ART ACQUISITIONS

Often people think of Art as being the last bastion of a “hand shake deal,” but this is naïve especially in dealing with fine Art. Art like any other category of assets should when bought and sold with care. Fine Art is an area where asset value has the potential to increase in value that very few other assets do. Because of this, however, it is even more important to take the utmost care. We can help with the purchase and sale of fine Art:

 

Initial Viewing

Representations as to Condition (Condition report) (this document does not talk about authenticity of value, just addresses the physical condition of the piece). Usually presented by the seller. Example: for a painting this would cover observations about: the stretcher, the keys, condition of canvas, ultraviolet observation (retouching), paint layer (loss, discoloration, etc.), and intactness of the signature.

 

Inspections/Appraisals & Due Diligence

  • Curator Inspection (to compare on site evaluation with written condition report). Maybe even a restoration expert should attend as well. This inspection should be organized and conducted by the buyer or buyer’s representative. Typically includes a black light inspection.
  • Inspection by an art group such as the ADAA (Art Dealers Association of America or an expert for an appraisal as to the value of the artwork. Normally this requires a photo or transparency, and the provenance. (NOTE- many people want to take a tax deduction for their art acquisition at the current value and in order to do this properly the IRS would require evidence such as an appraisal from the ADAA.
  • Art Net Search for a search of comps.
  • Provenance- History of Ownership of the Art piece. Make inquiries to verify the information on the provenance when possible and as possible. Issues when attempting to authenticate the provenance is RED FLAG
  • UCC searches- this is very important.
  • FBI Search (NSAF- National Stolen Art Files) and The Art Loss Register NOTE: A Bone Fide Purchases cannot pass good title to stolen art
  • www.artloss.com
  • Judgment Searches (Title Company)
  • Expert Examinations (Attorney is not qualified to authenticate or evaluate or appraise artwork. This should be done by an Art expert in the field)

Contract

When a seller resists giving a contract it is a RED FLAG. Buyer should insist.
The Art Loss Register

  • Naming the responsible parties (this may or may not be the same as the selling and buying parties). What is their financial ability to follow through? This is critical.
  • Price
  • Trusted Escrow Agent- date and location
  • Description
  • Terms
  • Title Warranties
  • Insurance
  • Expenses (what are they and who is responsible)
  • Conditions to Closing
  • Right to Inspect at Closing
  • Means of Closing
  • Escrow Agent Agreement- this should be detailed and complete
  • Commissions
  • Exhibits
  • Provenance
  • Invoice- Some people in the art world improperly believe that the issuance of the invoice itself is a transaction. This is incorrect. An invoice creates no obligation or anything at all other then a mere statement of price associated with the artwork.
  • Sample Bill of Sale
  • Formal Closing (Escrow). This is often a warehouse. The curator is often present to conduct black light verification and re-inspect that it is the same painting.

Recourse after the sale:

You must exercise due diligence in a claim for fraud after the purchase and taking possession of the Art Work. Not only should you use experts for appraisal and evaluation for due diligence purposes, but you cannot ignore appraisals or evaluations that are negative that put you on notice of fraud. IF you ignore such notice then you will not be able to claim afterward that you were not on notice of authenticity or value. If you do not actually do due diligence before purchase then you may also be later denied a claim.

 

Auctions:

Be sure to read all consignment agreements. Generally the auction house owns nothing, but is just a conduit for sale. They make there money from the commissions. The consignment agreement spells out the commissions, the expenses, the insurance, etc. These costs can change the value of the piece. Note: If you do not comply with the consignment agreement the auction house has the right to withdraw the piece. Be aware of the difference between consignment and sale.

 

Be aware of statutes of limitations.

Liability of Experts:

How responsible is an expert for their opinion? There is negligence liability,
however, be aware that most of the time the expert does not have the financial abilit
to cover the amount of the loss. Typically better to take action against the seller.

 

Liability of Auction House in cases of fraud:

Under normal circumstances auction houses or major galleries are fully liable.