalty due to them. All personal information submitted to collectives in the course of an ARR enquiry will be treated as confidential. This is standard practice in other countries that have the ARR.

The Artist’s Resale Right > Email Your MP > Meet Your MP > Impact on Artists > Artist’s Resale Right Proposal > Recent resales and artist comments > What People Are Saying >

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