(Some) artists set to profit under the Resale Right for Visual Artists Act 2023

Key takeaways

• The new Resale Right for Visual Artists Act 2023 grants a right for eligible artists to receive a royalty on qualifying sales of original visual artworks.
• A 5% royalty will be payable to a collection agency on each resale of a qualifying visual artwork. The collection agency will retain a percentage of the royalties it collects, and artists will receive the remainder. The qualifying resale value of artworks is yet to be set by regulations, but a minimum amount of $1,000 has been proposed.
• The royalty scheme will be in operation by the end of 2024, with the commencement date yet to be confirmed.

Overview

Following our earlier report that a resale royalty scheme for artists will be established in New Zealand, the Resale Right for Visual Artists Act 2023 (Act) has now been enacted for this purpose.

Below is a summary of key features of the scheme under the Act and as proposed by the Ministry for Culture and Heritage:

1. Eligible artists will be entitled to a royalty payment when their original visual artworks are re-sold in the secondary market.
2. Qualifying visual artworks include paintings, drawings, carvings, photographs, prints, craftwork, ceramics, glassware, textiles, jewellery and furniture, and art that is created using computers. It also includes “cultural expressions” of Māori or of Pacific peoples. Certain types of works are excluded, such as buildings.
3. The resale must be conducted through an “art market professional”. This includes auctioneers, art dealers and operators of art galleries, as well as publicly-funded galleries and museums that collects and displays artworks. In each case the art market professional must have a connection to New Zealand.
4. The minimum qualifying resale value of artworks will be set by regulations (still to be drafted), and will be an amount in the range of $500 and $5,000. At this stage, a minimum resale value of $1,000 has been proposed by the Ministry for Culture and Heritage.
5. The royalty payable to the collection agency is 5% of the resale value (excluding fees such as commissions or buyer’s premiums, and duties and taxes). The collection agency will retain a percentage of the royalties received for the purposes of funding its activities, the amount of which will be set by regulations but which has been proposed as 20% of the royalties received. Artists will therefore only receive a portion of the 5% royalty payments.
6. As a default position, the seller and their agent acting in the resale will be jointly and severally liable for paying the royalty to the collection agency. This joint liability shifts to the seller and the buyer if no agents are involved. The art market professional involved in the resale must also provide certain information to the collection agency.
7. The scheme applies to artists who are citizens or residents of New Zealand, or who are residents of jurisdictions with reciprocating schemes. The duration of the royalty right is the life of the artist plus 50 years. This is expected to be extended to the life of the artist plus 70 years once the copyright term is also extended in New Zealand, as required under the UK and NZ free trade agreement.
8. The royalty right is inalienable (that is, an artist cannot waive the royalty right). The right will pass to an artist’s successor in title on the death of the artist.
9. A non-governmental royalty collection agency will be appointed by the Minister for Culture and Heritage, and regulations will be introduced for various operational aspects before the scheme commences. Amongst other things, the regulations will provide for the establishment of a cultural fund for the purpose of supporting career sustainability of visual artists. The regulations will also specify how resale royalties are to be collected, held and distributed, and what the agency can do with any royalty payments that artists decline to receive.

Our comments

We expect that the royalty scheme will be largely welcomed by New Zealand artists. The scheme will provide additional revenue for artists whose artworks increase in value over time through sales in the secondary art market. However, the scheme will only benefit artists whose works sell above the qualifying resale value. Artists with established reputations and who are already commercially successful are therefore most likely to profit from the scheme.

The Ministry for Culture and Heritage’s regulatory impact statement (RIS) for the scheme provides some insight into the financial benefit artists might receive. Under the RIS, it was estimated that there are potentially 3,600 visual artists in New Zealand who could benefit from the royalty scheme. Based on New Zealand auction house data from 2018 to 2020, the RIS assessed that 666 artists and their estates would have been eligible for royalties had the scheme been in place then, with total net royalties per artist across the three years ranging from $45 to $75,991 and with median royalties per artist of only $182. Accordingly, the material benefit to most artists will be limited.

It is highly questionable whether the scheme will be self-sustaining in a market the size of New Zealand. The RIS acknowledges that Crown investment will be required to operate the scheme, as there will be a shortfall in funding through administrative fees until the scheme becomes self-sustaining, which could take some time. By way of example, Australia’s resale royalty scheme, which launched in 2010 in the context of a much larger art market, is estimated to only become self-sustaining by 2025.

Art market professionals and those involved in the sale and purchase of artworks will need to ensure that they comply with the obligations under the Act. It remains to be seen whether the additional administration involved will result in an increase in the fees of agents and art market professionals, and how any such increase in fees will be passed on to sellers or buyers. It also remains to be seen whether sellers and their agents will try to recover the royalty fee in the form of increased premiums, but we anticipate this would be likely.

We expect buyers of artworks will end up paying more when purchasing works in the secondary market because sellers will simply increase prices to cover the royalty payment. Buyers could also be jointly liable for paying the royalty depending on whether agents are involved in the sale which could result in them being stung twice.

There are also some curiosities in the drafting of the Act, the implications of which are yet to be tested and may depend on the regulations that are still to be released. For example:

1. It is possible that visual artworks generated by artificial intelligence could potentially qualify for the scheme if the works are created “under the authority” of an artist.
2. Artists will have the royalty right regardless of whether they own copyright in the artwork or not. The definition of “original visual artwork” also does not require that copyright subsists in an artwork, and does not require that the artwork must not infringe copyright.
3. The Act does not specify what form of “cultural expression” of Māori or of Pacific peoples may qualify as a type of “visual artwork”, nor how a “cultural expression” differs (if at all) to the other forms of qualifying visual artworks.
4. The broad definitions of “art market professional” and “visual artwork” mean that a range of businesses, who may not ordinarily be perceived as professionals engaged in the art market, may have to comply with the scheme. For example, it is conceivable that jewellery, fashion, homeware and furniture retailers could find themselves having to comply with the scheme if they sell qualifying visual artworks.
5. The Act does not address how resale values will be assessed in the event that artworks are sold in the same lots together with other artworks or items. It is also unclear whether price allocation under a resale contract (for example, allocating $1 to the sale of a painting and $1,000 to the sale of the frame that the painting is in) could validly circumvent the scheme.

Next steps

While the Act has generated some political goodwill, it is yet to be seen whether it will deliver any meaningful benefit, and in particular whether the compliance and regulatory costs will outweigh the purported benefits to artists. We eagerly await the introduction of the regulations for the resale royalty scheme and details of the collection agency to be appointed.

In the meantime, those who deal in and purchase artworks in the secondary market should be mindful of the compliance requirements under the imminent royalty scheme.