5 Reasons Collectors Should Hire an Art Law Attorney

A common concern among art collectors is whether and when they should hire an art law attorney. In the simplest terms, as the value of the artworks one purchases increases, so too does one’s need for specialized legal advice. That doesn’t mean, however, that an art law attorney isn’t also helpful for novice collectors. From pre-purchase contract negotiations to general counsel on holding or loaning a work of art, a sound art law attorney offers value well in excess of their fee. Here, we spoke to three leading art law attorneys based in New York to get their insights on the most common reasons collectors engage their services and some of the methods they employ to safeguard their clients’ interests.

Ensuring transfer of title

There are many opportunities to benefit from legal guidance, even before purchasing an artwork. First among these are knowing ways to protect yourself against potential future issues surrounding title. A basic tenet of U.S. property law—and one that distinguishes it from that of most countries in Europe—is that no one, not even a good-faith purchaser, can obtain a title on stolen property. “Collectors today need to be very sensitive to the possibility that an artwork or antiquity may be stolen or that an incomplete or suspicious ownership history may raise questions about the title to the work and most certainly affect the work’s value or marketability,” said Gabrielle C. Wilson, associate at Kaye Spiegler PLLC.

There are certain steps collectors can take to protect their investment and mitigate this risk. Whether it be consulting the Art Loss Register and other stolen art databases to ensure there are no reported claims, investigating the provenance of artwork to make sure any stated past ownership is accurate and that there are no suspicious gaps, or conducting a lien search to confirm there are no creditor claims, these actions can help minimize the risk of potential claims or disputes down the line.

Title protection can also be built into the purchase documents themselves. A purchase contract should include that the seller has full legal right to sell the work and that the work is not subject to any rights, claims, liens, or other encumbrances. It should also articulate that the work was lawfully exported and imported as required by applicable laws, and that all provenance documentation known to the seller has been provided. In the same respect, when title transfers, including when the risk of loss or damage passes from the seller to the buyer, this should also be included in the documentation.

Safeguarding a work’s authenticity

Over the last decade, many prominent authentication boards have been dissolved, complicating terms relating to attribution in purchase contracts. Although there are still a number of ways to investigate a work’s authenticity, including determining whether it is listed in an artist’s catalogue raisonné and conducting forensic analysis, there is still a significant risk. “Part of my job is thinking about how that risk of authenticity is going to be allocated,” said Megan Noh, partner and co-chair of art law at Pryor Cashman. “Essentially, that means defining what recourse the collector has if the piece turns out to be fake.”

For private sales, warranty duration (the period during which the purchaser may assert a claim for breach of warranty), the means of proving a work’s lack of authenticity, and even methods of dispute resolution are all negotiable in a contract. For example, one’s attorney could request that the seller agree in advance to grant the purchaser the right to rescind their deal if, during the warranty period, a major auction house or museum refuses to accept a piece due to concerns about its attribution. Such a contractual construct is designed to obligate the seller to refund the monies without the purchaser having to go to court to prove inauthenticity on the basis of more concrete proof.

Avoiding litigation can be, in and of itself, an end goal. Noting that many collectors value privacy and discretion, Noh indicated that she often encourages her clients to add alternative dispute resolution provisions into their private contracts so that issues don’t automatically end up in public litigation.

When purchasing works from galleries, there is less room for contract negotiation, so collectors must rely instead on well-worded invoices. “Under New York law, if a gallery gives a private collector an invoice describing a work in unqualified fashion as having been created by a particular artist, they are effectively making an express representation and warranty as to authenticity,” said Noh. Auction house purchases are similarly subject to this version of an express warranty, although the terms vary from house to house.

Setting up legacy vehicles

Once a collector starts to build a significant art collection, questions surrounding holding strategies begin to arise. Many collectors opt to set up a nonprofit organization or trust for long-term legacy and estate planning. Here, art law attorneys can advise on the setup and structure of a collector’s foundation. “Private foundations are subject to very complex rules in the Internal Revenue Code,” said Pamela Grutman, a partner at Olsoff | Cahill | Cossu LLP. “I am in a position to help clients navigate those rules.”

Grutman also explained that establishing a foundation can help aid a collection in its continued growth. “Collectors can make a cash contribution to the nonprofit foundation, receive an income tax deduction for their contribution, and then the organization can purchase the artwork,” she said.

When it comes to trusts, Grutman stated that a collector will typically require a legal professional to advise them on the many different types that exist and in determining the right one for their collection. In terms of estate planning, trusts can control the transfer of assets for multiple generations and prohibit transfer outside of the family. One’s legal counsel should be licensed or have offices in their primary state of residence for estate planning.

Loaning artwork to museums and galleries

Over the course of one’s ownership of an artwork, one may choose to loan the piece to a museum or gallery for a temporary exhibition or semi-permanent public viewing. This is another instance where engaging an art lawyer can be invaluable in ensuring a collector’s investment is adequately protected by drawing up an exhibition loan agreement that clearly outlines each party’s obligations.

While issues such as allocating responsibility for transport and insurance for the artwork while on loan are among the more obvious areas to clarify, there are also several other factors to consider. These include defining the duration of the loan and terms of return, standard of care and security protocol, approval of the insurance valuation to ensure the loaned work is adequately covered, assurances that the piece will not be restored or altered in any way without the collector’s written consent, and even whether or not the work is allowed to travel internationally.

According to Noh, while the borrower often absorbs all of the costs of transportation (that is, getting the loaned work[s] to and from the museum), installation, photography, and insurance, an exhibition loan is “a situation in which the collector may be required to have a formal valuation, because the borrower’s insurance may require some verification of the figure at which they’re temporarily insuring this property.”

Attorneys who work regularly on art-related matters can assist in the negotiation of a collector’s terms of engagement of an appraiser, and may also address provisions in the loan agreement pertaining to subrogation (deals with the right of the insurer to stand in place of the policy holder to pursue a claim against the part that caused the damage), and/or contribution as between the lender’s and the borrower’s insurers. The collector’s rights to participate in the claims adjustment process in the event of damage to the loaned work should be part of the agreement.

Managing tax strategies