What is an Artwork Consignment Agreement?
An artwork consignment agreement is a written contract used between artists and gallery owners. Generally, this type of agreement stipulates that the artist will retain ownership of the artwork until its sale to a third-party, at which time the gallery owner will pay the artist to buy the artwork. Once the artist is paid, the artwork will then be transferred from the gallery to the buyer.
An artwork consignment agreement will typically define the rights of the gallery owner and now much control they may have over the work. In some cases, the gallery owner may be the one who sets a value on the work and prices it for sale. In other cases , the agreement will stipulate that the artist determines the value of his or her own work and will send pricing information to the gallery owner when necessary. In all cases, pricing must be agreed upon by both the gallery owner and the artist.
Sometimes, an artwork consignment agreement must be negotiated between the gallery owner and the artist. This is more common when the two parties are not familiar with one another and have never worked together before. There is no single or definitive artwork consignment agreement. Each agreement will be unique to the involved parties and the laws of the state in which it was entered.
Key Components of a Consignment Agreement
A consignment agreement is a contract, like any other. That means that the obligations of the parties are largely determined by the specific provisions that the parties agree to. Anchor means there’s no "standard" consignment agreement. Each is unique to the situation and the parties involved. But there are some elements that may be considered essential in most situations. While not comprehensive by any means, this list gives you some idea of the issues that your consignment contract should address.
One of the most critical aspects to any consignment agreement is duration. Typically, the gallery wants a long duration to maximize its sales effort, while the artist wants a shorter duration so that the gallery has a vested interest in selling the works, but will turn them over if they are not sold in a particular time frame. Understand this tension and negotiate an appropriate term for your situation.
The second most important term of a consignment agreement is sales price. Again, while the gallery typically will want to set the price and the artist will want to be involved in the process, many times the market conditions and/or gallery expectations may drive a price point that is not satisfactory to the artist.
Another key provision of the contract will involve the percentage of commission paid on any sale. This commission rate is typically a market driven factor. In some instances, the commission rate may be negotiated, in others, the rate is fixed and just reflects the market rate charged. If the agreement involves multiple venues, such as sales at the gallery and via auxiliary channels, the agreement must fairly reflect the rate charged for each channel.
Finally, the artist should consider adding a provision requiring the gallery to provide insurance coverage for the works under consignment. Many commercial liability policies do not cover theft, damage, fire, water, etc., of consignor property. Although the gallery may be contractually responsible for any loss or damage, the artist may have no recourse against the gallery unless there is adequate insurance coverage in place.
Pros of Consigning Artwork
For both the artist and the gallery, consignment can be a win-win situation. The artist benefits from wider exposure while the gallery can increase inventory without overhead costs and collect a commission when a sale is made. Consigning artwork gives an artist the ability to reach a broader audience. Many galleries have a strong following as well as a presence in the community. An artist can reach many more potential buyers through a gallery. Likewise, galleries may have customers who are collectors or who are part of an integrated network of galleries that can bring together a vast and diverse pool of collectors. Consigning artwork to a gallery also allows the artist to focus on his or her craft without worrying about the business side of art. Galleries also benefit from consigned artwork. When an artist consents to consigning his or her work to a gallery, that artist’s work becomes part of the gallery’s overall inventory and can be featured in the gallery’s exhibits. This increases the amount of inventory the gallery can sell but without the increase in overhead cost. The artist, not the gallery, is responsible for materials needed to create the works and for storage if necessary. If the artist is a local talent, consigned artwork can become a part of the local component of the gallery’s mission statement. Galleries that include consignment agreements with artists in their program will sometimes also promote their artists when they travel elsewhere for shows, giving the artists further exposure. The gallery may also maintain a portion of its inventory with the works of a single artist if the artist’s works are significantly popular, providing additional promotion opportunities. Elite galleries with a well-known reputation can further help an artist by showcasing the artist’s works in a prominent space such as a gallery’s central gallery space. The reputation of the gallery may provide credibility for the artist and help strengthen his or her business. For galleries with high traffic that allow browsing and do not require an appointment to view their inventory, consigned artwork receives more exposure and the artist reaches more potential buyers than he or she might as an artist alone.
Potential Disadvantages of Art Consignment
For both artists and galleries, the art consignment process comes with its share of risks and challenges. The biggest concerns for artists and galleries alike are that artwork does not sell or will take too long to sell and/or that the artwork could be lost or damaged while it is in the possession of the gallery or other consignment location. Artists should consider attending to these concerns through the use of insurance and/or by becoming involved in the consignment agreement prep stage.
Inconsistency in Insurance. As mentioned previously, although most of the consignment agreements analyzed in the artist’s case against the gallery listed the status of insurance as being "N/A", the level of detail relating to insurance varied widely throughout the agreements. Six of the contracts had no statements about insurance at all, two contracts had a similar provision as the one quoted above that required the gallery owner to maintain insurance for the value of the artist’s works, and five contracts offered no information about insurance retention by the gallery but did have an "Indemnity" provision in which the artist assumed full responsibility for loss to its works while consigned. These inconsistencies provide examples of the ways in which artists may be taken advantage of or simply may not have properly protected their work while on consignment, causing significant financial harm to the artists.
Loaning Work. Galleries often offer artists their choice to loan a work rather than consignment, or "on approval". There are pros and cons to this type of offer, but there are also the unknowns such as loaning a work to an unknown collector or dealer. As with any type of sale, if a loaned piece is lost or damaged, the artist typically has a right to recover the amount of the loss from the loan recipient, but if the recipient does not have any resources to repay the artist, then the artist is out the value of the work. One form of loan or consignment is an exhibition. So, if work is loaned or consigned to an exhibition and the exhibition is a bust or the work loses interest for even a short period, it may be difficult to sell any of the exhibit pieces.
Recapturing the Work. If a piece does not sell within a specified time, artists often worry that a gallery may not return the consigned artwork in a timely manner or at all. Such a concern is not unfounded according to some experts. Art market analyst Jasper Bernacki of Artnet Magazine, offers a common belief among some art dealers that galleries will keep the pieces of artists whose work does not sell as promised. Legal counsel should be sought in the event of unreturned consigned works.
How to Draft a Strong Consignment Agreement
For artists and galleries alike, working with a solid and robust consignment agreement is essential to protecting oneself and assisting in establishing terms to manage the relationship. A consignment agreement should be drafted carefully with three things in mind: clarity, legality, and enforceability. When drafting, it is important to be specific as to what is being consigned (title to, ownership of, number of items, etc.), the frequency and mode of payment, notice requirements, duration and extension of the terms, as well as remedies for breach, termination of the relationship and what happens to the artwork at termination. Courts typically look to the language of the four corners of the contract when interpreting contracts and are inclined to enforce the language contained within, so if something is important consider including in the contract and avoiding assumptions . Legal requirements of a consignment agreement are also vitally important. While you may not think that the UCC applies to the relationship, it is important to understand that the UCC governs conditions precedent and not all may accept this as an excuse of non-performance. In addition, any and all local requirements regarding licensure, payments, and other regulatory requirements should also be considered. Finally, an enforceable contract is important for consignment success. Consignment agreements are typically governed by common law and the elements of a contract will apply: offer, acceptance and valid consideration. Further, some courts have found that certain terms must also be present to be enforceable (e.g. price and time for performance).
Legal Protections & Dispute Settlement
On the legal front, a consignment agreement can protect the artist in the event that the artwork is lost or damaged while in the possession of the Consignee. It can also provide a failsafe legal recourse to the artist against the Consignee in the event that the Consignee sells the artwork but fails to pass the sale proceeds onto the artist.
While The Collector does not recommend third party dispute resolution over litigation in U.S. Courts, it is an interesting alternative that has worked reasonably well in the New York art world.
Art disputes have been subject to arbitration for decades. In fact, in 1982, then New York State Attorney General Robert Abrams established the Art Dispute Resolution Program (ADRP) to resolve disputes involving artworks valued at $1 million or less. The ADRP was based on the "concept that mediation was a better method of conflict resolution than the adversarial process of litigation." In the ADRP program, disinterested institutions including "the New York City Office of the Attorney General, the New York City Conciliation and Appeals Board, and the City of New York Art Commission" would mediate the disputes. Where mediation was unsuccessful, the cases were referred to the American Arbitration Association.
While the ADRP no longer exists, many art galleries, collectors, dealers, institutions, and artists subscribe to the Gallery System’s Art Arbitration and Mediation Panel for the resolution of art disputes. The Art Advisory Committee of the American Arbitration Association maintains a panel of fifteen distinguished arbitrators and mediators from across the country.
What Not to Do When Consigning Art
Even a simple consignment agreement can be complex, and it’s important to be aware of potential problems that can arise. I’ve seen the following six issues come up repeatedly in artist-galley consignment agreements:
- Payment timing. Don’t agree to the usual terms and then forget to add the payment schedule. Payment can be "within (x) days of sale" or "on (x) date" (e.g., "by the fifth day of the following month"). Be specific about when you can expect to be paid.
- Consignment term. The agreement should specify for how long your work is being consigned, as well as what happens if the gallery does not return them (lost, stolen, or damaged). If your work is held longer than expressly agreed, you should be paid for an extension.
- Pricing. Each piece should have a price tag with your suggested retail value. You can provide an update on pricing at any time, but the agreement should specify when the gallery must return any work not sold within a specific timeframe.
- Photography. Most galleries take lots of photos of each work and post them in one or more online venues. If the gallery will be marketing and advertising your work, your signature on the consignment agreement should give them permission to use those photographs, even after a work has sold. Don’t leave this out.
- Maintenance. Work is sometimes damaged in transit, during installation, or in storage. You and the gallery should agree who will be responsible for repairing damage and whether there will be any cost to the artist.
- Right of return. In no case should an artist expect to take back unsold works. You won’t have the opportunity again to sell them any time soon. If your work hasn’t sold in 90 days, you should be given the option of recovering it for 50 percent of the price.
Examples of Success
An example of the success from a well-executed agreement can be found in a case involving a small local gallery forming a consignment relationship with a local up-and-coming artist. After several transactions and significant demand, the gallery owner decided to place the artist’s work with a larger company that had a wider geographical reach. The agreement with the new gallery was similar to the original consignment relationship, and as a result of the thriving relationship, the artist now enjoys a wider audience and increasing demand for his work through the larger gallery’s extensive marketing programs.
On the other hand , a similar gallery decided to try to cut corners when negotiating the consignment agreement with an artist whose work she really liked. The gallery owner proposed a verbal consignment agreement that would allow her to keep 40% of the sales price. Not only did this frustrate the artist, but when the gallery owner began to display withdrawals from the agreement which the artist had not authorized, and then attempted to sell the art at a discount, the gallery owner was sued by the artist. The artist is seeking an accounting of the sales and commissions of the gallery.