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Do I Really Need a Consignment Agreement?

Do I Really Need a Consignment Agreement?

How gallery owners and artists can preserve their partnership with a contract

by Alan E. Katz, Esq. 

ConsignmentAgreementAt the beginning of a new business partnership, both gallery owners and artists often wonder whether they need a consignment agreement, a legally enforceable contract that defines the terms of sale and compensation.

The answer, in almost every case, is a resounding “yes,” though it’s not the answer the artist always wants to hear. Having invested a great deal of time and effort in finding the right dealer who appreciates the artwork and is enthusiastic about exhibiting it, many artists are reluctant to do anything that might rock the boat.

Artists may also feel that the galleries have all the power, reputation and financial resources; it seems as though they need the galleries far more than the galleries need them. In reality, the relationship between artist and dealer is one of mutual need and mutual benefit. The dealer cannot exist without the artwork that the artist creates and consigns.

The gallery owner may seek to establish a personal relationship with the artist, one built on an appreciation of the artwork and the artist’s skills. Some gallery owners fear that suggesting and then negotiating a formal legal document, such as a consignment agreement, may sour that budding relationship.

The trick is to strike the proper balance that protects the interests of both parties. A well-drafted consignment agreement specifies the arrangement terms from a business perspective and an artistic perspective. It legally protects both parties and prevents the disappointment that might arise from a lack of clear understanding or expectations.

At a minimum, the consignment agreement should cover the following areas.

1. Agency. The artist grants the gallery the right to exhibit and sell the works of art that the artist consigns under the agreement. This grant creates an “agency.” The gallery becomes the agent of the artist; it has the power to act on behalf of the artist. An inventory specifically identifies the artwork that the agreement covers. The parties should agree about whether the gallery will be the exclusive agent of the artist and, if so, whether that exclusive agency applies only to the artwork that the inventory lists or to all the works the artist creates. The agreement should also specify the term of the consignment, including the commencement and termination dates, and the geographic area to which the exclusive agreement applies.

2. Pricing. The inventory sheet should list the agreed-upon retail sales price for each of the artworks and a description of each work, including dimensions, medium and title. The consignment agreement should specify whether the gallery has the right to sell the artwork at a discount from the stated retail sales price and, if so, the maximum amount of that discount.

3. Commission and Expenses. The agreement should specify the commission payable to the gallery and which party is responsible for expenses. For example, it should list whether the gallery or the artist is responsible for crating and shipping expenses; insurance; and promotional costs, including expenses for exhibitions, catalogs, framing, promotions, photographs and advertising.

4. Payment and Accounting. This portion of the agreement specifies when the artist will receive payment from the proceeds of a sale after deducting the gallery’s commission. The gallery should maintain an accounts statement for all art sales and must periodically give a copy to the artist—monthly, quarterly or at the time of the sale of the artwork. The artist should have the right to inspect the books and records of the gallery as they relate to the sale of the artwork.

5. Promotion and Exhibition. The gallery should commit to some standard for promoting the sale of the artwork and hosting one or more exhibitions for the artist during the consignment term. The gallery should clearly identify each of the artworks with the artist’s name.

6. Copyright and Reproduction. Copyright and reproduction rights are of vital concern to the artist, and the gallery should reserve these rights to the artist unless the artist and the gallery have made an alternative arrangement. For example, the gallery may wish to have the right to photograph the artwork as part of its promotional effort in general advertising or in the creation of exhibition catalogs. The gallery also may want the right to use and publish the artist’s name, picture and biography and to reproduce and distribute material incorporating photographs of the artwork.

7. Gifts and Exchanges. The gallery must stipulate whether it would require a commission if the artist wishes to give the artwork to a friend, a colleague, an advisor, a school or a cultural institution. Likewise, if the artist wishes to give the artwork to a third party in exchange for a service, will the artist have the right to do so without paying a commission to the gallery?

8. Sales by the Artist. The consignment agreement should specify whether the artist may exhibit or sell works of art—through the internet or through another dealer—that he or she has consigned directly. The agreement should also state whether such sales, if allowed, would require the artist to pay a commission to the gallery.

9. Warranty. The gallery will most likely want the artist to warrant that he or she has created the artwork and has not granted a security interest in the artwork to any person or entity and that the description appearing on the inventory is true and accurate.

10. Security Interest and Consignment Statutes. According to the laws in some states, if a gallery defaults in its obligations to creditors, the creditors can seize consigned art as if the gallery were the owner. Some states, including New York, provide a so-called safe harbor for consigned artwork and specifically prohibit seizures by creditors. Some states prohibit a gallery from granting a security interest in works of art the artist consigned to the gallery. Other states, including Connecticut and Florida, require the artist to affix a sign to the consigned work stating that the work is subject to a consignment agreement, and the agreement must stipulate certain terms and conditions. The failure of the artist to comply with these requirements can enable the gallery’s creditor to seize the artwork under a security interest that takes precedence over the ownership interest of the artist or consignor.

This list highlights some of the key legal and business issues that the artist and the gallery must consider to protect their interests. Both the artist and the gallery invest significant time, money and trust in their partnership. A well-drafted consignment agreement can eliminate a host of potential problems in the future. It may not guarantee smooth sailing but will provide a solid framework for the relationship between the artist and the gallery.

Alan E. Katz is a partner in the New York City law firm Greenfield Stein & Senior, LLP, where he specilizes in art law, real estate law and software licensing. His clients include artists, collectors and galleries. You can reach him at akatz@gss-law.com.


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