This article was first published by Spear’s Magazine (http://www.spearswms.com/)
As art has out-performed equities in recent years, I am thinking of buying art for investment. How can I avoid the sort of disputes I’ve seen reported where people buy art and then find out it belongs to someone else or it’s fake?
The art market is huge and disputes only arise from a tiny proportion of transactions but, when they do, it can be very serious and costly. There is no way to be sure of avoiding them, but you can reduce the risk.
If it turns out that you have bought from someone who is not the legal owner, or the dealer or agent was not authorised to sell, or the art was at some stage stolen or even looted or force-sold in the Nazi era, there is going to be a claim against you, so do as much research as possible before you buy. Ask the seller for all available information he has, but remember that documents can be forged, so try to get independent verification by contacting people involved with the art in the past.
Laws vary from country to country. In Europe an innocent buyer is more likely to be held to acquire ownership, and “limitation periods” prevent claims after a number of years. On the other hand, in the US, and particularly New York, the courts are likely to hold that ownership still rests with the party who was wrongly deprived, or his descendants. The relevant laws are usually those of the place where the art is situated when you bought it, which would favour buying in Europe rather than in the US. Some insurance products are available, but the more you need it, the harder it will be to get, and the more costly it will be.
To avoid fakes, you need to rely on as much expertise as possible. You could employ your own expert, or at least buy from a specialist dealer or a major auction house where the art will already have been considered by an expert. Again, you should do as much as you can to check the attribution, and for a more modern work the artist may be available.
A good general rule is always to have a written contract. Disputes can be avoided even by clarifying the identity of the parties, whether the seller claims to be the owner or an agent, and what the art is supposed to be, eg “a painting by Dante Gabriel Rossetti”, rather than an a “Pre-Raphaelite painting”.
A contract can also contain warranties that could give recourse if someone else makes a claim against you. It can state which country’s laws apply and which country’s courts can determine any dispute. Even if you do not want to use a lawyer, the more that you can put in writing to show what was agreed, the better. If the seller asks you to sign his standard form of agreement, read it, and do not be afraid to negotiate the terms, as you would the price.
I would also advise against buying from a seller who might not be worth suing, or that is just an offshore company used as a vehicle for a trust.
Paul Howcroft, partner, Fladgate LLP (email@example.com)