Law Commission calls for reform to art finance law

On Monday 19 September 2016, Boodle Hatfield LLP was delighted to host a seminar presenting the Law Commission’s recommendations on reforming the law of loans secured on personal goods.

The Law Commission highlighted the Bills of Sale Act 1878 and the Bills of Sale Amendment Act 1882 as being archaic Victorian statutes which are wholly unsuited for modern credit arrangements. The calls for reform have stemmed from the logbook loan sector which uses Bills of Sales to secure loans and where sharp practices have been deemed disproportionate and unfair on borrowers. The proposed reforms will not only regulate the logbook loan market but will also have knock on effects on the more exclusive art and luxury asset lending sector. Continue reading

Why English Heritage were liable for a visitor’s injuries and how similar institutions can minimise their risks

 

Earlier this year, The Court of Appeal upheld the ruling that English Heritage were fifty per cent liable for injuries that a member of the public, Mr Taylor, suffered whilst visiting Carisbrooke Castle on the Isle of Wight, as they failed ‘…to warn visitors by means of a sign of the danger which gave rise to the accident (read the judgment here). But what does this mean for similar organisations and how can the risk of liability be managed?

First, a bit about the case. Mr Taylor visited the Castle grounds in 2011 with his family; they took ‘Bastion Walk’, which lead to an elevated firing platform.  Mr Taylor left to take better photographs via a steep slope to an informal grass pathway which follows around the top of the outer bastion wall, which unbeknown to him led to a twelve foot drop into a dry moat.  He was found by his family minutes later lying in the dry moat.  Continue reading

Auction house guarantees: Friend or foe?

Auction house and third party guarantees are a hot topic at the moment, with Bloomberg reporting that, for the 2015 New York autumn sales, $1 billion – approximately half – of the $2 billion total value of lots were already sold before the “paddles are even raised” (Bloomberg, 29 October 2015). On 9 September 2015, Sotheby’s filed a Form 8-K with the US Securities and Exchange Commission confirming that they had entered into an arrangement with the Estate of A. Alfred Taubman, their former chairman, to sell art from his collection, which was estimated to be worth in excess of $500 million. The arrangement provided that “Sotheby’s agreed to provide an auction guarantee for the collection at approximately that level”. Continue reading

Brexit: what now for the arts?

The country has decided to leave the EU. What might this mean for the arts?  The Government is obviously going to have hugely competing priorities, but it is important that the art market now comes together to ensure their voice is heard.

The immediate economic aftermath will clearly have a significant impact on all aspects of the art market for some time, including on the current auction sales, as well as consignments to future sales in the next few months.

Our art law specialists consider the possible longer term impact of the result on the art market, in terms of museum and arts funding, the future of the Artist’s Resale Rights, possible changes to export licenses, and to import VAT.  There is significant potential to achieve meaningful reform to maintain and enhance the UK’s competitive advantage in the art market.

Funding

Becky Shaw, a solicitor from Boodle Hatfield’s art law team, said: “EU funding for the arts runs into millions of pounds a year, and has contributed to many important projects. Whilst the UK government will continue to support the arts, it is not unreasonable to expect a complete reassessment of how the arts in the UK are to be funded in the longer term.”

Artist’s Resale Rights

Artist’s Resale Rights (ARR) may now come under the spotlight.  Supporters of ARR describe it as the most significant new right for visual artists in recent times, giving artists an ongoing stake in the value of their work.  Its critics argue, however, that ARR puts London at a disadvantage to its competitors – such as New York and Hong Kong – that do not levy ARR on sales.

Tim Maxwell, a partner at Boodle Hatfield, said: “It would not surprise me if those in the art trade now push for a renegotiation of ARR to better compete with New York and Hong Kong.  Artists themselves are likely to oppose changes to ARR that could see their royalties reduced.”

Export licenses

The current export license regime was introduced in 1993 by an EU regulation, replacing the UK’s previous licensing regime, and many important artworks and artefacts have been ‘saved for the nation’ through the export licensing system.

“Critics have long seen the regime as an unwelcome administrative burden and additional cost,” says Becky. “They also point to the fact that the rules vary greatly in different EU countries causing difficulties for galleries and buyers.  This may be an opportunity for reform.”

VAT import duty

Tim says: “VAT import duty can be a headache for many UK art dealers, galleries and auction houses.  Works imported to the UK from outside the EU are liable to a 5% import VAT charge, whereas works imported from the EU are exempt from import VAT.  Calls to abolish import VAT altogether may now become louder in an attempt to encourage more of the international market to move to London particularly from other EU countries.”

Gallery owner Guy Sainty comments on what Brexit might mean for the art market

Guy Sainty, of Stair Sainty Gallery, comments on our article What might Brexit mean for the art market? 

I read your piece on the EU with some interest as I raised the issue of import VAT with the Society of London Art Dealers a few months ago.

The present system means that anything we bring in from the EU is exempt from import VAT, while anything imported from outside the EU is liable to the 5% import VAT. Because it is a burden to pay out for works of art a dealer may have to keep in stock for years and only recover on export within a certain period, these works are kept either in bond, or on Temporary Import (TI). If in TI there is quite a burden of paper work and a limit on how long it can remain on TI and a financial upper limit on the total that a dealer can have on TI at any one time. One can deal with this with a small number of works but our gallery, for example, has imported about 90% of its inventory from the EU and it would be an almost impossible bureaucratic and financial burden to have to either pay the import VAT or hold the majority of our inventory on bond or TI. If the work in question is consigned on a commission basis to a UK dealer, then import VAT is likely to be significant proportion of whatever the dealer to whom the work is consigned might expect to earn from the sale – as the VAT is due upon import, this may make consignment sales unaffordable.

If the present import VAT regime is maintained for works of art, the entire trade in non-British art in the UK would have to seriously consider exiting the country – while the major auctioneers would be likely to relocate sales of works of art from the EU either in the country of origin or in the US. At present there is an indication in an auction catalogue where a work has been imported and VAT is due; this is generally considered a negative for buyers. If everything brought in from the EU has to be on TI this would be a very substantial burden on the auction houses.

The government should instead consider whether the present administratively burdensome system of import VAT on works of art produces sufficient revenue to justify maintaining it if the UK leaves the EU. The result of maintaining import VAT may be to drive the market out of the UK with a net loss of revenue; on the other hand, if it is abolished, the UK art market would benefit enormously as even more of the international market would move here.  Many EU art dealers sell to clients outside the EU and if there is no UK import VAT there would be a direct incentive to relocate their businesses in the UK. In the US, auctioneers and dealers must charge sales tax to in-state buyers and, when they have representative offices in other states, to buyers resident in those states as well. When purchasing a work of art at a US auction that is intended for export, the process of reclaiming or not paying sales tax – particularly for private buyers as opposed to dealers who may have out of state resale numbers – is another administrative burden that could be avoided entirely if the sale was made in the UK. There is no US federal import tax on works of art and US buyers importing works of art are supposed to declare State “Use Tax” but in practice this has been hard to enforce.

EU exit coupled with the abolition of import VAT on art could have a considerable net positive effect on the London market. This is not only because of growth in the London art market but because of associated spending on hotels, restaurants, and with other retailers. Furthermore the US regulations on the sale on works of art containing ivory, tortoiseshell, certain woods, feathers, etc, have made whole categories of art unsalable in the US – even netsuke, where much of it is made from 50,000 year old Mammoth ivory excavated in Siberia, is subject to this ban as are medieval ivories whose provenance has been known for centuries. Some states have banned all trade even for artworks that have been in the US for decades or more and are hundreds of years old. New York State now bans any trade where more than 20% is made from some material that is taken from an animal, plant or tree on the protected list, irrespective of its age. This trade could and probably will move to London, especially if import VAT is abolished.

BREXIT would also affect the regime that deals with the export of art works. No two European countries have identical regulations on the export of works of art. While all works leaving the EU over a certain value (depending on the category, and in some countries irrespective of the value) require an export license, these licenses depend on whether the work of art has been given, or qualifies for, a certificate or attestation of free circulation. Some EU countries have categorised works of art as unexportable (thereby depriving the owners of much of the value) or have imposed restrictions which give the state the right to hold up the export until the funds can be raised to purchase it. While a total ban on export might be necessary in the developing world where there are very limited resources for the maintenance of the archaeological or artistic heritage, the imposition of such absolute bans by European states is actually a disincentive to collect and bring works back that have been sold before these bans were imposed.  This system is not only poorly devised and managed but it has recently become clear that some countries may not even consider such certificates as binding and may attempt to revoke them later if the officials charged with issuing such certificates make an error. A further complication for British based dealers under the present rules is that the sterling value at which export rules apply varies as the exchange rate between the pound and the euro fluctuates. Although BREXIT will mean that works imported into the UK will have had to have had a definitive EU export license, this may in practice be an improvement as only UK law, rather than both UK and EU law will apply.

As for museum funding this is a real red-herring. The decisions on the funding of British arts institutions should surely be made by the democratically-elected UK government, rather than in Brussels. The EU arts subsidies are a small proportion of total arts funding and even smaller as an amount of the net savings on the EU budget. The real point about arts funding is that it needs a complete reassessment of how it is to be done in the future, rather than whether UK arts institutions should have to continue to go cap in hand to Brussels.

Guy Sainty, of Stair Sainty Gallery

Giving your art business the best chance

Running your own business can be very rewarding but success is not always guaranteed. Businesses are most vulnerable to failure during their early years of trading – statistics vary but one commonly quoted is that half of all small businesses fail within their first couple of years.

Running your own business requires you to be a jack-of-all-trades. Dealing with marketing and finance functions among many other aspects whilst still trying to maintain and grow your business isn’t easy. There are an endless number of traps to fall into. Here are five ways to give your business the best chance… Continue reading

The Bribery Act – How does it affect my business?

If you want to wine and dine a potential client, or treat an existing client to lunch to thank them for their custom, you may not realise that you could potentially be caught by the Bribery Act 2010 if the gift is deemed to be excessive and go well beyond reasonable efforts to promote your business. While only extravagant and disproportionate gifts are likely to cause an issue, it is worthwhile familiarising yourself with the Bribery Act and the types of activities it covers.

In the second of our series of articles for gallery owners and small businesses, we summarise the main provisions of the Bribery Act 2010 and how it might affect you and your business. Continue reading