The importance of paperwork in art transactions:

Stating that the art world relies on personal relationships and that transactions are concluded by a handshake is as cliche as it is true. This informal way of doing business made sense when the art world was still relatively small and when dealers, collectors and artists were all part of the same social scene in one way or another. In this day and age however it seems sensible to put certain things in writing. People are becoming increasingly litigious which is perhaps partly a result of the fact that transactions in any shape or form have become more complicated than ever. This is especially relevant in the art world where high-value commodities are traded across different tax jurisdictions and in different currencies, where the authenticity of a painting can be categorically denied by one expert and at the same time championed by the other, and where many stakeholders have interests that are not clearly defined, regulated or even known about by the general public. One does not need to be a lawyer to understand that when a transaction of whatever kind is concluded it is better to have something in writing than to rely on a verbal agreement. As briefly alluded to before, there can be many facets to an art transaction that ideally should be agreed to and clarified in advance, especially when high-value works or complex installations are involved. After the deal has been done, or hands have been shaken, the paperwork can sometimes be forgotten and unfortunately most people tend to start worrying after the problem has arisen (I on the other hand start worrying from the word go - this is why I am good at my job but less so at getting a proper night's sleep).

For example, when selling an artwork it is worth having a contract in place that states the sale price (nett and/ or gross) as well as the commission percentage for the agent and from which amount (nett or gross) this is taken. It is also helpful to determine which of the parties should pay for shipment, insurance and condition reports. When a collector consigns a work for sale to a gallery it should be clear to all parties whether the transaction actually constitutes a direct sale from the seller to the gallery or whether the client merely consigns the work to the gallery in order for the latter to sell the work on behalf of the client. A hands-on collector might want to stipulate that the work can only be shown to a maximum number of potential buyers for a limited amount of time and so on. In the case of a loan a proper agreement is equally important as in this scenario a collector entrusts his artwork to a borrower (even though the borrower will probably be a very efficient, highly organised museum) and will want to do this without financial or other risks. Lenders often specify in loan agreements how the work should be shipped and installed and by whom, that a courier should travel with the work and that only experienced art technicians are allowed to handle the work. The lender would expect the borrower to confirm that he is liable for all risk nail-to-nail insurance of the work. A gallerist who agrees to send a painting on view to a collector's house probably wants to have a delivery note or other document stating that the work is on view only, and has not been paid for. When determining the authenticity of an artwork investigating the paper trail or provenance is as important as having an expert assess the work itself. For an artist it could be beneficial to have a clear agreement with his or her gallery - determining how much commission the gallery takes, how many works the artist is expected to produce and what marketing and sales efforts the gallery is expected to undertake on behalf of the artist.

These are only a couple of examples that show potential problem areas (you said you could sell it for X and now you only give me Y, you said you only wanted 5 works but now you want 20, you said your museum would insure the work but you did not and now it is damaged, etc). Having the paperwork in order can prevent problems further down the line. Perhaps there is less need for increased regulation in the art world but more of a realisation that contracts and paperwork form an important part of a transaction and therefore a good way of managing expectations and risks.

Annelien Bruins is director of Bruins Private Collections Consultancy, a London-based firm providing day-to-day and long-term advice to collectors on the management of their art, antiques and jewellery. © Bruins Private Collections Consultancy 2010. All rights reserved.

Disclaimer: this article describes a selection of practical issues that come up in the management of art collections and is not an exhaustive list. The author is not a lawyer and this article should not be taken in any way as legal advice but as an article for general information purposes only.