Some Do’s and Don’ts of Art Collecting
Dear Friends,
We hope this update finds you healthy and well. We thought we’d take the opportunity to update you with some basic “do’s and don’ts” of art collecting. By taking simple precautions, you can avoid learning some expensive lessons the hard way.
Read the Auctioneer’s Warranty Before You Bid
The major auction houses offer a five-year “warranty of authorship.” In essence, the auction house guarantees the attribution, authenticity, condition, and provenance of the lot, as described in bold typeface in the lot description in the auction catalogue. Other auction houses may state that the sale is “as-is, where-is” and disclaim any warranty. These auctioneers generally lack the expertise to stand behind the material. We have recently seen two different six-figure transactions where the winning bidder sought to rescind an “as is, where is” purchase after deciding that the lot was fake. In each case, the buyer was a leading dealer in the field who had inspected the lot before bidding. Our view is that such disclaimers are generally enforceable in court. In essence, the buyers gambled and lost. The buyers may have certain avenues to pursue but they are limited. Caveat emptor is still alive and well, so please read the warranty before you bid.
Require Condition Reports
Blue chip, investment grade art maintains its value and sells for a premium, right? Generally speaking, yes, unless condition issues or restoration impair the value and chill the market for the work of art. Every time a collector consigns a work of art to a dealer, the work needs to be deinstalled, packed, crated, shipped from the consignor, and then uncrated, unpacked, and re-installed by the dealer. The process is repeated each time the dealer re-consigns the work to another branch of its gallery or the collector re-consigns the work from one dealer to another. It is not uncommon for important works to travel to and from New York, London, Paris, Berlin, Hong Kong, Maastricht, Basel, and elsewhere multiple times. Specialized art movers and storage facilities are generally very good at what they do. But art can be fragile, depending on age, medium and construction, and can be damaged in transit or by handling. It is standard practice for dealers to prepare a condition report after receiving and before shipping each work of art. Collectors should make it standard practice to review these condition reports. We know of one instance where a dealer continued to use inadequate crating to re-ship a work despite damage disclosed in its own condition report, which was not shared with the consignor. The damage and restoration became an issue on resale and affected the calculation of loss and allocation of liability among dealers, shippers, and insurers. The lesson is that consignors should require the condition report prepared each time their art is shipped and delivered. The same is true with works loaned to a museum or consigned to auction. Better safe than sorry.
Don’t Lend Your Art Until You Know the Shipper Will Be Paid
An art advisor organized a major exhibition of an important 20th century painter at a leading museum in another continent. Dozens of works were loaned to the museum by multiple owners in the US and Western Europe. A lead collector who loaned the majority of the works. The art advisor believed the lead collector would pay all shipping costs for all the lenders. As the exhibition came to a close, the fine art shipper notified the art advisor that the outbound shipping costs had not been fully paid and that it would require payment in full of the balance owed and pre-payment in full of the return shipping costs, for a total of about $750,000. The art advisor turned to the lead collector who pleaded poverty and ignorance of the shipping arrangements. Dozens of valuable works owned by dozens of lenders remained stranded in a remote jurisdiction while the art advisor squabbled with the lead collector, who scrambled to cover the shipping costs. We arranged for payment of the balance of the outgoing shipping costs to the original shipper and engaged a new inbound shipper who agreed to take payment in installments. In the end, all the works were returned on time to all the lenders. In retrospect, there was plenty of blame to go around: the art advisor and the lead collector had failed to budget for outgoing and return shipping costs; the original art shipper had relied on the art advisor instead of the lead collector; and the other lenders had no assurance that the shippers would be paid. The lesson is that art lenders, art shippers, and art consultants should make adequate arrangements for payment in full of all outbound and inbound shipping costs before a single piece is shipped.
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These disputes could have been avoided if the responsible parties had taken ordinary precautions. We get involved in more than our fair share of unusual matters involving sophisticated legal issues. But much of our practice involves disputes that in retrospect could have been avoided with a little foresight. In essence, we would prefer to help you think through a transaction before you commit rather than help you resolve a dispute that could have been avoided to begin with.
Pearlstein & McCullough LLP
September 2020