18 January 2018
Lending Art to Museums: Key Issues for Trustees, Collectors and Family Offices
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 article 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.