Are you a Trustee, Collector or representative of a Family Office ("the Lender/Lenders") that owns/manages artworks loaned to Museums ("the Borrower")? If so, this 10 minute Q&A is relevant for you.
Q 1: What issues should Lenders consider when lending
artworks to Museums?
Key issues include (i) ensuring the Loan Agreement reflects the
terms of the loan including: identifying the location(s) of the
loan(s) and settling their duration; (ii) understanding clauses
outlining insurance terms and conditions, including whether the
Lender or the Borrower pays the premiums/transportation costs;
(iii) taking note of specific terms that exclude the Borrower from
liability; (iv) ascertaining the suitability of artworks for travel
and use of Condition Reports; (v) reviewing any immunity from
seizure legislation in the country of loan; (vi) ownership and
other legal issues; (vii) regulating the lawful reproduction of
artworks and (viii) considering tax issues.
Q 2: What's important in terms of location of the
loan?
If the loan is for a traveling exhibition, each location should be
outlined in the Loan Agreement. If display is important to Lenders,
the location of the artworks within the Museum should be identified
to ensure they aren't put into storage. That may be significant
for Trustees as Lenders where a Settlor of an art trust intended
the artworks for public display.
Q 3: What are the considerations on duration of a
loan?
Some Loan Agreements allow for termination of loans at reasonable
notice, others require the consent of the Borrower for early
termination. What is acceptable will depend upon the loan terms and
nature of the exhibition. It may be prudent to agree a limited loan
period or cancellation periods to provide greater flexibility.
Q 4: Is it advisable to use a specialist art
insurer?
Yes, specialist art insurers should be used. That means an All
Risks (including Terrorism), Nail-to-Nail basis, with no excess and
minimal exclusions. The insurance should be valid at least one
month either side of exhibition dates to allow for transit.
Q 5: What should Lenders consider when insuring
loans?
If the Museum insures the artworks, Lenders need to make sure the
insurance is with a reputable insurer. The insurance terms must
recognise that claims will be based upon the Agreed Value and paid
to the Lender as payee.
Q 6: What should the Agreed Value
reflect?
It should reflect a current market value for the artworks to
account for the risk attached to loans and the impossibility of
replacing an artwork.
Q 7: Who pays for insurance?
Generally, the Borrower pays for the insurance of the artworks on
loan. If the Lender determines that cover is insufficient, they
should request the Borrower to purchase a policy with the
Lender's commercial insurer.
Q 8: Are there any circumstances that do not require
commercial insurance?
None, unless there is a government programme offering to indemnify
the Lender for artworks on loan.
Q 9: Who will usually pay for the shipping of the
artworks?
Usually the Borrower.
Q 10: Which Agreement clauses should Lenders watch out
for?
Any clause excluding the Borrower from liability for artworks. The
Borrower usually excludes liability for loss or damage as a result
of war, hostilities or warlike operations, but not for terrorism,
riot, civil commotion etc.
Q 11: What other considerations are there for
Lenders?
Lenders should consider the suitability of artworks for travel and
transport conditions. Security systems should be reviewed and local
customs provisions considered. The Loan Agreement should outline
who has responsibility for ensuring compliance with these
provisions.
Q 12: Should Lenders obtain Condition Reports for
artworks?
Yes, it would be prudent for Lenders to do so, to facilitate proof
of damage in any claims. Condition Reports should be expressly
agreed to in the Loan Agreement, along with special provisions for
the conservation of the artworks.
Q 13: What about maintenance, conservation and repair
issues?
The Loan Agreement should clearly state that no repairs,
restoration or alteration of the artworks is permitted without the
express written authorisation of the Lender.
Q 14. What about threats of seizure in foreign
countries?
Where there is immunity from seizure legislation in the country of
loan, Lenders should consider whether the loaned artworks will be
covered by that legislation. Seizure may become an issue when there
is a competing claim to ownership of the artworks.
Q 15. Are there other legal
considerations?
Issues such as which laws will govern the Loan Agreement and which
courts will preside over any potential disputes. These issues
should be included within the Loan Agreement.
Q 16. What about ownership issues?
Lenders are usually required to affirm that they are the true
owners of the artworks on loan. It should be made clear that the
Museum has no authority to sell the artworks.
Q 17. What benefits might accrue from artwork loans to
Museums?
Apart from philanthropic goals, loans to museums can boost the
value of artworks. Some museums restrict sales following loans.
Q 18: What about the use of photos or
pictures?
The Loan Agreement should oblige the Museum to obtain all
appropriate consents for any reproduction rights including consent
from the owner of the copyright.
Q 19: Any tax issues for consideration?
For Collectors, it may be prudent to ascertain any inheritance tax
implications of a loan to a Museum in case of the unexpected death
of the Collector.
This alert is not exhaustive and does not cover every single aspect of referred laws. The information provided in this alert should not be construed as legal advice or legal opinion regarding any specific facts or circumstances.
This alert was provided by Anaford Attorneys, who have taken all reasonable care to ensure that the information contained in this alert is accurate at the time of publication.