The art market is facing new challenges daily as it adjusts to the realities of navigating the COVID-19 coronavirus crisis. We asked experts from multinational legal advisors Withers, Diana Wierbicki, Partner and Global Head of Art Law, and Amanda Rottermund, Art Law Associate, for their insight.
Q: With auctions and art fairs being cancelled, postponed and rescheduled (or turning completely virtual), how can consignors and consignees adapt to calendar uncertainties?
A: Coupled with logistical shutdowns, date changes are requiring art to be retained at certain locations for longer periods than may have been anticipated. With this in mind, consignors should review their current consignment agreements to check the provisions related to the consignee’s ability to change auction schedules and consignment period terms.
If an artwork is on consignment with a US gallery, a consignor may consider filing a Uniform Commercial Code Financing Statement protecting the consignor’s ownership interest in the consigned art against the gallery’s creditors and if art is on consignment with a UK gallery, a consignor should ensure that any amounts owed to the consignee are paid as a consignee’s creditors could have a secured interest in such amounts.
Further, consignors should review with their consignees what security and insurance provisions are in place to ensure that the art is protected and that there are no applicable insurance exclusions jeopardising full coverage.
It is also a good time for consignors to review and request updated certificates of insurance. If any art was imported on consignment in a jurisdiction that requires temporary import applications (for example under a VAT temporary admission scheme), a consignor should check that such application will remain valid.
We strongly encourage that in this uncertain period consignees retain open lines of communication with their consignors to ensure there is understanding with respect to the care and sale strategy of the consigned art.
Q: How might the current situation affect museum loans?
With many museums closed for the foreseeable future, lenders should review their loan agreements to check two important provisions regarding timing.
First, if the art lent was to be returned and now cannot be returned because of the museum’s closure, the lender should request that the loan agreement with the museum be amended. The amendment should confirm that the museum’s responsibilities to insure and store the work (as applicable) are still being provided, to avoid any gaps in coverage, until the lender and the museum mutually agree that the art can be safely returned back to the lender. This is especially important for any loans that are being insured under government indemnity programs, which are common methods of insuring exhibitions in the European Union and the UK.
Second, if the art was imported for a museum loan under an immunity from seizure application, the lender should request that such application be reviewed to ensure it remains in place during the work’s prolonged stay.
Q: How has the art logistics world been affected?
From a historical perspective, experts in the shipping and warehousing industry have told us that the effects of COVID-19 are unlike anything they have ever seen in their careers. Unlike the Great Recession or even 9/11, which caused slowdowns and increased regulation, the current pandemic is bringing art relocations to an unprecedented standstill.
For example, this crisis has directly led to an overwhelming decrease in commercial air travel. It may be surprising to many, but most art is flown around the world on regular commercial passenger flights. With fewer flights, that has meant fewer ways for artworks to be relocated. Furthermore, warehouses in certain jurisdictions have been forced to close.
For vehicle shipments, trucking art is still an option in the US currently – however, that too is slowing down as states continue to lockdown. In Europe, the closure of borders made trucking impossible from March. If art must move in the US, there still appear to be options available – however, we have heard that clients should expect high prices and unexpected last minute changes and/or delays.
Q: Could the value of art collections be realised to solve liquidity problems?
Given market volatility and the pandemic’s effect on business, we are seeing art collectors and art businesses capitalizing on their collections to meet their current cash needs. For those with existing art loans, they should review their loan documents to ensure that despite the market fluctuations, they remain in compliance with all of the financial covenants required under their loans.
Further, those with existing art loans should review the appraisal provisions in their agreements. In the current climate, we foresee a risk of art values fluctuating, which could affect existing borrowers’ loan-to-value ratios on their collateralised art.
For those in need of assistance with their art loan obligations, US banks and financial institutions are receiving certain benefits under the US CARES Act, which may incentivise the banks and financial institutions to accept deferred payments from borrowers that they otherwise would not be able to, so those with existing loans should check with their lenders as to whether they qualify.
Q: How can philanthropists continue to support art institutions?
With museums losing much needed revenue every day they are forced to stay closed, new tax rules under the US CARES Act could lead to increased cash gifts to assist these struggling public charities. Individuals who do not itemize deductions will be allowed an “above-the-line” charitable contribution deduction of up to $300 for gifts of cash to public charities made in 2020 and individuals who itemize deductions may elect to ignore the normal adjusted gross income limits for gifts of cash made to public charities in 2020.
This temporary change in the US charitable deduction rules only applies to cash gifts to public charities. Therefore, non-cash contributions, such as gifts of art, can still be made to public and non-public charities subject to the normal AGI limits.
Q: What final advice can you give to art collectors during the coronavirus lockdown?
We often hear about misplaced invoices and import documents relating to art being sold. With more time at home these days, it is the perfect opportunity to review your art files and portfolios to make sure that they are up to date. We recommend compiling all provenance, export and import, condition, restoration, exhibition, purchase and sale documentation, which should be kept together for each work in your collection.