Katherine Wilson-Milne of Schindler Cohen & Hochman LLP and course instructor of our Art Wealth Management Program discusses which laws protect art collectors and investors, what to do if you acquire a fake and three must have items in a buy sell agreement.
Which Laws Protect Art Collectors And Art Investors?
The Uniform Commercial Code, which regulates the sale and transfer of goods, and common law contract, fraud, mutual mistake, and negligence doctrines are some of the legal protections.
State laws such as the New York Cultural Affairs Law may also provide added protection for collectors and investors when purchasing works.
By far the easiest way to be protected is to have a sale contract with representations and warranties from the seller and to have done due diligence prior to acquiring the work.
What Recourse Does A Collector Have If They Have Acquired A Fake, Or Overpaid For An Artwork?
If a collector acquires a fake, she can sue the dealer for breach of the warranty of authenticity under the Uniform Commercial Code or the New York Art and Cultural Affairs law. Because the 4 year statute of limitations begins to run at the time of the sale, and the discovery of the fake often occurs years later, that remedy is not always available.
If there were representations made under a purchase agreement, the collector can sue for breach of that agreement, where the statute of limitations is often longer.
If the collector and dealer were both mistaken about the work’s attribution, the collector can sue for “mutual mistake,” and ask a court to rescind the purchase agreement, requiring the collector to return the work and the dealer to refund the purchase price.
If the collector has reason to believe that the dealer knew he was selling a fake, the collector may sue for fraud, among other claims.
We Understand That Every Art Transaction Is Different And That It’s Difficult To Generalize, But What Are The 3 Must Have Items That You Would Recommend Collectors And Investors Include In A Buy Or Sell Agreement?
There are, of course, more than three important items in any agreement to purchase art, but the ‘must have’ items would include:
A representation and warranty by the seller that he has clear title to the work and that the work is free of any liens or encumbrances;
A representation and warranty that the work is “authentic”; and
An agreement by the seller to indemnify the purchaser for any claims made by a third party relating to any of the seller’s representations and warranties, but particularly the two listed above.
Learn more about Legal Aspects of Art Transactions and Risk Factors in Art. Enroll in our online Art Wealth Management Program today!
Note: This interview is not intended to be a source of legal advice for any purpose. Always seek the legal advice of competent counsel in the relevant jurisdiction.
View The Teaser From Katie’s Module Below!
Read The Transcript
Steve and I will be talking today about certain key areas of risk in fine art transactions, specifically, the purchase and sale of art. There are both pre-sale risks and post-sale risks. Certain pre-sale risks include the authenticity of the work, is the work fake, is it by the artist you think it's by, and title issues, does the seller really have the right to sell the artwork, are there liens or other encumbrances that would affect the ability to sell?
There are also transaction risks. Those can be conflicts of interest, adhering to the parties involved in a sale, solvency concerns, reputational considerations based on the parties to the transaction and assumptions of the value of the artwork.
There are also post-sale risks. These can include copyright and how the work of art is used, who owns the copyright and who has the right to do what with that work of art. There may be additional issues if there's a living artist. The moral rights, for example, of an artist to control what happens to a work of art after it is sold, and goodwill considerations, what will the artist think of how you use or display the work of art.