On 29 March 2023 the Resale Right for Visual Artists Bill (‘Bill’) was introduced to Parliament, seeking to establish an Artist Resale Royalty Scheme (‘Scheme’) under which artists of visual artwork would receive a percentage of the resale value each time their art is resold. The Bill has received feedback from the Social Services and Community Select Committee and is awaiting its third reading.

At its core, the Bill seeks to establish a ‘resale right’ which would accrue to artists during their lifetime, and to the successor of the resale right following the death of the artist, for a period of 50 years (increasing to 70 years to reflect the Free Trade Agreement signed with the United Kingdom). During that period, every qualifying resale would generate royalties for the artist, and for the artist’s successor.

The creation of this resale right has an impact on how artists, and us as their advisors, should think about succession planning. The resale right is an asset which should be accounted for when drafting the artist’s will and a failure to account for the resale right might lead to, at best, overly complex estate administration, and at worst, intra-family litigation where an artist’s popularity sky-rockets in the years following their death.

How does the Scheme work generally?

Eligible artists hold a resale right against their original visual artwork, and where that artwork is resold in a qualifying resale the artist is entitled to receive 5% of the resale value for that artwork each time it is resold.

An artist is eligible if that artist is a New Zealand citizen, or domiciled or resident in New Zealand or a citizen or subject of, or a person domiciled or resident in, a reciprocating country. Note here that we have not yet been given an indication of which countries will be reciprocating countries for the purposes of the Scheme.

The Bill provides a comprehensive definition of ‘original visual artwork’, which in essence means any visual artwork but not a building, dramatic work, or literary work. A piece of art will be an original visual artwork if it created by or under the authority of the artist, or is one of a limited number of copies of such a piece of art.

The resale right will only apply to a ‘qualifying resale’ as that term is defined in the Bill. A resale is a qualifying resale if it is a professional resale with a resale value of no less than a yet-to-be-specified amount, which must be between NZ$500 and NZ$5,000 (excl. GST). If all parties to the resale agree, a non-professional resale can be a ‘voluntary qualifying resale’ where the parties would opt in to the terms of the Bill. In this case, the parties could choose a percentage of the resale value other than the 5% prescribed by the Bill.

A professional resale would be a resale where at least one of the parties involved is an art market professional, or a publicly funded art gallery, or a publicly funded museum.

To implement the Scheme, the Bill establishes a non-governmental non-profit agency responsible for the collection and distribution of the royalties to the holders of those resale rights. The Bill sets out the principles that would guide the operation of this agency, but is not specific on the practicalities of how this agency would function, beyond that the agency would deduct an administration fee from royalties.

So, as an example, where a New Zealand artist’s painting is sold through an art dealer for a total, before tax, of NZ$100,000, the artist would receive a 5% royalty of $5,000, or more accurately slightly less than NZ$5,000 after tax and the agency administrative fee.

Nature of the resale right

The Bill is a little unclear on this point, but going off the way it is currently drafted, a resale right accrues separately for each artwork that the artist produces, and the artist will hold a resale right for every piece of original visual art that the artist has produced. This right is inalienable when held by the artist, and cannot be waived, assigned or charged. Additionally, an artist has a resale right irrespective of whether they are or were the first owner of copyright in the artwork.

The fun part, for private wealth management and estate lawyers at least, is when the artist dies. The Bill provides that the resale right is held by the successor of that resale right, being the person holding the right under will or intestacy or following the transfer of that right. The successor must be a New Zealand citizen, domiciled or resident in New Zealand, a citizen or subject of, or domiciled or resident in, a reciprocating country, or any other person incorporated, registered or carrying on business in New Zealand.

Once the artist has died, the successor can transfer the resale right as personal property by assignment, testamentary disposition or operation of law, so long as the recipient meets the eligibility criteria set out above.

The resale right is divisible and can be held by multiple successors in whatever shares as the artist specifies through their will, or future successors transfer as they see fit. The resale right, in whatever shares, will persist for 50 (or 70) years following the end of the calendar year in which the artist died.

Implications for estates and wealth management

While the artist lives, the administration of the Scheme should be relatively straightforward, at least for the artist themselves. For most artists the royalties will be a pleasant but negligible amount. Australia has a similar scheme which generates an average resale royalty of approximately AU$432.

Where it gets interesting is when the resale right is not specifically provided for in the will of the artist. Where this is the case, the resale right would form a part of the artist’s residuary estate and would be allocated in such shares as the will provides for the residuary estate. This would be an issue, not only because it is unlikely to reflect the testamentary intention of the artist, but also because the residuary estate may be split across multiple shares. For most artists, royalties will already be minimal, and splitting them across three or four beneficiaries is unlikely to leave anyone happy.

The one thing that the Bill is clear on is that a person can only be a successor where they fit the prescribed requirements to be so, namely being a New Zealand citizen or New Zealand resident or domiciled (with some additional caveats noted above). So, if the resale right falls into the residuary estate it may void if the beneficiary or beneficiaries of the residuary estate do not meet those requirements.

An additional issue is that the nature of art makes it difficult to predict what the value of the resale right will be across the 50 (or 70) years following the death of the artist. For many, their work will sink into obscurity and subsequent resales will struggle to meet the resale value threshold. For some lucky artists their work will age like fine wine (benefited by the fact that there is now a finite supply of that artist’s work). For instance, just recently one of New Zealand artist Bill Hammond’s works sold for NZ$1.7 million. If the Scheme were in place, that would mean an NZ$85,000 windfall for his successor. Rights this valuable become worth litigating over, and a failure to specifically account for the resale right in the will increases the risk of litigation over the estate.

We recommend that advisors have a careful conversation with those of their clients who are artists, so that the client’s will can be drafted in a way which provides specifically for the resale right. Even where the client isn’t wildly successful in the present, it may be worth including provision for the resale right, to avoid a sudden post-mortem uptick of interest in their art causing problems down the line.

It would be useful to bear in mind, and communicate clearly with clients, that the resale rights can be left to multiple beneficiaries in whatever shares the clients see fit. Additionally, since resale rights are specific to each piece of visual art, resale rights to different artworks can be left to different beneficiaries. This has the potential to become quite complex quite quickly, but the flexibility is useful to personalise what beneficiaries receive from the estate of the artist.

As an advisor, you should be clear with your client that the resale right can be left to individuals, or to organisations or companies, so long as they meet the requirements to be a successor under the Bill. There is a question mark over whether the resale right could be held by a trust. Presumably a resale right could be held in trust, where the trust is subject to New Zealand law. It is unlikely that a discretionary beneficiary of a trust could receive a royalty payment if they do not meet the requirements set out in the Bill.

Conclusion

The Bill has not yet been passed as law, but given its progress through the Select Committee it is likely that it will be in the near future. It is important that advisors are aware of sources of potential confusion when they are drafting wills, and in a position to provide comprehensive advice to clients on these issues. This may make estate planning of our more artistically inclined clients more complex in the short-term, but being aware and reactive to this change will save clients, and their families potential headache and litigation in the long run.

This article was written by Connor Seddon, Solicitor.