And Just Like That . . . New York City Repeals Auction Regulations
In a surprise to the art market, New York City recently repealed a set of rules that governed auction house practices. The repeal was part of a broader regulatory effort by the City to stimulate business activity in various industry sectors and does not seem to have been lobbied for by auction houses. The repealed rules initially were passed into law as consumer protection measures designed to require more transparency in auction sales.
The eliminated rules included a licensure obligation for auction houses to operate. Additionally, the City eliminated several other requirements, including:
Written consignment contracts containing disclosures about auction house commissions and charges and containing a warranty of good title from the consignor to the auction house and the ultimate purchaser
Disclosure concerning the existence of a reserve price (the secret minimum price at which the consignor will agree to transact a sale) and a requirement that the reserve price cannot be higher than the low estimate published in the auction catalogue
Mandated disclosure of an auction house’s financial interest in a lot (such as whether the action house has guaranteed the consignor a minimum selling price)
Limits on “chandelier bidding” (fictitious bids the auction house makes on behalf of the consignor rather than a bona fide third-party purchaser to curry interest from prospective bidders). The regulations required auction houses to disclose their intention to place chandelier bids, and prohibited chandelier bids once the reserve price had been reached
Despite the elimination of these regulations, some auction houses have expressed a willingness to voluntarily operate as if the regulations were still in effect, as savvy consumers have come to expect this level of transparency in auction sales and the framework already exists. While we will have to wait and see whether the auction houses change their practices or whether the repeal has any effect on the market, consumers should know there are other laws that provide some level of protection against consumer deception and generally regulate sales transactions, including general consumer protection laws, the Uniform Commercial Code, the New York Arts and Cultural Affairs Law, and common law.
