Unlike some players, we do not consider art to be an investment like any other. In our view, its primary added value comes from the intellectual and aesthetic pleasure that a work of art or a collector’s item provides. However, the financial stakes attached to works of art can be very high. And the responsibility involved in advising on and owning them is even greater. It is therefore important to be well advised by experts in their respective fields.
Why use a specialist lawyer when buying a work of art or collector's item ?
Whether it’s negotiating contracts prior to purchase or general advice on holding or lending a work of art, going it alone can be costly. Calling on the services of a lawyer who is familiar with the workings and practices of the art market gives you security in your investment and an opportunity to add value to it. So what can a specialist lawyer do to protect the interests of clients, whether collectors or market professionals?
Acquiring and managing a work of art
There is a whole range of services and players in the art world: auction houses, independent art consultancies, legal and tax advisers, as well as experts in the fields of insurance and philanthropy.
These services enable us to support our customers when it comes to valuing, authenticating, acquiring or selling their collectibles. Indeed, collectors need support on a number of occasions. They may need to draw up an inventory of their material assets, protect these assets through insurance solutions, plan their transmission to the next generation, or combine their interest in the arts with a philanthropic project or other project to promote artists and their works.
These services can be useful to a wide range of clients. They may, of course, be collectors, whether established or new, or people who have inherited a valuable work who need an estimate, with a view to a possible sale at a later stage. Others wish to check the cost or robustness of their insurance policy, or to verify a specific legal or tax issue concerning, for example, the gift of a work to their children or grandchildren.
This is when the support of a lawyer with specific knowledge of the art market, its codes and practices, proves useful and advantageous for securing a first major purchase, or for starting a collection. The art market is not regulated. It is therefore vital to get familiar with its codes and practices so that you can grasp its pitfalls and advantages under the best possible conditions.
Securing the transfer of ownership
There are many opportunities to benefit from legal advice, even before buying a work of art. First and foremost, you need to know how to protect yourself against possible future problems relating to title. Even if the system of ownership may vary from one country to another or from one legal system to another (Romano-Germanic countries versus common law countries, for example). Collectors need to be very sensitive to the possibility that a work of art or an antique may be stolen. Or that an incomplete or suspect ownership history could raise questions about the work’s title and almost certainly affect its value or market value.
There are certain steps collectors can take to protect their investment and mitigate this risk. They can consult the register of lost or stolen works of art and other databases to ensure that no claims have been reported. They can also investigate the provenance of works of art to ensure that any previous declaration of ownership is accurate and that there are no suspicious gaps. Or carry out a lien search to confirm that there are no creditor claims. These steps can help minimise the risk of potential claims or disputes.
Specifications and purchase documents for a work of art or collector's item
Purchase documents are essential. Right to sell the work, no claims, liens or other encumbrances. Information on export or import, in accordance with applicable laws. Provision of all provenance documents known to the seller. Transfer of risk, liability in the event of damage in transit or on loan, etc.
Safeguarding the authenticity of a work
Over the last decade, many leading authentication commissions have been disbanded, complicating the terms of attribution in purchase contracts. Although there are still a number of ways of investigating the authenticity of a work, including determining whether it appears in an artist’s catalogue raisonné and carrying out forensic analysis, the risk remains significant. One of the tasks of a lawyer specialising in the art market is to think about how this authenticity risk will be allocated, and to define the recourse available to the collector if the piece turns out to be a fake.
For private sales, the length of the warranty (the period during which the buyer can make a claim for breach of warranty), the means of proving a work’s lack of authenticity, and even the methods of resolving disputes are all negotiable in a contract. For example, a client’s lawyer may request that the seller agree in advance to grant the buyer the right to terminate the contract if, during the warranty period, a major auction house or museum refuses to accept a work because of doubts about its attribution. Such a contractual construction is designed to oblige the seller to refund the sums paid without the buyer having to go to court to prove inauthenticity on the basis of more concrete evidence.
Avoiding disputes
Avoiding disputes can be an end goal in itself. Noting that many collectors value privacy and discretion, customers can be encouraged to include alternative dispute resolution clauses in their private contracts so that problems do not automatically turn into public disputes.
When buying works from galleries, there is less room for contract negotiation, so collectors must rely on well-written invoices. If a gallery gives a private collector an invoice that describes a work in an unqualified way as having been created by a particular artist, it is effectively making a statement that exposes it to owing an express guarantee of authenticity. Purchases made in auction rooms are also subject to this version of an express warranty, although the conditions vary from room to room.
Setting up heritage vehicles
When a collector starts to build up a large art collection, questions about holding strategies begin to arise. Many collectors opt to set up a not-for-profit organisation or trust for long-term inheritance and succession planning. In this case, specialist lawyers can advise on the set-up and structure of a collector’s foundation.
Setting up a foundation can help a collection continue to grow. Collectors can make a contribution to the non-profit foundation, receive a tax deduction for their contribution, and then the organisation can purchase the works of art.
A collector will usually need a legal professional to advise them on the many types of vehicles that exist and to determine the right one for their collection. In terms of estate planning, a trust structure can be used to control the transfer of assets for several generations and prohibit transfer outside the family. When it comes to estate planning, lawyers, notaries and tax advisers can work together to come up with tailor-made solutions.
Lending to museums and galleries
When you own a work of art, you may choose to lend it to a museum or gallery for a temporary or semi-permanent public exhibition. To ensure that a collector’s investment is adequately protected, the lawyer will carry out a number of checks. He will also draft an exhibition loan contract that clearly describes the obligations of each party.
Issues such as the division of responsibility for transporting and insuring the work of art during the loan are among the most obvious points to clarify. There are also a number of other factors to consider. These include the definition of the duration of the loan and the conditions of return.
The standard of care and security protocol. Approval of the insurance assessment to ensure that the work on loan is adequately covered. Assurance that the work will not be restored or altered in any way without the written consent of the collector, and even whether or not the work will be allowed to travel abroad.
The borrower often absorbs all the transport costs. This means transporting the work to and from the museum, installation, photography and insurance. An exhibition loan is a situation in which the collector may need an official appraisal. This is because the borrower’s insurance may require verification of the amount at which it is temporarily insuring the item.
Lawyers who regularly work on art-related issues can help the collector negotiate the conditions for hiring an expert to appraise the work or object. They can also address the provisions of the loan agreement relating to subrogation (which deals with the insurer’s right to stand in for the policyholder in pursuing a claim against the party who caused the damage), and/or contribution between the lender’s and borrower’s insurers. The rights of the collector to participate in the claims settlement process in the event of damage to the work on loan should form part of the agreement.
Managing tax strategies
Lawyers advise clients on how to structure art transactions in a tax-efficient manner and the taxes to which they are likely to be subject.
Whether for gifts, sales or estate planning, discerning art collectors call on specialist lawyers to determine the best tax strategies to employ when purchasing valuable pieces of art. Not-for-profit foundations can provide an appropriate structure for housing art collections and minimising the tax consequences. You might also consider donating to specialist associations that will ensure the long-term conservation and dissemination of works of art.
Another trick in the tax strategy toolbox is fractional ownership. A collector can take advantage of the annual tax exemption by donating part of the interest in the work to various family members.
Overall, having a specialist lawyer with the collector’s best interests in mind can help protect against the potential pitfalls of art collecting. Whether one is just beginning to acquire works of art or has been a collector for decades, an art market lawyer can offer invaluable advice that will help make the collecting experience as enjoyable and secure as possible.
An international market
The art market has made headlines on a number of occasions: authenticity, provenance, valuation, theft, looting, swindling, money laundering and the financing of illegal activities. Works of art, which are mobile and can reach exceptional valuations, have attracted a great deal of attention and been the subject of numerous court cases, often with an international dimension.
As we have seen, the art market is by its very nature an international one, raising a host of issues: ownership, transmission, transport, insurance, storage, loans, donations, taxation and so on.
Driven by a passion for the arts, and drawing on her experience of numerous multi-jurisdictional disputes involving works of art and her behind-the-scenes knowledge of the sector, Sabrina Toscani devotes part of her practice to those involved in the art market: artists, collectors, galleries, antique dealers, sales operators, museums, transporters, insurers, banks, investors, art lovers and family offices.
The art market ecosystem
The art market is made up of a large number of players and is becoming increasingly rationalised, with the law playing an important role. Stakeholders benefit from a particular mastery of the subject and a good knowledge of the players involved.
LawEdge has taken this into account by enlisting the support of technical experts and art history specialists to help with provenance and authenticity research. The idea is to meet the needs of both national and international clients, with independence, confidentiality and discretion.
Commitment
LawEdge also aims to be a fervent defender of the arts. In all their forms. Sabrina Toscani is committed to the artistic community in a variety of ways throughout the year. Keen to share her passion and create links between collectors, Sabrina Toscani wishes to offer privileged access to the art world, through meetings with professionals in the sector, conferences or simply private viewings and exhibitions with the support of experts in their field.
We invite you to follow our events on the networks.
