Works of art are often sold for a higher price than real estate; however, sellers and buyers of art works are often not aware of the possible complications and pitfalls involved in the transaction, especially if it is an international sale, and are well advised to seek legal input right at the beginning of the transaction.
This article looks at the commercial and legal areas which may be involved in the sale of a work of art from a UK based seller to a buyer who may be based overseas.
The form and content of a binding purchase agreement between the parties should be considered straightaway. Assuming that the seller and buyer of the work have already agreed the price to be paid, the first point generally to consider is whether the seller owns the work in his or her own name or if it is held, for instance, in a trust or a service company of the seller. The buyer will also need to consider whether he or she is buying it in his or her own name or in the name of a service company or perhaps placing it in trust.
These areas need to be considered at the outset, not only for possible tax and asset planning reasons, but also since the buyer may wish to undertake a degree of due diligence in terms both of provenance and ownership of the work; and the seller will need to be confident that the buyer is in a position to complete the purchase (and possibly require assurances regarding the future "home" of the work).
The buyer will need to decide whether he or she is willing to rely on possible warranties and representations regarding, for example, condition and provenance or whether, at least as regards condition, they will require an inspection prior to committing to the purchase. If the buyer does require inspection of the work, this can give rise to difficulties if the buyer and seller are in different countries or if, as may be the case, the work is in a gallery or museum, not in the seller's home country.
Whilst it may be entirely reasonable that the buyer wishes to inspect the work before committing, the seller will not wish to spend time and money in arranging a site for inspection, possibly involving transporting the work from another country, unless he or she knows that the buyer is serious about the purchase. The seller will, therefore, generally be advised to enter into the purchase agreement before incurring the expenditure involved in inspection, whereby the buyer is committed to proceed with the purchase as long as the inspection "passes muster" (as to which see below).
If the work needs to be shipped to the agreed site for inspection, the question arises as to who should pay for the shipping and insurance; and indeed the costs of storing the work, often in secure premises.
The seller may reasonably require a deposit to be paid by the buyer as a pre-condition to shipping for inspection, to be assured that the buyer "means business". The question then arises as to whether the buyer can reasonably expect the deposit to be refunded if he or she is unhappy with the inspection and, indeed, under what circumstances the buyer should be allowed to pull out of the purchase because the work is not in the condition expected; or otherwise. This process may involve an additional agreement between the parties and an escrow agent.
Assuming the buyer is happy with what he or she sees, the next issue for the buyer and seller is how completion is to take place; who is to pay for shipping and insurance; when "risk" passes from the seller to the buyer; and when title to the work becomes the buyer's. The parties may need to consider whether export/import licences are required; whether there are any restrictions on export (e.g. in respect of cultural objects); and what duties and taxes may apply to the transaction.
Sales and purchases of substantial works of art will thus generally necessitate both commercial and tax advice at an early stage.
Finally, this article has not considered the so-called Artist's Resale Right royalty payable on certain sales of art works generally within the EU; nor sales or purchases by art market professionals. Specific legal advice would additionally need to be sought in relation to these aspects.