College Art Association Report on Copyright and Fair Use

The College Art Association (with a membership of 13 000 practitioners) is the principal professional association in the United States for practitioners and scholars of art, art history, and art criticism. Members consists of  academics, professors, and graduate students who study and/or teach art practice, history, or theory, including visual arts, visual culture, and aesthetics. The CAA represented through

• Patricia Aufderheide, professor, School of Communication, and director, Center for Media & Social Impact, American University
• Peter Jaszi, professor, Washington College of Law, American University
• Bryan Bello, graduate fellow, Center for Media & Social Impact, School of Communication, American University
• Tijana Milosevic, graduate fellow, Center for Media & Social Impact, School of Communication, American University

released the following report as part one of a  four-phase plan to develop a Code of Best Practices for Fair Use in the Creation and Curation of Artworks and Scholarly Publishing in the Visual Arts:


The visual arts communities of practice share a common problem in their confusion about and misunderstanding of the nature of copyright law and the availability of fair use. Their work is constrained and censored, most powerfully by themselves, because of that confusion and the resulting fear and anxiety.

The visual arts field is pervaded with a “permissions culture,” the widespread acceptance that all new uses of copyrighted material must be expressly authorized. This assumption has taken its toll on practice in every area of the visual arts field, adversely affecting the work of art historians, museums, publishers, and artists. As digital opportunities emerge, old frustrations with this permissions culture have taken on a new urgency.

The permissions culture is expensive in terms of both money and time, but artists and other professionals in this field rarely embrace the copyright doctrine of fair use: the right, under certain circumstances, to use copyrighted material without permission.

The reasons why visual arts professionals ignore fair use include:
• an exaggerated assessment of risk, because of a lack of clarity around interpretation of fair use, lack of copyright knowledge generally, and excessive fear of litigation
• the importance attached to maintaining good relationships with individuals and entities who hold, or claim, rights
• a determination to honor artistic creativity, the generative force for the entire field

But many in the field need to access copyrighted work without permission in order to accomplish their professional missions.

In the absence of confidence regarding how to take advantage of the right of fair use, professionals cope by overspending on permissions; delaying projects for months, years, or even decades to negotiate permissions; compromising projects by doing without important material; and even abandoning some projects altogether.

In fact, while permissions may be required for some kinds of artistic and scholarly projects, in many cases they are not. The pervasive permissions culture, exercised as if fair use were not available to the visual arts communities, changes and even deforms the work produced. These losses affect future generations and the future of the field itself.

Uncertainty about copyright and fair use within the visual arts communities is a problem that the communities themselves can address. The biggest single issue for professionals is understanding their rights as new users of existing copyrighted material. This can be remedied not only by educational projects but by the formation of a consensus within the communities of practice about the shape of a code of best practices in fair use for the visual arts. Such codes have vastly improved access to fair use for other communities of practice.


NYSBA Art Gallery Ethics Panel

Everything You Wanted to Know About Art Gallery Ethics (But Were Afraid to Ask)

Monday, October 21, 2013 from 5:30 PM – 7:30 PM

A slew of cases involving some of the art world’s most prolific figures have raised the ever-growing specter of fiduciary obligations of gallerists and dealers. Gallerists are by definition fiduciaries on a number of levels, often without being aware of this. What most art context actors don’t know is that fiduciary duties trump contracts or oral agreements, and are imposed by courts. In fact, the core of gallery ethics cannot be understood without knowing what fiduciary obligations are.

This interactive panel discussion will present cutting edge insights into best practices for gallerists and dealers and how they can limit their professional exposure. It will also explore many other ethical issues that gallerists, dealers, and artists need to understand now more than ever.


, Andrea Crane Fine Art

, Stropheus Art Law

, Marianne Boesky Gallery

, Sotheby’s Institute of Art

Judith:       We’ve organized questions into three categories.

The first category is Artist Representation.

The second category is Client (Collector) – Gallery Relations.

The third category is Due diligence (provenance and authenticity).

Let’s assume you are the principal of a gallery in New York. You work predominantly in the primary market and you represent several artists in the early part of their careers. An artist whose career is on the rise, approaches you and says she is contemplating leaving her current gallery and would like to be represented by you. Describe your discussions and negotiations with her and the types of arrangements you would consider between you and the artist.

Serra:        I think the initial question that this brings up is when an artist is represented by another gallery. The correct response is that you ask the artist whether they would like to terminate the relationship with the first gallery. Then you can engage in a discussion afterwards. To do otherwise is basically poaching and bad business practice, and elicits a lot of negative feelings with your colleagues as well. That’s just a basic practice.

I think you’ll find most galleries don’t actually have written contracts with their artists, even though I think the legal community would like to encourage that to change. In general, it may be about as informal as a follow up letter agreement encompassing the things you’ve discussed. It might just be completely done orally.

For most primary market artists the commission is 50%, and as an artist gets further along in their career it might be 60/40 and can even be something as little as 10-15% depending on [the artist’s leverage].  An artist whose primary prices are well over a million dollars can make those sorts of determinations in their agreements. But the norm is 50%.

You might also discuss the percentage an artist will share for discounts. There are also the gallery’s responsibilities, which generally include transport, framing, crating and certain basics such as photography, and insurance.

If you are the primary gallery you’re likely going to be the one who is also responsible for maintaining the artist’s archive – and there’s a lot of responsibility with that. You want to keep a good record of who is buying the artwork because later on, assuming the artist’s career grows to museum shows, you want to be able to borrow pieces from collectors.

If you are the primary gallery – and if the artist also has a gallery, let’s say in London – you might be the one for the first few years who consigns the work to the other gallery, which very often entails a 60/40 to the other gallery. So that would still be 50% to the artist, 10% to you just for managing these little extra things.

Judith:       This discussion also includes duration and early termination.

Serra:        In general, I think this is one of those conversations that probably doesn’t get covered too much with the artist. It is just assumed the agreement goes on until one person decides that it doesn’t work.

I think fundamentally from the gallery point of view, we like really to think about it as a partnership. And the partnership is only going to work as long as you both want to be doing it together. I think that’s one of the arguments against locking people into all of these binding terms. That being said, I know some galleries liken it being an indentured servant if you have these locked-in terms. I don’t think the norm for a gallery is to dictate how many paintings it is expecting every month, but I think it would be helpful to have some of these other terms outlined more fully.

Region tends to be another conversation. So if you are at the New York gallery, and the artist has a Los Angeles gallery and a German gallery – you might have discussions about not selling to the other markets.

Andrea:     Actually it’s more of a question to the panel in terms of what are the artist’s obligations to the gallery. For instance, you have an artist who is working in a particular style and has created a certain number of pictures in this style and they are well known for that style and say “I’m not going to do any more of these, that’s it.”

And you go to your collector and you say this is it, there’s no more of this particular kind of painting coming out and then you find out six months later that the artist has changed their mind. Indeed, they are creating more of this particular kind of artwork. So what is the obligation – maybe this is a question for you Richard, what is the obligation of the artist in that case?

Richard:   This is a thing traditionally – as has been succinctly described here – the artist gallery-relation is one perceived as being flowing like the gallery chooses in a very complex dance and there is a mythical space in which the gallery takes on a kind of paternalistic role, the artist gives themself over to this role in the hopes of being freed of a lot of suffering and uncertainty.

The difficulty is that from a legal standpoint, the gallery is an agent, which means that the artist technically speaking – and I’m not saying ethically, morally, or otherwise – the artist can simply say, “I want other agency.” There is no real legal basis for the relationship as it organically has evolved over time.  Now why is that a problem?  Because if that legal regime starts to surface like Atlantis rising out of the sea – then lot of artists confronting situations or difficulties with their galleries are going to say, “well, wait a second, according to the law you are an agent and I have the absolute, unlimited and unfettered right to chose different representation.” So that’s actually just a build-up what I’m about to say, It has traditionally been very useful for galleries to move in a mythical space of undefined relationships.

My message moving forward is that we may be in a historical period of time where it may be a very significant thing to sit down and say, “what are the artists’ obligations?” and to create a minimal or threshold of transparency and professionalism, so that you do have to give up certain mythical real estate. I’m arguing that gallerists may stand to lose a significant amount if they don’t embrace that, until there is recognition of that level of exposure.

Judith:       But specifically to Andrea’s question, you know the promise made by an artist not to create any of such-and-such a style, and turning around and doing that, I mean how would you explain that to your collector, to your buyer that had previously bought something assuming that it was rare?

Richard:   The complexity of the relationships we are talking about is a difficult question to answer. People are motivated by a variety of indicators in their lives. Do they have an emotional tie, and do they have a material tie, do they have a character that has evolved in a certain way? What I am saying is centrifugal forces are increasing such that we need to be cognizant of the fact that we are not talking about 1990 or 1980. We are talking about 2013 we are talking about a rapidly changing, almost unrecognizable market.

Let me just throw another thing to think about – if it has been the mythical space that the gallerist is the one who is producing the structuring, we can’t anticipate artists going out and seeking counsel and trying to legally structure the relationship in a sophisticated way with the gallerist.

So there is a noblesse oblige question for the gallerists, even if they are not interested in saving their own skin. The  initiative has to come from the gallerists in order to produce the kinds of obligations because your question is this – “How do I get a good commitment from individuals that involves both legal and ethical dimensions to work?”

And in the past there are all kinds of informal discipline and methods that are exercised. Ostracism is the most popular one in the art world [laughter], to control anti-social or asocial elements. It’s a big world now, and I don’t know that ostracism is that efficient any more in lot of cases.

So, what I’m saying is that if you actually want a trusting relationship, you may actually have to give up some mythical real estate. You don’t have to give it all up, right?  But you may have to give up some of it. Otherwise you may not have leverage of the kind necessary to maintain that mythical space. If mythical spaces produce enchantment and magical relationships – and I’m not making fun of that – I think there is an enormous amount of emotional energy required for these life paths.

Serra:        Just one other thing is that part of the same conversation and is one of the big problems for a gallery – to find out one of your artist is selling directly from the studio. And that’s a real violation to what your relationship is and supposed to be, but as Richard is saying, I mean, I don’t think ultimately there’s too much a gallery can do other than say I won’t…

Richard:   Unless you have something on paper and the artist understands, that’s actually a really significant part of the relationship.

Judith:       Well it’s possible to construct the agreement so that it’s the exclusive power to sell. It’s similar to a real estate brokerage contract, so if the artist does sell from his or her studio in violation of that agreement, then that artist would owe the commission to the dealer even though the dealer had nothing to do with that particular sale.

However, in your experience I don’t know either of you has ever constructed a contract where you are the exclusive seller of an artist or whether it’s an exclusive agency where you might have a regional exclusivity or a exclusivity in terms of medium – for example, you sell the artist’s works on paper and someone else will sell paintings or sculptures.

Andrea:     Well what I found in terms of representing artists, or certainly in my case, estates of artists, is with the increasingly global nature of the business, fewer and fewer artists and estates want to enter into that exclusive arrangement, because if they meet a collector from Rio for instance and they strike up a relationship with them, they may wish to just transact themselves. I’m finding more and more, that people just don’t want exclusivity; they just don’t want to lock them selves into a relationship. Again, whether it’s an artist or whether it’s an artist’s estate.

Judith:       Maybe we can move to the next question, which is whether you as a dealer purchase works of art from the artist you represent.  What kinds of legal and ethical considerations are at play?

Suppose you buy works of art from an artist – and this happens quite frequently – in the early part of that artist’s career when the works are not very expensive and then later on, due to your work as a gallery, the artist’s works become very valuable and at some point you may decide to sell. What would you do? Do you owe any obligation to the artist?

Serra:        If you look at the gallery relationship coming out of historical patronage, I think it’s a very normal part of the process. It’s an artist you represent, so you do invest your own funds, and I think it’s a very normal expectation – it benefits the gallery as well as the artist.

And, again, you would let the artist know that you are the owner of the work – it’s that sort of maintaining the archive and keeping that information available – and this is where we go back to Richard in terms of fiduciary duties. If you are purchasing an artist’s work that you have a fiduciary relationship with. I think I think that’s the main obligation

Richard:   Going back to what we’ve been discussing, the thing is we have a big confrontation between the informal and formal. An agent is somebody who has to account for every profit. That means, if your agent gets a dime for every apple that person sells, if that person keeps an apple and sells that apple for fifty cents then I say the forty cents are actually due to the beneficiary, the entrustor – that’s the law. So again, these are gray zones. That’s the legal side of that,

The other side of that is the question of self-interest.  If you are holding onto a work because you believe that work is exceptional and there is probably no other reason to hold on to the work, you are already in sense depriving a good faith buyer, or a third party, from transacting with your beneficiary as an agent. That’s a first order conflict of interest.

So what is the problem with the conflict of interest if you are a statutory fiduciary actor?  That means that a court can come in at any time and find a self-interested breach, which means whatever benefit that accrued – let’s say you legitimately as a gallerist have factored that into your proper dealings with the artist so that the legitimate profit that you want to achieve from representing the artist is achieved through that type of transaction. If the court later finds that it’s a self-interested transaction, you may be deprived of your legitimate gains.

The problem with fiduciary obligations is that they are court determined. But a great measure of security would be created, if at that specific transaction, the artists recognized that this was part of your agreement set forth in a document signed by the artist – two paragraphs saying yes, whatever the value that accrues to this particular work I consider part of the equitable compensation on the part of the gallerist. That won’t necessarily save you entirely, but it will be a huge barrier to uncomfortable surprises in the future.

Serra:        I think in most situations, I don’t know that most galleries or people go back and give the artist a percentage when you’re later selling the work if you bought a work in 2003 for forty thousand it’s now worth two million and you sell it, I can’t think in most situations where somebody goes back to the artist and gives the percentage. It sounds like…

[interjection]:  Well in California, you have to – it’s [or at least, was] the law.

Andrea:     Yes, in California you do, but I mean it sounds like the resale laws.

Judith:       But that’s a different percentage according to the resale royalty, this is not the commission. And actually there’s a case that is presently on appeal in which a federal district court of California [Estate of Robert Graham et al. v. Sotheby’s, Inc., Sam Francis Foundation et al. v. Christie’s, Inc., 2012 U.S. Dist. LEXIS 77262 (D.C. CA., May 17, 2012)} found that the California resale royalty right law is unconstitutional because it violates the Commerce Clause of the United States. But that remains to be seen, that’s a very good comment.

Richard:   Well, Judith is right to make this distinction – one is the statutory resale right provision- there’s nothing to do with the fiduciary obligations, this is why I am saying I am using the “F” word as many time as possible today so that it gets rooted firmly in your minds: the fiduciary obligations are not to be confused with anything to do with contract at all. Or statutory rules.

Female voice:    Why did this come up in the first place? Because lots of things were being sold at profit and the fiduciary responsibility wasn’t being taken care of, if you will.

Serra:        I think though in that situation as well with the resale rights and what happens in Europe as well, is you’re also not just looking at your primary dealer making a profit, it’s any of the concurrent secondary market trading of the work.

Female voice:    If you buy something and you hold on to it as an entity, then it’s no difference than if you are an individual.

Richard:   I will beg to differ only because if a good faith third party buyer buys it he doesn’t have any fiduciary duties. Therefore a questionable resale from a good faith buyer cannot be mapped onto a fiduciary breach – and I really caution trying to keep these concepts clear in your minds because otherwise you’ll be disabled from understanding the risk and exposure.

Judith:      I think what [Serra] is observing is that this is where the first buyer (the gallery) is also selling it.

Richard:    The real caveat here is that this really requires deep, deep focus. The problem again with fiduciary duties, is that when there is a breach, everything that fiduciary has done – not just the things related to the breach – are subject to review.

This is something that really needs to be fundamentally understood, so if you done 99 ethically perfect transactions and one transaction involves an egregious breach of fiduciary obligations, all of those 99 transactions could be subject to something even called the worst word beyond the “F” word, is that it was a equitable tracing, which means that good faith buyers in the chain that acquired works, their works may be pulled away from them, because the person who disposed of the work didn’t have the right to do it.

So what I’m saying is, once the “F” word is there, one is on a different territory entirely.

Judith:       (To the audience) Are there any questions about the artist representation?

Male voice: If you buy a work from your own beneficiary, is there any third party process to protect the beneficiary in terms of the price being set?

Richard:    We just have to see what can be done once you get onto the fiduciary terrain, it’s very open to litigation and court interpretation, but what you can do is produce transparency about benefits that are transferred.

Judith:       In the contract.

Richard:    Yes, the contract won’t eliminate a potential for a fiduciary review, but if an artist says, “I willingly give up the added value that will accrue over time to this work because the gallerist is doing xyz, and that is for me an equitable deal. That is from a fiduciary standpoint miles away from an interested fiduciary simply acquiring the work, nothing on paper, no open discussion about the accrual of any benefit in the future – these things are miles of miles apart in the fiduciary analysis.

Did I answer your question?

Male voice:        I was more focused on… I actually came out of estate work where anyone who is a fiduciary always has the court protection.

Andrea:     The gallery world is pretty informal.

Female voice:    I want to ask about situations where a gallery repurchases work from a third party buyer, either during the representation or immediately thereafter and turns around and sells it after representation terminates. I want to know what you think about what the gallery’s obligations are to the artist that turns around and then resells that work at a higher rate whether that gallery owes the artist that 50% of the appreciated value on the resale treated – is it ethically a re-consignment under those circumstances?

Serra:        We treat it just as a normal secondary market transaction.  Most galleries, if you represent an artist, part of what you do is also manage their secondary market as well, so ultimately an artist benefits – and this gets back into the resale question – but ultimately as the overall market for an artist increases through the secondary market, that will ultimately push up the primary market.

Female voice:    My question was necessarily directed at a gallery’s activities in supporting the secondary market or repurchasing that work at auction or in some other ways – I’m talking at a slightly lower echelon on where there the artists have a little bit less power and protection.

Serra:        I can’t think of a specific situation where at that point you would give the artist another [commission] if you are purchasing the work [on the secondary market]?

Richard:    Now we’re into this really murky territory where we have to collectively discuss our experiences. Going back to what I was saying about proscriptive and prescriptive. [If a fiduciary has merely the duty from refraining from things like self-dealing, then the standard of care is largely proscriptive. If on the other hand, a fiduciary must be pro-active in producing outcomes for a beneficiary, then the duties are more prescriptive in nature.]

If you have a very strong representation relationship with an artist, it could be understood that everything you are doing is for the benefit of the artist’s good, then that transaction might be subject to scrutiny. Otherwise if you are buying on an open market, acquiring a good and reselling it – barring the existence of a statute to the contrary – there is not a clear cut obligation there, there is no proscriptive obligation, nothing on the list it says you can’t do that.

But for example there are certainly going to be cases in the real world, where there is a particular artwork whose disposition in some way might have a fundamental market effect on an artist’s career standing or pricing, and if some how a gallerist were to dispose of work for a personal gain, and that causes an impact on the artist’s career, certainly that goes back to the fiduciary corner.

Andrea:     There are certain scenarios where a collector who might have purchased a particular work would come back to a gallery, ask the gallery to repurchase it – if one were to repurchase every single piece of artwork, they would have to have very deep pockets, and then what might happen is that someone would sell something at auction That does create a bit of a problem between the gallery and the artist, and certainly for the collector. So what are the obligations there?  If the gallery says ok I’m not going to buy this back because I would be broke – and then it shows up at auction. That relationship becomes somewhat tenuous, as you probably know.

Judith:       And one more [question from the audience] and we’ll go to the next topic.

Male voice:  It seems underlying this whole discussion is this informal relationship that the galleries have with the artists, and I wonder – speaking from the legal perspective – if being so informal is really a sustainable model. If you look at the Knoedler Gallery situation, the forgeries, and galleries by and large not having in-house counsel, maintaining this comfort level of being informal, whether this is something that is really sustainable going forward?

Serra:         Richard would say no. [laughter]

Richard:      I would say [Richard add this]

Judith:       Well traditionally, the relationships between galleries and artists have been quite informal and it appears to be crass if you sign a contract. It looks like a deal, but that’s really what it is. And it’s good for the artist and dealers to recognize that this is actually a business, and I’m really a proponent of putting these contracts in writing. I think that everybody benefits. Not necessarily a long, written document with a lot of legal terms. It can be just a simple email or a letter memorializing the understanding that you’ve reached.

I think that can lend a lot of clarity to the relationship and get the parties to really identify what the terms are and what their understanding is, before something goes wrong because this is the point where they really want the deal to work. Later on, if there is some misunderstanding, they are upset with each other and it will be more difficult for them to agree to anything.

Richard:    Let me describe why what Judith said is exactly on point.

Ninety-nine percent of contractual breaches are not litigated, which means they never makes it to court, but what happens if people are in a breach of contract situation and they’re pissed off – they won’t want to work together again, or they will be in a long, drawn out, emotional conflict.

The fascinating thing is that there is a common misperception that legal documents are somehow going to be pulled out, and you are going to be whacked over the head with them. In the vast majority of cases, nothing like that ever happens. So this deep-rooted fear of having some type of piece of paper with some type of guidelines about the relationship – even if it was just structure: these type of fiduciary duties, for example – when you say, “Listen I’m your dealer but I’m not representing you. This is not part of my business model or the opposite.” So you get some kind of basic agreement about what people are expecting from each other. That would actually reduce the aggravation and a lot of the loss of productivity and the animosity created in this informal business, because these informal relations only work as long as everything is going fine.

The problem is if you had some kind of anchoring document that you could go back to, if there’s a conflict you could go back to your common ground. You can go back to your overlap, and then use that as a bridge to try and negotiate your conflicts.

If you have nothing, then there are just spiraling irrationalities, and that in the art world is the problem that we deal with.

All I’m saying is spiraling irrationalities plus the fiduciary exposure we’re talking about – that’s a very explosive mixture.

Judith:       Moving to the next topic – collector relations with the gallery, a segue from our previous discussion.

Let’s say one of your clients acquires a primary market work, and by primary market, I mean the artist’s or estate of the artist’s first sale of a work (the resale would be the secondary market). One of your clients acquires the primary market work from the gallery with the understanding that he will not resell for five years and then if he does the resell, he’ll go back through the gallery and not at auction. You discover that a work you sold to a client is up for an auction, and featured prominently in the auction catalogue. The artist is upset at the gallery and the collector. How do you handle this?

Serra:        As a preliminary matter, sometimes you will see on invoices, there will be a statement where that will be written at the end of it where you sign. From what I understand, it’s not actually an enforceable clause, even though people include it with some frequency.

Andrea:     Well I think something that we have discussed as a panel before is sometimes the word of the law, or what is appropriate goes against what you believed to be appropriate business practice. So I have been in situations where I sold a collector a piece, which ends up in an auction catalogue.

Yes, you get into somewhat interesting situations where you really are making your best decision about the people with whom you are working and you want very much to place something in the good collection and then all of a sudden it does appear in an auction catalogue and the artist is probably not that pleased – so again how you resolve it? I think it’s really dependent upon your relationship with the buyer and your relationship with the artist and I think every case is very different. I mean you can ostracize and not work with that person again, but that’s not necessarily realistic all the time.

Judith:       Yes, of course. But the art world is quite small and it’s possible that word may get around.

Serra:        And we’ve had situations where we’ve been able to get a client and get something pulled from auction, or we might work out a private sale with the auction house before hand; or, we’ll jump in and protect it, if that becomes necessary.

Andrea:     I would like to pose another scenario that actually has been eating away at me for some months. Let’s say you have inherited a 1936 Picasso from your grandmother, it is the only asset you have. You go to the auction houses, you negotiate a price. You are very excited, it’s going to be in the upcoming Impressionist and Modern sales in November.

At the preview, hanging beautifully, lit beautifully – Mr. Smith comes in from Park Avenue and he says “I like this 1936 Picasso.” A specialist says to Mr. Smith, “I’m glad you do like this.  I have something in private sale for you, also a 1936 Picasso. Come to the back room and let me show it to you.” That specialist gets a commission from his private sale but not from the auction. What is his fiduciary responsibility in that case?

Richard:    Well this is an easy question because the auction house is also in an agency relationship, and therefore they are obligated to have only the best interests of the seller at heart, and if they are conflicted, and that conflict is made visible, they owe you any damage that you suffered, and the loss you suffered, by virtue of the duties that are owed to you by the agent. And it could be probably be vicarious responsibility, because that person is not acting on his or her own, they are acting under the umbrella of the auction house. The auction house is without question a 100% liable on any loss of income to you derived from that type of self-dealing. No question.

Andrea:     But do the specialists understand this?

Richard:    The problem is this. We’ve had events here, and we’ve had auction people here as well, and we go through this same fiduciary analysis and chins drop. The question that you are posing, again, flies in the face of custom, as we understand it. There are a lot of murky practices and these murky practices have been cleaned up somewhat in the course of time.

The auction houses have gone through enough litigations in regards to some of these fiduciary duties that they are aware of it, but the short answer to your question is, no. There are a lot of things that are almost impossible to detect and there are lot of things that, in addition to being impossible to detect, are political. So as we all know – some sellers, some buyers are going to be treated one way, and others another way within the business model of both galleries and auction houses – and all of this is subject to fiduciary review.

Now I’ll try and come to a useful closure on that. All of that won’t matter for ten thousand dollars, or even fifty thousand dollars. But once we start moving up into the territory where the lost value is such that – and the actors are sophisticated enough – it can definitely, definitely be an increasing issue.

And the last bit of an answer to that is the auction houses will tend to historically wait for the bomb to explode before they build the bomb shelter.

Judith:       So many auction regulations have taken place because of a lawsuit; in the past 25 years I would say almost every new regulation in the auction house practice has been the result of a lawsuit.

Richard:    I mean just to add that you as the seller – again it’s one of these mythical relationships, you don’t want to be ostracized, blacklisted, or put on the third tier. The legal situation is that the auction house is your agent. You would have a right to go and look at the books; you would have a significant review if you pursued it by law. You would have to litigate or whatever, but there’s a very interesting disparity between the informal relationships as they are practiced and the legal regime underlying them, trying to give balance to these inequitable power relationships.

Judith:       Turning to the next question in the client category, you have a weekend house in the Hamptons and you socialize with some of your collector clients, and one of your clients wants you to advise her in developing her art collection. She purchases art from your art gallery as well as from others. What obligations do you have to this client and are there conflicts of interest between your client’s natural desire to acquire art at the best price and your obligation to obtain the best price for the artists that you represent?

Serra:        I think this is actually a pretty common occurrence within everything we all do. In general on the primary market, I think most galleries will more or less stick to a 10-15% discount.

In other cases, you could work out a retainer situation and so it doesn’t matter what you are negotiating. You already have your retainer. I find this to be one of the cleaner ways to do things if you are not being from the advisor side but from the gallery. I know a lot of times when we have an advisor come back to us after the fact and ask for both the discount and the commission.

Sometimes someone just thinks their friend is taking them around. In general for primary we try to say it’s either the discount or your commission.  We cant usually accommodate both.

Andrea:     I think it’s less straightforward in the secondary market and that many of the prices are owner-driven in many ways. That is, a particular collector might say “well I would sell it if I got X price for it.” So you are representing them to a certain extent and saying ok I’ll represent you to sell it but then with the buyer I think you have to be very clear that this is a full price and here are the market comparable, and I certainly don’t know how low he really would go, but you need to know that this is an aggressive price because you are looking for a Max Ernst for a certain period and he is got it. And the rules are pretty different for secondary and primary.

Serra:        There are sometimes more people involved in the equation than just the gallery, collector, and artist. I have a situation I’m dealing with. A gallery sells a work of art to the collector, an art advisor is involved, and the gallery represents the artist. A few months later, in my role as collections manager for the buyer, I look at this sculpture and say, “hmm, I see condition issues.”  So now we want to resolve these issues, and of course we go back to the gallery, and we go back to the living artist to see how we can resolve it. But the client’s unhappy, because they don’t want to have to pay to resolve these condition problems.

So I guess I’m asking about this in terms of fiduciary responsibility. Who’s responsible in this case, if there’s an art advisor  involved? Is it the advisor’s job to have checked condition issues? I wasn’t involved in the transaction at all, I came along later.

Serra:        Excellent question thank you, I’m glad you got to ask it!

Judith:       The layers of responsibilities of an art advisor. Do you want to start?

Richard:    OK I’ll do my two cents and then…

Very briefly. The consigner, or the person selling the artwork, and the person representing that person, be it an auction house or gallery, they have a fiduciary relationship to that seller. The art advisor also has an agency relationship, but we have to go back to the sliding scale between prospective and prescriptive. How dependent is the buyer on the art advisor? Is it a sophisticated buyer, or is it a non-sophisticated buyer? And, something that art advisors are very well advised to consider their agreements so that they really circumscribe what it is, what duties they are taking on.

So in the case of damage to the work, let’s say the person buying the work is unsophisticated, then the art advisor could have significant fiduciary exposure because the art advisor is holding out to be an expert, the buyer client is reasonably relying on that opinion and as a result of the negligence of that person there’s damage to the buyer.

Most advisors are going to try and structure the relationship such that they don’t have too high a burden of diligence, because it’s going to destroy the business model, and you can’t be responsible for everything. The

Andrea:     Have they asked for condition report? The art advisor?

Serra:        I don’t believe so. I saw nothing in the record that I have seen.

Andrea:     It is just my opinion that if this person was, had retained or was involved with an art advisor that one of the most basic things that you do is to ask for condition report. And whether again it’s a contemporary piece or it was something painted in 1740, one of the most basic things to do is to check condition. It is paramount. It’s just what you do. I think that does show a little bit of negligence.

Serra:        With a living artist, do we consider repair or do we remake, which can be done as well. There are costs involved.  Whose responsibility should that be?

Richard:    Let’s just go back to the schematics. The person who would litigate is the person who suffers the damage, here the buyer. It is the buyer who suffers the damage. So did the buyer act independently or did they depend on somebody’s judgment?

In this case, typically, we have to argue that if the art work came to the person through the art advisor. “But for” the activity of the art advisor, “but for” the negligence of the art advisor, the person wouldn’t have acquired the work, on the face of it, without expressing any legal opinion here, the art advisor is going to talk to the insurance company, if they have insurance, because this is a clear case of what you would call “professional” malpractice. It doesn’t mean that anybody consciously made an error, or maybe they just didn’t exercise appropriate diligence and involvement. Remember these are exponential scales.

Do you need to go to the ends the earth with an electron microscope and encyclopedic knowledge of all chemical composition of paints? There is a limit to what an individual can do. I’m not commenting on particular facts in the case.

The artist is not relevant. If the work is open for inspection and nobody requested it. Now, there is a legal regime that says that if the defect was invisible, entirely invisible, or requires significant effort to discover, that may say that the seller was not forthright, or the seller was aware of or should have been, of such defect. We are getting into some specific commercial terms for the sales of goods.

So that may play a role but, let’s say the seller says nothing to the art advisor, who has no indications as to the defect in the work, to the extent that their knowledge extends, and they understood the work to be intact and complete as it was, and they made no statements beyond that.

Judith:       Absolutely, it depends also on whether the seller has asked the buyer to examine it and the buyer either refused or didn’t take advantage of that opportunity. It would also depend on how visible the damage is.  If there is a slit down the canvas . . .

Andrea:     Then it’s a Fontana! [laughter]

Serra:        What if the artist knew because she has one that these things will fall apart, which does the artist have responsibilities?

Richard:    Artist has no obligation. The artist is not party to the sale.

Judith:       Moving to the final topic is the one that everybody has been waiting for. . .

What are your due diligence obligations to purchasers when selling works consigned to you by a collector with respect to authenticity and provenance? What questions should you ask an intermediary who would like to provide you with artworks new it to the market, for example, but the intermediary refuses to disclose the origin of the work, and explains that the seller insists on remaining anonymous.

Serra:        You call an insurance company and see if you are covered. (Audience laughs)

Andrea:     The first thing you really have to do is go through checklists, is it in any catalogues, is it in the catalogue raisonné? Has it been any shows, are there any label on the back, in any literature, is it signed, what’s the condition? There are very simple things you can do. If you have been in this business for a while, I know the questions to ask under certain circumstances. If something comes up, and you are a little bit unsure about it, I might be tempted not to touch it. If there’s a gap, for instance, in provenance, you do everything you possibly can to figure out where it’s been. With restituted works, and with German pictures and Austrian pictures, where there might be a gap in provenance from 1938 and 1945, you do everything you can and to make sure this that there isn’t a claim. This in relation to things that just appear out of nowhere.

Judith:       What are those types of things you would do?

Andrea:     Well you contact the Art Loss Registry, you make sure that there is an Art Loss Registry certificate. If you can’t do the due diligence, and if you can’t prove that it’s been in these hands, and when, I think you just have to figure out a way to not transact. That’s my opinion.

Serra:        It’s not unusual to request anonymity, that’s normal. You have to do your research, and part of that is exhibition history, literature, and provenance. It’s not good enough if they just want to be anonymous.

Judith:       How much due diligence do you do if the consignor is new to you?

Serra:        I had situations where you see things that look really off. I had a situation where somebody came in and said they bought a David Hockney at some random gallery that I had never heard. I looked at the picture and it did not look like Hockney to me. But I didn’t want to say “oh, I don’t think you have a Hockney.” At that point, I just said, unfortunately we are not interested. That ends up being the statement we use, if it is something that we do not think is authentic, to protect against liability. I never comment or disparage the work itself. I don’t just don’t take it on consignment.

Andrea:     I think that there are other red flags as well. Someone who comes to a gallery with a major picture, and you ask them whether they spoke to the auction houses as well. And they respond, no, they want to be really discrete. Well that’s a red flag. It could be a divorce situation. I’ve certainly been in situations where someone is trying to sell something and it’s co-owned. So you rely on your own experience and own brain to assess out a situation. Divorce is certainly a red flag, and you just want to make sure there are no liens or encumbrances on a piece.

Judith:       Why would some desire to deal privately, as opposed to through auction?  There could be a debt, or they may not want people to know that they are deaccessioning from their collection.

Andrea:     Absolutely, discretion. There are good, there are very good things about selling privately, as opposed to the auction houses. Again, discretion. It can happen much faster than the auctions because there is a cycle with the auctions. And also personal relationships. I have a number of people with whom I have worked for twenty years, and they will say, Andrea, I want you to handle this for me, because I know you, and I know how you are going to do business. So there is a number of reasons why you go private, and there are also a number of off reasons why you would, and there are a lot of people who will turn a blind eye to those.

Judith:       What advice can you give to a mature artist who is not yet represented?

Serra:        One of the things that happens quite frequently is the rejuvenating of a career. It has to be a situation where there is a desire on both sides, that it is a good fit.

There have been some amazing examples of artists who have almost fallen into obscurity, or their market are much below what it should be. It’s always really wonderful if it happens while the artist is still alive, as opposed to the estate being rediscovered. I[JP1]  don’t know that it is that different from other situations. In general, when we take on representation, one of the places where it usually comes from is our own interest, but also when another artist we work with or respect recommends an artist. Maybe one of our collectors recommends an artist, or a curator that you respect. Those are the sorts of references that you take most seriously. Unfortunately, the worst one is the person who walks in and drops off their portfolio.

In terms of a mature artist, let’s say a curator who always had an interest in an artist who had a major career and now doesn’t. Sometimes they look at what you are doing in the program and they think that you should really take a look at this person.

Judith:       Unfortunately the opposite occurs, where an artist you represented for a long time is in decline. How would you handle that type of situation?

Serra:        In a couple different ways. Sometimes, it just becomes an obvious situation in your relationship. You are not making sales for them, and/or they are not making it on to the calendar. We work off a three-year calendar. So you should expect to get your solo show in the main space every three years. If you are not, that is a sign that things are not going great.

We have negotiated things for an artist that doesn’t make sense for our program any more by speaking with another gallery, and making a nice easy transition. That is the most amicable and nice way to work. But the straight dropping of an artist, it does happen, but one of the bigger questions there becomes the responsibilities to your collectors. If you placed a lot of the artist’s works and now you don’t want to work with that artist any more also sends a signal out. You’ve advised a lot of people to invest on an artist. So lot of times it’s a very tricky, delicate situation. It looks like you have lost the faith as well.

Judith:       Thank you all for your participation. We can continue our discussion at the reception.



Five Art Law Facts that Art Business Professionals Need to Know

In this series of brief overviews, will distill important art law issues that are often overlooked or misunderstood.  Today’s installment will cover the following five topics:  (i) Protection of artists under New York’s amended consignment law; (ii) Commercial laws that protect collectors who buy art from a dealer; (iii) Importance of written contracts; (iv) Statute of limitations for breach of warranty of authenticity; (v) and Conflict of laws concerning ownership of stolen art.

I.  New Precautions Under New York’s Amended Consignment Statute

Dealers doing business in New York are on notice that breach of the New York Arts and Cultural Affairs Law (NYACAL) consignment provisions can now lead to severe penalties, including criminal sanctions.

Effective November 6, 2012, a New York law protects artists and their heirs who consign works of fine art to dealers by strengthening existing trust property and fund provisions of the NYACAL.

The purpose of the consignment laws is to protect artists in cases where a dealer refuses to return an artist’s work or deliver sales proceeds to the artist.  The law also shields artists against claims by the dealer’s creditors, that is, those people to whom the dealer owes money.

Before the law was amended, there was nothing that prevented unscrupulous dealers, such as Salander-O’Reilly (which filed for bankruptcy in 2007), from comingling sales proceeds with their own funds.  The gallery’s creditors attempted to claim the consigned artworks as assets of the bankruptcy estate.  As a result, many clients, including artists’ children, had to buy back their artwork from the bankruptcy estate.

In response to these egregious problems, the law was amended to provide that works of art (and their proceeds) consigned by artists or their heirs to art dealers are deemed property held in “statutory trust.”  As such, the works (and their proceeds) do not become the property of the dealer or the dealer’s.creditors, or subordinate to “claims, liens or security interests” of a dealer’s creditors.  In certain circumstances, the artist may waive the trust fund protection, but the waiver must be clear and conspicuous and in a signed writing.

In addition, dealers are subject to the fiduciary requirements under New York’s Estates, Powers and Trusts Law with respect to consigned works.  These provisions require the dealer to segregate and hold sales proceeds in trust for the artist.  A dealer who violates this provision may be criminally sanctioned and required to pay attorneys’ fees to artists in civil suits.

II.  Commercial Laws Protecting Reasonable Expectations of Buyers

One of the most important questions to ask when purchasing art is whether the work is free and clear of liens or other encumbrances now and in the future.

In the U.S., the Uniform Commercial Code (U.C.C.), enacted in every state including New York, regulates the transfer of art.  Under the U.C.C., purchasers of art acquire all title (that is, ownership rights) to which his transferor had or had power to transfer.  However, two prominent exceptions exist to protect reasonable expectations of buyers: voidable title and entrustment.

Under the voidable title rule, if the original owner has delivered an artwork to a merchant (for example a dealer), who sells the property to a good faith purchaser for value, that purchaser has acquired good title to the artwork, even if it turns out that the transaction was a result of fraud or deceit.  The key is that the original owner voluntarily relinquished possession and intended to transfer title.  For example, suppose A delivers a painting to Dealer to sell to B, who pays with a bad check.  Or Dealer sells to C instead of B.  In either instance, the buyer keeps the work free and clear and A must seek compensation from Dealer.

Similarly, under the entrustment rule, if a person entrusts (voluntarily transfers) possession of an artwork to a merchant (for example, a dealer), and that merchant sells the work to a “buyer in the ordinary course of business,” the buyer can acquire good title (ownership rights) to the artwork.  The entrustment exception applies only to purchasers who are buyers in the ordinary course of business, that is, persons who (i) purchase in good faith, (ii) without knowledge that the sale violates another’s interest, and (iii) in the ordinary course of business from a person (other than a pawnbroker) in the business of selling goods of that kind.

To illustrate entrustment, let’s say A delivers a painting to Dealer, not intending to consign it, but for another purpose, such as to have it restored, framed, or lent to a museum.  Without obtaining A’s permission, Dealer sells the painting to B, a buyer in the ordinary course of business, who is innocent of any wrongdoing.  B can acquire good title to the painting, even though A never intended to sell the painting.

Buyers of art should exercise caution before purchasing significant works of art even when purchasing through a dealer who represents and warrants that the art is free and clear of all liens and will remain so in the future.  Taking precautions, such as checking with the Art Loss Register, searching the U.C.C. databases, and doing a Google search, can often screen for the most likely claims from prior owners, secured creditors, or gifts promised to institutions.

III.  Oral vs. Written Contracts

Since the art world’s culture is based on trust, agreements between artists and dealers are often sealed with a handshake. However, without the benefit of a written document, there is no record of their arrangement, and even a minor problem can sometimes escalate to a major dispute.

Simply put, oral contracts work well until they don’t.  The possibility of misunderstanding over responsibilities and expectations becomes fuel for discord and may cause the relationship to unravel.  An additional consideration is the statute of frauds, which requires that contracts for promises that cannot be fully performed within one year and for sales of goods (not services) of $500 or more be in writing to be enforceable.

The importance of a written contract is illustrated in cases where artists or dealers have tried to enforce terms of an alleged oral agreement.  Because of the statute of frauds and other obstacles, parties to an alleged oral agreement have encountered difficulties in enforcing the agreement’s terms.

An example of an oral contract that went awry concerned an agreement between the legendary American artist Georgia O’Keeffe (1887-1987) and her long-time sales agent Doris Bry, for the return of artworks and photographs by her late husband, photographer Alfred Stieglitz, as well as an accounting of any monies due on sales.  Bry counterclaimed that O’Keeffe had made a number of oral promises, including the promise to make Bry the exclusive sales agent during O’Keeffe’s lifetime and after her death and to appoint Bry as executor of O’Keeffe’s estate.

O’Keeffe sought dismissal of Bry’s counterclaims, alleging they were barred by the statute of frauds.  The court agreed with O’Keeffe, holding that the alleged promises were unenforceable absent a written agreement. O’Keeffe v. Bry, 456 F. Supp. 822 (S.D.N.Y. 1978)

IV.  Statute of Limitations for Breach of Warranty of Authenticity

When a purchaser of an artwork later discovers that the work is not authentic, the statute of limitations under the U.C.C. for a suit against the seller is four years after the breach of authenticity occurs.  (Major auction houses warrant authorship for five years from the date of sale.)

The problem is that few buyers question the authenticity of a work they have acquired until they are preparing to sell it, exhibit it publicly, have it examined by an expert to be included in a catalogue raisonné or for another purpose – which may occur many years after the statute of limitations has expired.  The key question becomes the date that the statute of limitations begins to run – on the date of the seller delivers the work to the buyer, or at the time the buyer discovers the breach of warranty?  In the majority of states, including New York, the breach of warranty begins to run when the seller delivers the work to the purchaser, unless the warranty explicitly extends to “future performance.”

This principle is well illustrated in Rosen v. Spanierman, 894 F.2d 28 (1990), one of the leading cases on warranty of authenticity involving the statute of limitations.  Here, the plaintiffs purchased a painting entitled The Misses Wertheimer from the Spanierman Gallery in New York for $15,000 in 1968.  The gallery provided them with a full warranty on the painting as an original Jean Singer Sargent, and mailed certificates of appraisal for insurance purposes on five occasions between 1975 and 1986.  In 1987, the plaintiffs decided to sell the painting, then valued between $175,000 and $250,000.  Upon consigning the painting to Christie’s, the plaintiffs were informed that it was a fake.

The plaintiffs commenced an action against Spanierman in 1987 for breach of warranty arguing, among other claims, that the repeatedly issued certificates extended the warranty to future performance.  The court rigorously applied the four-year statute of limitations, holding that the warranty did not extend to future performance, and noted that the plaintiffs could have discovered the defect just as easily immediately after the sale as later.  Requiring a purchaser to obtain an appraisal from an expert other than the seller “is not an onerous burden.”

At present, the District Court of Hawaii is the only court in the U.S. to allow a breach of express warranty of authenticity claim beyond the four-year statute of limitations, which tolls the date “until such time as the defect […] was, or reasonably should have been discovered.”  Balog v. Center Art Gallery-Hawaii, Inc., 745 F.Supp. 1556 (D. Haw. 1990).

Therefore, buyers of works of art in the U.S. should assume they must bring any authenticity claim within the four-year limitations period.

V.  Stolen Art

In an increasingly global art market, one of the most problematic areas of concern is whether a collector has unwittingly acquired a work that was previously stolen. Courts have vastly different approaches to disputes over ownership to stolen property, and cases may (and often do) depend on technical defenses available in different jurisdictions.

In the U.S., a basic principle is that a thief cannot pass good title, not even to a good faith purchaser, nor can anyone further down the chain of ownership.  Therefore, a good faith purchaser can be forced to surrender an artwork without any compensation to the original owner, absent a valid defense, such as the expiration of the statute of limitations.

By contrast, the civil codes in most continental European countries are more favorable to good faith purchasers, who may acquire good title to stolen artwork after a prescriptive period, that is, the passage of time, which can be a short period.

Therefore, as art owners and their heirs (including claimants of art looted during the Nazi era) come forward, sometimes after many decades, to claim property from good faith purchasers, courts are confronted with difficult questions that are complicated by choice of law and statutes of limitation, and must decide legal title to the work as between the original owner and heir on one hand, and a good faith purchaser on the other.

Because there is no central registry to record title to art, independently verifying the provenance and including strong representations and warranties from the seller with regard to ownership are imperative.  As mentioned above, Art Loss Register is one prominent database.  Others include the FBI and Interpol.  To be sure that a work was not stolen during the Nazi era, buyers should check databases, such as, and Another database,, provides links to databases of individual countries for the identification and return of looted or stolen Jewish property.  Another way for collectors to reduce risk is to obtain title insurance, which is now available for fine art and other important collectibles.



Decision: Calder Estate Lawsuit against Klaus Perls

Calder Estate Lawsuit dismissed by Judge Kornreich: “In other words, plaintiffs are attempting to litigate issues that necessarily stretch back decades without any personal knowledge or contemporaneous records, where nearly all of the people who had personal knowledge of the facts are dead. Rarely has the court encountered a better justification for the statute of limitations.”


US Copyright Office on Artist Resale Rights: Full Text

Artist Resale Rights in the US?

“In general, visual artists do not share in the long-term financial success of their works. […] Instead, the financial gains from the resale of their works inure primarily to third parties such as auction houses, collectors, and art galleries. Moreover, the income typically available to other authors through reproduction and derivative uses of their works is more limited for artists. […]  The Copyright Office agrees that these factors place many visual artists at a material disadvantage vis-à-vis other authors, and therefore the Office supports congressional consideration of a resale royalty right, or droit de suite, which would give artists a percentage of the amount paid for a work each time it is resold by another party.”


15 Minutes on Starting a Non Profit Gallery


presents a pithy summary of things you need to know about starting your non-profit gallery. Click here for the Stropheus YouTube Channel


This presentation will focus on two main issues; forming your non profit gallery and keeping the tax exempt status.

I manage the nonprofit tax compliance practice at Wegner CPAs. We work with over 700 tax-exempt organizations annually. I have also helped numerous organizations get tax exempt status over the 9 years of my career. In this presentation, I would like to share with you my experience in helping organizations obtain tax-exempt status and what needs to be done to maintain this status.

I will go over the benefits of nonprofit galleries, talk about the steps needed to get your tax exempt status, and finally, discuss the filing requirements to maintain the tax exempt status.

How can the artists and the art community benefit from this additional funding? Nonprofit galleries do not primarily depend on sales for funding. This means that they can show more experimental work. This opens many doors for emerging artists or artists with edgier work. Nonprofit galleries can be an excellent way to network for the artists. Spending time at these galleries gives artists opportunities to meet other artists and invite them to their studios. Finally, fundraising auctions can be a great marketing tool for the artists. They can donate their work to be sold to benefit the gallery. This will give them the ability to show their work to the community.

Now the technical and boring part! What steps are required to get access to all these great benefits?

First, you need to file Articles of Incorporation with the State of New York. You have to file as a nonstock nonprofit corporation. You must also list a registered agent who has a physical address in New York.

Second, you need to obtain an Employer identification number from the Internal Revenue Service. This can be done online and it only takes a few minutes.

Third, you need to create bylaws of the organization.

After these steps, you will be ready to file IRS Form 1023, application for recognition of exemption under section 501 c 3 of the Internal Revenue Code. This form is your key to obtain the tax exempt status. Please keep in mind that only nonprofit galleries that have a tax exempt status can enjoy all the benefits discussed earlier. Finally, you need to register with the State of New York as a charity.

Since it is the most important form for obtaining a tax exempt status, I would like to give you an overview of Form 1023. This is a 12 page form with 12 parts and generally requires a few pages of attachments. I will mention the 6 more important parts. The form asks general questions about the applicant entity such as name, address and organizational structure. Detailed narrative description of activities needs to be provided for the IRS to determine whether you have an tax exempt purpose. You will also need to report compensation and other Financial Arrangements for the directors and employees of the organization. It asks about your planned specific activities such as lobbying or methods of fundraising. It also requires past financial data and projections to cover a total period of 3 years. For example, if the organization has been in existence between one to two years, you will need to report the financial data for the past year and project financials for the next 2 years.

Now, let’s talk about the common mistakes made in the formation process. Organizations not getting professional help would be risking both their time and money. The first common mistake is forming the wrong type of entity. The organization needs to be formed as a non-stock nonprofit corporation. Keep in mind that the employer identification number and articles of incorporation applications are irrevocable. Any major mistakes may require the organization to be dissolved which means more time and money down the drain. Not having a specific enough charitable purpose statement in the bylaws is the number one rejection reason of a form 1023 application. It is very important that this statement is prepared very carefully. The other common mistake is filing an incomplete Form 1023. If the organization has a specific enough charitable purpose and if the form 1023 is completed accurately, the application will get in the fast track to be processed by the IRS. Incomplete application will result in a correspondence from the IRS. Each correspondence will delay the process by approximately 6 weeks. If you are like most people, any IRS correspondence creates some stress. It will also take from your valuable time from doing the work you have the passion for.  Having a complete form 1023 may save you up to a year in the approval process. Finally, there is a great advantage to file the form 1023 within 27 months of formation of your entity. If you file within 27 months of formation, your tax exempt status takes effect from the formation date. This means that all donations you receive since the formation will be tax deductible. If the filing is made after 27 months of formation without a reasonable cause, the tax exempt status will take effect on the form 1023 filing date. In addition, you will need to file an additional schedule with your Form 1023.

So after all this time and energy spent to obtain the tax exempt status, how do you maintain it? Well, you have to comply with the annual filing requirements of the IRS and state of New York.

Let’s go over the IRS form 990 filing requirements. The type of the form 990 to be filed depends on the gross receipts of the entity. Gross receipts generally equal revenue of an organization. If your gross receipts are under $50,000 you can file a form 990-N. This is a very short form and can be completed online. If your gross receipts are under $200,000 and total assets are under $500,000, you can file a 990-EZ. If the gross receipts are over $200,000 or assets are over $500,000 you will have to file a Form 990. These thresholds are the minimum filing requirements. Please keep in mind that you can choose to file a 990-EZ if the gross receipts are under $50,000 or you can file a form 990 if your gross receipts are under $200,000. Should your gallery have any unrelated business income such as advertising, you will need to file a 990-T to report this taxable activity.

In addition to filing a form 990 with the IRS, you need to file form Char500 with the State of New York. The state requires an independent review report to be filed if the total support and revenue is between $100,000 and $250,000. If the total support and revenue is over $250,000 you will need to file an independent audit report. The state is currently discussing increasing the thresholds for the audit and review requirements.

There are also large penalties involved for failing to comply with NY’s filing requirements. Your registration would be revoked if the reporting requirements are not complied with. Attorney General may also seek civil penalties of $1,000 per violation and up to $100 per day for noncompliance.

Forming a nonprofit organization and maintaining tax exempt status is not a very hard job. However, you need to plan it right and have a strategy. You must create a charitable purpose and be dedicated to it. You need to be patient. The process may take over a year. You need to dedicate resources and get professional help in the formation process. If you rely on inexperienced volunteers or generalists to get the non profit law job done, you may end up with delays in your application process or large penalties.



Judith Prowda on the Artist-Dealer Relationship

Redacted excerpt from ‘s forthcoming book, “Visual Arts and the Law: A Handbook for Professionals” with permission of the publisher Lund Humphries

Artist–Dealer Agreements

Artist–dealer representation agreements are sometimes confused with simple consignment agreements. Each form creates different legal obligations. A consignment agreement ordinarily addresses particular works for a limited transaction (for example, a specific gallery exhibition), whereas an artist–dealer agreement usually includes general provisions that pertain to consigned works and a separate consignment agreement or rider identifying specific works. Thus, an artist–dealer representation agreement is more comprehensive than a simple consignment agreement, and tends to establish the terms and protocols of the business arrangement.

The Dealer’s Fiduciary Duty to the Artist

Whether the parties enter into a simple consignment agreement or an artist–dealer representation agreement, the arrangement involves the entrustment of works by the artist to the dealer, who acts as the artist’s legal agent. The law of agency governs this relationship. As the artist’s agent, the dealer is considered a fiduciary acting on behalf of the artist, who is the principal. Therefore, the dealer is required to act only in the interest of the artist and to forego all personal advantage aside from just compensation. The dealer also owes the artist a duty of loyalty and is obligated to avoid conflicts of interest.

Fiduciary relationships are common in the art market. By law, a fiduciary acts on behalf of the principal. Similar to the dealer, who acts as a fiduciary to an artist he represents, auction houses are fiduciaries to their consignors. Museum directors and trustees act as fiduciaries to their institutions.

Specifically, the law of agency, which governs the fiduciary relationship, requires the dealer to: (i) care for and manage the consigned property prudently; (ii) deal fairly and honestly; (iii) account periodically to the artist as to the dispositions of the property; and (iv) disclose all relevant information to the artist.

Typically, the artist retains title to the work while it is on consignment with the dealer. The work is considered trust property and the proceeds of the sale are considered trust funds belonging to the artist, and must be kept in a separate account. Dealers do not have discretion to use those proceeds for their own purposes, such as, for example, to pay a gallery’s operating expenses. Once a sale is consummated, the dealer will pay the artist an agreed-upon percentage of the sale price and keep the remainder as a commission. Depending on the nature of the agreement with the artist, a dealer may pay the artist advances against future sales.

The dealer’s legal status as fiduciary means that he may not avail himself of any advantage at the expense of the artist, or engage in selfdealing, such as purchasing the artwork for himself, without the consent of the artist. For example, if a dealer purchases a work outright from an artist, without disclosing that he had previously agreed to resell the work to a third-party, the dealer would be in breach of his fiduciary duty and could be liable to the artist for damages resulting from that breach. In contrast, if the dealer is not the artist’s agent and buys work outright from the artist, there is no fiduciary relationship, and hence no breach. However, a dealer who knowingly defrauds an artist could be held criminally liable.

Artist–Dealer Legislation

The majority of states in the US, as well as the District of Columbia, have passed legislation applicable to the consignment of artworks to dealers by artists, their heirs, and their personal representatives. New York was the first state to enact an art consignment statute, the New York Arts and Cultural Affairs Law (NYACAL), in 1966. In 1975, California followed, using New York’s statute as a model. The purpose behind these laws is to protect artists from the misappropriation of consigned property or sales proceeds. In addition, the law shields artists from unscrupulous dealers who attempt to abdicate their fiduciary responsibilities to the artist by using contractual waivers and disguised purchase agreements that render the relationship one of debtor and creditor. Since criminal intent is difficult to prove, most artists resort to civil proceedings. These statutes apply only to artists who consign their works to dealers, not to collector-consignors in the secondary (resale) market.

These consignment laws impose upon dealers the highest level of fiduciary care under a trusteeship established by operation of law, which covers the artwork and sometimes the sales proceeds held by the dealer in trust for the artist. Thus, a dealer may be strictly liable (that is, regardless of negligence or intent to harm) based on an absolute duty owed to the artist, whether the dealer purchased works outright or sold the works. In either scenario, the dealer does not have the right to his commission until the artist is paid in full for the agreed-upon percentage of the sale. Some states allow the artist to waive such provisions in writing—for example, by permitting installment payments to be divided equally between the dealer and artist. New York permits a limited waiver, excluding the first $2,500 of proceeds received in any 12-month period, starting with the date of the waiver. Other states, such as California, nullify any attempt at a waiver. Therefore, prudent practice dictates that a dealer segregate the artist’s share of the sales proceeds and create a trust account separate from the dealer’s operating account. In 2012, New York Governor Andrew M. Cuomo signed into law a long-awaited amendment to the NYACAL. The amendments sought to strengthen the existing trust property and trust fund provisions of Articles 11 and 12 of the NYACAL and prevent unintended interpretations from interfering with the purpose of these Articles. Effective November 6, 2012, the consignee art merchant became subject to significant new duties and liabilities. Galleries that disregard their obligations under the statute may now be criminally sanctioned, and may be required to pay attorneys’ fees to artists in civil suits.

Undoubtedly, the most critical aspect of the amended statute is that it explicitly states that the artwork and proceeds are considered property held in a statutory trust and are not, and will not become, the property of the art merchant or the art merchant’s bankruptcy estate. The amended statute also includes a provision specifying that the trust property and trust funds shall not be subordinated to any claim, lien (that is, a legal right or interest a creditor may have in the property), or security interest “of the consignee’s creditors.”

Accordingly, if the gallery consignee is insolvent and sells an artist’s work, neither the gallery nor the gallery’s creditors can legally touch the artist’s share of sales proceeds, which are held in a trust for the artist. Both the consigned artwork and proceeds held in the trust are beyond the reach of the gallery and the gallery’s creditors. New York’s amended artist consignment protects artists by making it difficult to waive their rights under the statute prospectively, and fortifies the law’s provisions on trust property by including civil enforcement and criminal penalty provisions. Furthermore, the amendments clarify the dealer’s fiduciary obligations to the artist and increase the artist’s awareness of her rights. Finally, the amended statute’s Section 3 further specifies that an artist may seek injunctive relief, recover actual damages and reasonable attorneys’ fees if the artist is successful in an action against the gallery for breach of fiduciary duty.

© Judith Prowda 2013

Artist-Dealer Excerpt


Anatomy of an Artist Invoice

For many emerging artists, the invoicing of direct or studio sales is a hastily filled out form (if there is any invoice at all). This is not as good an idea as it seems. In the absence of a more formalized sales contract, the invoice can define many important obligations between the buyer and the artist. This text will review a few of the critical terms that a relatively simple invoice can contain.

When does the Buyer actually own the Work?

The artist invoice can make clear that the buyer does not actually own the artwork until the artist is fully paid. An invoice containing words to the effect that, “title to the artworks remains in the artist until the artist has received the full amount owing for the artworks,” can make recovery of the work in the case of non-payment significantly easier.

Title is an important legal category. It means that a court can, on the face of it, recognize that someone has a collection of exclusive rights as against other interests. Someone who has retained or acquired legal title has a court enforceable right to exclusively possess, use, sell, or otherwise dispose of an artwork. If an artist retains title, but allows the buyer to possess the work until being fully paid, then the exclusive rights listed above remain with the artist.

The fact that an artist has a strong legal right does not mean that one need to go to court to enforce it. The overwhelming majority of  contract disputes are settled out of court. The best way to prevent litigation (that is, the full process of having a court reach a decision on a matter) is to create and maintain clear legal distinctions around key questions. By doing so there is pressure on a non-performing party (in this case, a buyer who is not living up their side of the agreement) to respond without a court’s intervention. A letter from a lawyer demanding the full payment or return of the works has a significantly higher chance of success if an artist has retained title in the manner described on the invoice. In the case where a problem needs a court’s intervention, the issue of title will be key to an efficient and cost-effective proceeding.

Title does not mean Copyright

Even though copyright is created by law when the artwork takes on a tangible form, it is important to remind buyers that they are not acquiring rights to the creative content.  Copyright is a collection of rights, including making reproductions, adapting the work, selling or assigning rights to exploit the work, or making it available to others by technological means. A buyer can enjoy the unique physical iteration of the work, and has all of the rights associated with title mentioned above, but  may not appropriate the unique creative expression.

There are a number of reasons why an artist should communicate about copyright with a buyer. Copyright gives the artist the exclusive right, for example, to make use of copies of the original work for professional purposes. It is important that the buyer understand that the work is acquired subject to limitations. This effectively means that for the length of the copyright anyone must ask the artist for explicit permission to use the artwork in any way other than simply enjoying its possession. Typically this can be included in the invoice by stating that the artist reserves all rights to the artwork, and that the work may not be reproduced in any form without prior permission.

In the US, copyright is typically life of the creator plus seventy years. This means that not only does the creator have rights until the end of his or her life, but that the creator’s estate continues to have control over the works for decades. In expectation of the increasing value that the electronic reproduction of works will generate, it is important to ensure that a buyer understands what they are getting, and that the artist understands and manages the value of works created.

Let the Buyer know that Works may be needed for Future Exhibitions

Keeping a record of who buys artwork will be imperative as an artist’s career evolves. Gallerists, dealers, and museums will want to show the evolution of an artist’s work and the historical context of production. Every early work that leaves the artist’s hands is a puzzle piece that may have a lot of meaning to future professional partners. For this reason it is imperative that an artist keep records of what they have produced, but even more importantly, who the work has gone to. The invoice should contain as much unique identifying and contact information as possible.

In addition, it is valuable to signal to buyers that they take the piece subject to its use in future exhibitions. The invoice can include a term like “buyer agrees to make the artwork available upon reasonable request for exhibition at the artist’s studio, and in galleries and museums, provided that such does not incur costs for the buyer, or that any such expenses are in the name of the borrowing party.” While not a legal right that can be easily enforced against a buyer, it will put the buyer on notice that this can happen, and that they should be prepared to cooperate in good faith if they want the piece.

The Right of First Refusal

It is a longstanding practice that gallerists carefully control price increases to prevent radical shifts in the market which could be disastrous to an artist’s career. To an emerging artist, this may or may not appear relevant. However, it is important to keep a watchful eye out for the moment when it is preferable to have a collector bring works back to an artist or gallerist before disposing of them on the open market.

The right of first refusal is a contractual provision, and does not enjoy the same kind of statutory protection that copyright has. This means that a court can look at the provision and balance it along and against other contractual claims. Nonetheless, an invoice could include a provision that states that “before the artwork held by the buyer or any transferee of the buyer may be sold or otherwise transferred, the artist or his or her assignee(s) shall have a right of first refusal to purchase the artwork.”

Because it is impossible to predict when the re-sale of works could impact on an artist’s career, there is no harm in including a right of refusal provision in invoices. You can always decline to exercise the right if there is no prejudice in doing so. If a buyer feels uncertain about the clause, an artist can point out that he or she only has the right to make the first offer or match any offer that the buyer has. It will not typically prevent the buyer from selling the work.


These are just a few invoice elements that can have a significant impact on an evolving career. As I tried to stress in the section on title transfer, applying the law does not mean a more confrontational relationship with buyers, but rather that important questions be discussed in a transparent and timely fashion.