Did you know?
In spite of the post-pandemic economic and political turmoil, the international art market has experienced a boom, generating US$65 billion in global sales in 2023 according to the annual survey published by Art Basel and UBS. With Hong Kong becoming one of the top contemporary art auction markets, buying artworks for personal appreciation or investment has become increasingly popular.
Why does this matter to you?
Buying a coveted piece of art requires more than just aesthetic appreciation, it necessitates an understanding of the legal aspects of art due diligence. As the art market is still largely unregulated, the issues of provenance and authenticity are becoming more complex, as the art market becomes more globalised. However, it appears that many buyers, spending very significant sums, do not follow the same procedures that they would if they were purchasing a property, a private jet, or a yacht. Buying high value art comes with risks, and conducting thorough due diligence of an artwork from top to bottom, is crucial to managing that risk.
Key considerations for potential buyers include taking steps to:
- Ensure good title, especially when nominees bid on behalf of high net-worth individuals.
- Verify authenticity. The process will depend on the nature of the artwork and whether the artist is still alive.
- Verify who you are dealing with to make sure that the seller and any intermediaries are legitimate and trustworthy, and have the necessary authorization.
- Inquire into provenance and exhibition history. It is essential to track records and history of an artwork through time as part of the due diligence for authenticity and title.
- Beware of potential encumbrances, such as stolen or disputed artworks, as well as other encumbrances like divorce disputes, mortgages, and charges.
- Check for looted artworks to ensure that they are not art or cultural objects looted from their original countries during war, colonisation or civil unrest.
- Physical inspection for artwork’s condition and authenticity. Counterfeit artworks are much more common than we think.
- Check the valuation to verify that the work offered to you is fairly priced.
- Buyers should be aware of money laundering, sanctions, tax, import and export issues. In particular, money laundering and evasion of sanctions concerns have led to a significant increase in scrutiny of the art market by the authorities in the United States, United Kingdom and the European Union.
- Make sure your lawyers review the art purchase agreement since this determines the conditions of sale of the artwork including any representations and warranties, storage and care of the artwork, and transfer of ownership.
Art due diligence is a very specialized area and purchasers should seek experienced legal and professional advisors’ assistance to navigate the art market and safeguard investments.
Want to know more?
Deacons has a team of experienced art law lawyers. Please contact us for more details about art due diligence.
For further information, please contact:
Eliza Siew, Deacons
eliza.siew@deacons.com
