Laws Governing Art Consignment

Are you an art business owner? Do you have valuable pieces of fine art you'd like to sell but need to figure out how? Perhaps you are a gallery owner and want to start accepting consignments. Either way, you'll want to consider and know the laws around art consignment.

Art Consignment Overview

Art consignment occurs when an artist (consignor) gives their work to an art dealer or gallery (consignee) to sell for them. In exchange for selling the art, the dealer or gallery receives a commission or percentage of the sale.

When you consign art, you stand to make more money than you would by selling it outright. However, you only make money when your art sells. If it fails to sell, you don't make any money. Depending on the agreement you have with the art dealer or gallery, you may have to pay them additional fees and incur a loss on your piece. The stronger the market, the better the chances the art will sell and the more viable the consignment becomes.

Keep in mind art consignment comes with a lot of risks. Three types of laws protect consignors: the Uniform Commercial Code, state consignment laws, and written art consignment agreements.

Uniform Commercial Code

The Uniform Commercial Code (UCC) governs secured transactions of the sale of goods. The UCC is a set of acts that tries to harmonize state laws. The UCC states that if a gallery's negligence damages your artwork, the gallery must pay you for your loss.

A common issue in the art world concerns who is financially responsible if the gallery goes bankrupt. The UCC allows the gallery's creditors to seize your consigned goods to pay for the gallery's debts. The gallery's secured creditors stand in line to collect before you. If funds are left over after paying creditors, the judge in bankruptcy court can award you compensation for your art. If the gallery has a lot of debts or there are too many artists to compensate, you may see little or no compensation for your art.

The UCC protects artists in art consignment if the artists fulfill specific requirements. Artists must:

• File a UCC-1 form and any attachments or addendums in the county where the gallery is located at the time of the art consignment. This creates a secured lien (a legal claim to the property). This will put you ahead of unsecured liens to receive compensation in bankruptcy court. If and when your work is sold, you must remove the lien.

• Prove the public knew the works were on consignment. In some states, you can have the gallery post a sign notifying the public that the works are consigned. It says that the crafts in the gallery are sold under the terms of consignment agreements. This may seem awkward, but galleries usually cooperate.

• Prove creditors knew or had reason to know that the gallery sold consignment arts and crafts. Proving this can be difficult. So, many artists send the gallery's creditors a copy of the consignment agreement. This can be hard—most artists don't have written consignment agreements or know who the creditors are.

State Consignment Laws

Many states have enacted art consignment laws to protect artists from creditors seizing consigned goods in the case of the gallery's bankruptcy. Many of these states require a written consignment agreement between the artist and the gallery for these protections to exist.

Currently, 32 states have art consignment law protections: Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Idaho, Illinois, Iowa, Kentucky, Louisiana, Maryland, Massachusetts, Michigan, Minnesota, Missouri, Montana, New Hampshire, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Pennsylvania, Tennessee, Texas, Washington, and Wisconsin. Artists may need an attorney to help enforce these protections and file claims in bankruptcy courts.

Written Art Consignment Agreements

Until recently, artists have traditionally used verbal consignment agreements. Verbal or oral agreements can be hard to enforce. Parties can later disagree on the terms in an oral agreement. In addition, sales tax and agreements can change over time.

However, more state laws require written consignment agreements to protect artists. It is important to establish consignment agreements in writing.

Artists and art dealers need to have written art consignment agreements outlining the following:

• The scope of the relationship between the two parties
• The length of the contract agreement
• The gallery's responsibility or liability for damages to the art
• The inventory of specific consigned works
• Sale prices for the consigned works and the scope of negotiation power that the gallery has with potential buyers
• The gallery's consignment fees, pricing, and terms of pricing
• The method and process of how and when the artist gets paid
• Which party pays for shipping
• Tax matters, such as the tax rate of the sales tax applied to the purchase price of artworks and the seller's duty of filing tax returns
• The gallery's duty to post a notice regarding consignment, which will protect artists in the event of bankruptcy
• Any promotional responsibilities
• That ownership belongs to the artist until the sale of the piece
• How to address any agreement amendments, such as in another signed and dated writing
• Who pays attorney's fees in the event of a legal dispute (typically, the prevailing or winning party gets reasonable attorney's fees and costs)
• Provisions for resolving legal issues, such as through mediation or arbitration
• Where any legal disputes will occur, for example, in the state or county where the agreement is signed
• Issues related to copyrights and other intellectual property rights, if the consignee intends to reproduce or display the artwork

It is wise to ask fellow artists and peers about galleries you are interested in. It is also a good idea to only accept large orders from new or unknown shops once you have developed a trusting relationship with them.

Tips and Other Things To Consider With Art Consignment Agreement

• Before you begin art consignment, research the local laws and regulations that pertain to consignees.
• Obtain the necessary business licenses required in your jurisdiction.
• Understand the fiduciary duties the art gallery owes you as the artist. They have a legal obligation to act in their best interest and avoid conflicts of interest.
• Remember that your artworks are personal property unless you operate and create as a company. Protect your ownership rights in the written consignment agreement.
• Use social media platforms to showcase consigned artworks, connect with potential buyers, and engage with other small businesses looking for art.
• Make sure you speak with a tax law attorney or accountant in your state to understand both state sales tax and local and federal tax rates where your art sells.
• Remember there are some tax exemptions for a nonprofit selling your artwork, but the sales tax exemption may not apply to you.

Need Legal Advice? Hire an Intellectual Property Attorney

Protecting your investment is essential. You should be aware of several areas of law before you agree to accept a consignment or decide to consign your art. Whether you are an art gallery owner seeking advice on consignment or considering consigning your works of fine art, speak to a business and intellectual property law attorney.