Art
Art
Despite a post-pandemic mini-boom in 2022, the performance of the international art market has been mixed over the past few years.
There have been some notable successes. Pablo Picasso’s Femme à la montre (1932) fetched USD139.3 million in November 2023, and Gustav Klimt’s Dame mit Fächer (1917) sold for GBP85.3 million in June 2023. But the market has also been impacted by big swings, and adjusted for inflation, the levels of anticipated returns for those investing in art haven’t always met expectations.
Traditionally, people investing in art often do so out of both passion for the artwork and to generate a return. They want the ‘wall power’ that art affords and the increase in social status ownership can provide, while also acquiring an asset they can later sell for a higher return.
But what is in style at the time of purchase may not be in style when you’re looking to sell. It is worth assessing whether the piece you want to purchase will remain resilient to changing tastes in the future, to make sure you aren’t faced with potentially selling for a loss.
This is important to remember in the current market. As we mentioned in the introduction to the guide, the Great Wealth Transfer is taking place. Younger generations, like Millennials and Gen Z are inheriting wealth, and have their own tastes.
Rather than being attracted to the same styles as their Boomer relatives, these generations are more interested in ultra-contemporary pieces and the art of younger, living artists. This is likely to fuel the demand for certain art styles and lead to others falling out of favour.
Those who have built collections out of love and who simply appreciate the beauty of art, will be more insulated from market dynamics. They face the more practical challenges that come with fine art – ensuring that the piece they want to purchase is authentic, and that they are well protected to handle any disputes that can arise while acquiring, selling or owning art.
Throughout 2024 we have been experiencing a considered market that is selective in its acquisitions, yet the appetite for exceptional quality and exciting contemporary artists remains solid. There are many areas of opportunity for collectors. In particular, we are seeing an upward trend in sales by artists who had previously been overlooked in the art historical canon, reflecting a growing recognition of their contributions to the art world.
Martin Wilson, Chief Legal Counsel, Phillips
Salvator Mundi by Leonardo da Vinci was sold for
USD450.3 million
in November 2017 at Christie’s in New York making it the most expensive painting ever sold at auction.
Source: Christie’s
The Great Wealth Transfer is likely to significantly impact the art market. Cadell continues to warn about the impact of large volumes of ‘Boomer’ collections coming on to the market, while at the same time the collecting taste of the next generation continues to evolve to more contemporary subjects.
Richard Bagnall-Smith, Co-founder, Cadell + Co
Authenticity
The UK art market is currently rated by the Treasury as ‘high risk’ for money laundering and there’s no shortage of stories involving high-profile scams and scandals. For the buyer of a misattributed or forged work, the resulting economic loss can be devastating and is not typically covered by insurance. You can minimise your risk when buying artwork by seeking advice on authenticity.
Establishing authenticity is both an art and a science. It involves a thorough investigation on the part of the buyer (much like when buying a house). There are broadly three ways to authenticate a work of art: provenance, scientific examination and connoisseurship.
The extent of the due diligence exercise will need to be balanced against the value of the artwork, but for the most valuable pieces, all three areas of research should be considered.
Provenance
A crucial first step in buying art is to check its provenance – that is, its history of ownership which can be used to check its authenticity.
Ideally, provenance would provide:
- a complete record of owners’ names
- dates of ownership
- means of transference
- locations where the work was kept
- records of exhibition catalogues
- appraisals or statements of authenticity by a recognised authority on that artist.
Unfortunately, complete records are rare, and most works have gaps in their provenance.
A good starting point for researching provenance is a catalogue raisonné of the artist’s work. This is a detailed compilation of an artist’s work and often includes some provenance information, exhibition history, and other identifying features of the work.
Other useful resources include:
The Getty Provenance Index (particularly useful for 16th to early 20th-century artwork)
A computerised set of databases containing nearly one million records on West European works of art.
The International Foundation for Art Research (IFAR)
This includes links to important archives, image databases, dealer and sales records and other references, and links to useful resources.
INTERPOL’s database of stolen artworks and the Art Loss Register
A computerised international database which captures information about lost and stolen art, antiques and collectables.
A comprehensive provenance can add value to a work of art. Conversely, certain names linked to an artwork’s provenance can have a detrimental effect on the price. For example, the names of dealers who are known to have dealt art looted during World War II almost blacklist the sale of the art unless it can be proved that the painting was not stolen from a Jewish collector.
Good provenance increases a work of art’s collectability and market value, and most importantly, it helps prove that it was created by the artist whose signature it bears. It is therefore prudent to obtain advice on provenance and authenticity from an expert. Collectors should ensure they keep all documents associated with the artwork to tell its story in the future.
Where art is being purchased by a trust, it is important that the trustees satisfy themselves as buyers as to the provenance of a piece and ensure they conduct the correct due diligence.
Scientific examination
Developments in scientific and forensic analysis have made the authentication process easier. When authenticating a painting, for example, scientists will evaluate whether its material composition matches what would have been available and used during the period the piece was supposedly created.
Non-invasive techniques might include forensic imaging, X-rays and infrared spectrometry, while more invasive methods such as dendrochronology and radiocarbon dating may be used. Usually, two or more techniques are used in combination to ensure accurate findings.
Connoisseurship
Provenance and scientific testing alone are often not enough. Scientific analysis may be helpful in proving a negative (for example, that a painting is not of the period), but it usually has limited value in providing a positive attribution. Similarly, provenance could simply trace the ownership of a forged work or be forged itself. Therefore, it is always advisable to seek a scholarly opinion from a connoisseur of that artist before purchasing.
This is the proverbial ‘Educated Eye’ – in connoisseurship the emphasis is on what can be learnt from the object itself, irrespective of context, science and documentation. The discipline encompasses factual knowledge about the work of art, comparative knowledge, and knowledge of which works by the artist are historically relevant or characteristic of the artist’s process. Connoisseurship is often considered the most authoritative and conclusive way to determine authenticity (including by the courts in cases where authenticity is disputed).
Right to sell?
A buyer will want comfort in knowing that the seller is the legal and beneficial owner of the art in question. At first glance, English law appears to give strong protection to the original owner. The general rule is that an individual who does not have title to the goods in question and does not have the authority or consent of the owner cannot pass on any title to the purchaser. Even for an innocent purchaser, if the work has been stolen, the sale is unlikely to convey good title.
However, both buyers and sellers should bear in mind various exceptions to the general rule. Over the past decade, there have been several cases of previously reputable art dealers going rogue and fraudulently selling artworks (or shares in artworks) without the owner’s consent.
There are exceptions in the law that allow a ‘mercantile agent’ to pass title to innocent buyers in such circumstances. Therefore, care must be taken when consigning artworks to galleries.
The purpose of consignment (for example, sale or repair) should be clearly stated in consignment documentation, and it is advisable to include a clause requiring the art dealer to seek the owner’s consent prior to any sale.
Evidence of title can often be demonstrated by the provenance we covered earlier.
Copyright and Artist’s Resale Right
It is important to understand that where copyright over a piece of art exists (which will be the case for any work of an artist who is alive or died less than 70 years ago), your rights as a purchaser may be limited in two ways.
Firstly, you will probably not be acquiring the copyright in the work; in other words, the right to make copies of it and to prevent others from doing so. Secondly, a form of right called an Artist’s Resale Right might apply, which permits the artist and the artist’s heirs to charge a royalty on subsequent sales of the work. The rules as to when this will apply are detailed, and it is advisable to obtain professional advice on the issue before acquiring high-value works.
Contract
When making an art purchase, the importance of a clear contract using unambiguous language cannot be underestimated. As with a prenuptial agreement, a well-drafted contract is an unromantic, yet necessary step in safeguarding your interests should the transaction unravel in the future.
It’s vital to draw a distinction between private sales and buying at auction. Most auction houses will have standard terms and conditions on which they trade, so going through those with a fine-tooth comb to make sure you understand them is essential.
With private sales, agreements can be more bespoke, but can introduce further issues if the language is not sufficiently clear and leaves room for ambiguity.
Typically, a buyer should be on the lookout for a specific warranty as to the authenticity of the artwork (and whether that warranty is limited in time). Other important clauses to consider include:
Governing law and jurisdiction
Since this clause will determine which country’s courts will be competent to hear any disputes and different jurisdictions approach issues around ownership and authenticity differently.
Dispute resolution
The parties should consider by what method they wish any disputes to be resolved, for example, through litigation or a form of alternative dispute resolution (ADR).
Liability caps
These are clauses that limit one or both parties’ financial liability to the other in the event of a breach of contract or other legal wrong. They are particularly important in the case of high-value art.
More generally, most contracts include an entire agreement clause, which has the effect of restricting the parties’ bargain to the terms contained within the written contract itself. Often in the art world, there are many precontractual discussions and representations about the artwork, and so care should be taken to ensure that important representations by the seller are captured in the contract.
Paradoxical as it may sound, even if your invoice says that you are buying ‘a Van Dyck’ it doesn’t mean that you have contracted to buy a Van Dyck. The judge will look at the entire course of dealings between the parties to determine whether they intended to make description a contractual term. Any precontractual representations about authenticity that have not been expressly included in the contract are likely to be treated by the courts as mere expressions of opinion.
Post-purchase considerations
Once an item has been bought, ensure adequate insurance is in place. Further practical matters that need to be considered include storage, transportation and licences, all of which are highly specialised.
Appropriate experts should be instructed to handle these matters. For art held in trust, up-to-date valuations are important for accounting purposes as well as to ensure the correct insurance cover is held for a piece or collection.
Art: when issues arise
No matter the due diligence or well-drafted contract, fakes and forgeries still make it through the net. The best remedy in any dispute will be contractual – if you have a clause in your contract that warrants that the artwork is genuine, you are on firm ground.
But the seller is very unlikely to accept a clause in those terms. You could also make a claim for negligence and/or misrepresentation, depending on the facts. The measure of damages for breach of contract and for negligence/misrepresentation differs, so that may be a consideration when deciding on strategy.
Auction houses routinely include ‘authenticity guarantees’ in their terms and conditions. But these aren’t universal cures. They are often limited to forgeries rather than misattributions and are usually qualified by the so-called ‘state of the art’ defence, which states that the guarantee will only come into play if the description in the catalogue was out of line with the state of scholarship and opinion at the time of sale. So, it is up for debate how much protection authenticity guarantees actually offer (though there have been some successful claims).
A buyer may be able to bring an action in negligence where they can show that the seller has assumed a duty of care towards them (and was negligent in discharging that duty). The standard of care will be higher for an international auction house or a specialist dealer.
A buyer may also be able to bring a claim for misrepresentation, which can be fraudulent, negligent or innocent and the legal consequences of these will differ. A claim in fraud, for example, allows you to pierce the corporate veil and go after the individual who made the statement, even if the sale was made through a corporate vehicle.
Regardless of the route you choose to take to resolve the dispute, our practical tip is to always instruct the best expert. Authenticity decisions centre on expert evidence, and top experts in a particular artist are few and far between. The party who instructs the best expert first will be in a superior position.
Tax
Art collectors must consider whether or not to own the art outright or, for tax and liability reasons, through a corporate structure or trust. The choice of structuring will depend on various factors particular to the circumstances of the relevant individual. The establishment of an art charity or foundation may also be considered.
Buyers should also be aware of potential import and export duties, VAT and other sales taxes that may apply when making international acquisitions or disposals of art.
It’s also useful to understand tax efficiency in relation to artwork. When selling art in the UK, for example, there are a number of schemes that offer tax incentives to owners to encourage the support of galleries and museums.
Not all art is to be sold. Collectors often wish for art to be passed on to future generations. If this is the case, early planning is essential to ensure it is done as efficiently as possible.
Raising finance
While many would consider that art is to be enjoyed, displayed or held for investment, increasingly, art collectors are seeking to offer their art as collateral for loans, and this area of lending has developed significantly in recent years.
Lenders will want to investigate the title and provenance of the art, as discussed earlier, before accepting the relevant work of art as collateral. They will also consider its value and liquidity.
If you are considering using art as collateral for a loan, remember, lenders will usually require the art to be held by them or stored on their behalf, in order to protect their security. This may not be attractive to an owner wishing to retain possession and control over a treasured piece of art.
Exhibiting
Art collectors may wish to lend their art to museums or exhibitions to allow public enjoyment while adding to the monetary value of works through exposure and raising their profile.
When lending artwork, issues such as risk, loss or damage, insurance coverage and copyright and reproduction rights should be considered and documented in an agreement between the owner and the relevant museum or exhibiting party.
Asset performance
After showing much resilience to intense economic and political pressures in 2021 and 2022, sales in the UK market fell by 8% to USD10.9 billion in 2023. The UK is a key hub globally and within Europe for sales of the highest-priced works, and as these thinned out and imports of art to the UK declined, the market fell to 11% below its pre-pandemic level (USD12.2 billion in 2019).
Source: The Art Basel and UBS Global Art Market Report 2024 by Arts Economics
Key points to remember
Verify before you buy
Ensure the artwork is authentic – consider provenance, scientific examination and connoisseurship.
Get it in writing
A well-drafted contract is essential for safeguarding your interests should the transaction unravel in the future.
Instruct the best expert first
In an authenticity dispute, the party who instructs the best expert will be in a superior position.
Contributors
Internal
External
Martin Wilson from Phillips Auction House and Richard Bagnall-Smith from Cadell + Co
