August 9, 2022

Volume XII, Number 221

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August 08, 2022

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New York City Lifts Rules Governing Auctions

As part of a broader regulatory roll-back intended to stimulate business and economic activity post-pandemic, the New York City Council repealed regulations affecting the auction industry.[1] Generally, the repeal’s effect is to remove rules that regulate the conduct of auctioneers and auction houses, including licensing and disclosure requirements.

As of June 15, auctioneers and auction houses no longer need a license to operate. Provisions requiring the disclosure of auction practices or certain auction items’ descriptions were done away with in April. Without these restrictions, auctioneers, for instance, are no longer required to disclose the amount or existence of a reserve price.[2] When an auction house sets a reserve price, that price may now exceed the minimum estimated value of the item, a practice that was prohibited prior to the repeal.

What’s more, an auctioneer or auction house is no longer required to disclose any interest they may have in a lot, such as a guaranteed minimum sale price, or a loan or advance to consignors or prospective buyers, or the auctioneer’s or consignor’s intent to participate in the auction. The repeal also reverses course on “chandelier bidding,” a practice that was previously permitted under limited circumstances. A chandelier bid is a phantom bid that an auctioneer pretends to take from somewhere in the room. Chandelier or phantom bids are meant to drive bids from actual auction participants by giving the appearance of others’ interest in the item, i.e., chandelier bidding takes advantage of bidders’ “fear of missing out.” With chandelier bidding now allowed without restrictions, auctioneers no longer have to disclose their intention to drive up bidding to the reserve price by making bids on behalf of the auction house. After reaching the reserve price, auctioneers may also continue to bid on the auction house’s behalf.

As for descriptions of jewelry and watches, auctioneers no longer have to provide information about the number of jewels, number of carats, number of points (diamond), principal metal content, or manufacturer’s name. If the auctioneer chooses to provide this information, they need not do so in writing; requirements that this information be put in writing have also been removed.

After auction, if there is a bidding error or other bidding dispute, the auctioneer is no longer limited to a seven-day window following the sale to notify the successful bidder that the auctioneer intends to cancel the sale or reoffer and resell the item.

This is not to say that the auction industry is completely unregulated. New York Arts and Cultural Affairs lawsGeneral Business lawsArticle 2 of the New York Uniform Commercial Code and common law (e.g., fraud or misrepresentation) still apply to provide certain consumer protections.

Even so, most auction houses likely will continue to operate as if some of the repealed regulations remain in place. Disclosures bolster client confidence by lending transactional transparency, industry consistency, and equal access to material information. Auction houses are incentivized to continue these practices to further their interests and those of their clients.


FOOTNOTES

[1] These laws were repealed:

1.         Subchapter 13 of chapter 2 of title 20 of the Administrative Code of the City of New York (sections 20-278 to 20-290) was repealed by Local Law 80 of 2021 on July 18, 2021. The repeal is effective June 15, 2022.

2.         Subchapter M of chapter 2 of title 6 of the Rules of the City of New York (sections 2-120 to 2-125) was repealed on March 11, 2022. The repeal became effective April 10, 2022.

[2] A reserve price is a minimum amount that the seller will accept as the winning bid. It prevents a bidder from winning an auction item for less than the seller is willing to accept.

Copyright © 2022, Hunton Andrews Kurth LLP. All Rights Reserved.National Law Review, Volume XII, Number 159
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Joseph A. Patella Partner Hunton Andrews Kurth
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A proven problem-solver, Joe represents clients in high stakes commercial litigation with a focus on financial services, energy, insurance, retail and the art world.

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Rachel E. Hudgins Associate Insurance Lawyer
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Rachel represents clients in complex insurance coverage and bad faith litigation.

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