When making purchases of fine art, collectors focus primarily on issues relating to the authenticity and the condition of their prospective acquisitions. For instance: Is the artwork real? Is it in the catalogue raisonné of the artist? Has it been certified by the artist’s foundation or estate? Is it in good condition? Has it been restored? These are typical questions asked by buyers and their advisors as part of their due diligence process when contemplating a purchase.
However, there is one area of investigation that is routinely overlooked by potential buyers—namely, does the seller have good title to the artwork? The failure to make such an inquiry can ultimately lead to a purchaser losing his or her artwork because of a title claim.
As a general rule, good and valid title to, and exclusive rights of possession of, a work of art are transferred to a buyer by the seller in the ordinary course of a purchase and sale transaction. However, there are a number of circumstances that can arise during the prior chain of ownership of an artwork that may impact on whether a buyer is ultimately getting what he or she pays for.
Because a thief can never transfer good title to a stolen artwork, the previous, legitimate owner has grounds to reclaim a work even from a good-faith purchaser.
Artworks that were sold or otherwise transferred in Europe between 1933 and 1945 may be subject to claims by the victims (or their heirs) of Nazi looting for their return.
Creditors of a seller of an artwork with valid liens (legal claims to secure a debt that may encumber real or personal property) on the artwork may successfully rescind its unauthorized sale.
Fraud by Agents
If an agent of a seller of art undertakes a sale in violation of the terms of his or her agency, a purchaser of an artwork will need to establish that he or she purchased the work in good faith in order to sustain a challenge for its return. This often requires that the buyer show that he or she paid fair value and confirmed that the work was properly consigned to the agent by the seller.
Lack of Consent by Co-Owners
In many cases, the decision on whether a work can be validly sold rests with more than one person. Co-owners of an artwork may all need to agree to its sale for a valid transfer of title to occur. This is particularly problematic in the context of sales by a spouse in the middle of a heated divorce.
Prior Bequests of the Artwork
If a particular artwork was promised to an heir, museum, charity or other third party by a prior owner, a buyer of such an artwork will be subject to claims from the rightful recipient of the bequest.
Art Dealer Claims
As part of a dealer’s representation of an artist or his work, such dealer may obtain contractual rights to purchase an artwork—for instance, in the case of a right of first refusal, which gives the dealer the right to match any offer made by a third party to purchase such artwork. The granting of such rights in favor of a dealer can impact on the chain of title to an artwork if the rights are not respected, particularly if the buyer knew or had reason to know about the existence of these rights.
A purchaser of an artwork from a seller that is or becomes subject to a bankruptcy proceeding may find that such sale may be invalidated, especially in cases where the purchase price for the artwork was below fair market value.
All of the foregoing circumstances have the potential to result in contests over the rightful ownership of a purchased artwork.
PROTECTING YOUR PURCHASE
Prospective purchasers of an artwork need to investigate whether a seller is the rightful owner of an artwork and has the authority to sell it. Such investigations should include accessing the various stolen-art databases that exist around the world. In particular, the Art Loss Register is one of the premier databases of lost or stolen art, and a certification from such a registry that a contemplated artwork has not been reported to them as lost or stolen can be obtained at a nominal cost.
Buyers should also insist on the seller and his or her agent making representations and warranties as to the seller’s rightful ownership of the artwork and the accuracy of the provenance communicated to the buyer in the bill of sale or invoice for the artwork. While such representations ultimately rely on the financial solvency of the seller and his agent, it will afford the buyer with proof that he or she sought in good faith to establish the seller’s title to the artwork.
Finally, collectors should explore purchasing art title insurance. Procuring such insurance can help to discover potential problems in the chain of title at the time of purchase and, in the event of a successful title challenge, reimburse the buyer for the purchase price and legal fees incurred in defending such challenge.