A Guide to Art Consignment Agreements

What Is an Art Consignment Agreement?

The term "art consignment agreement" is a quick way of referring to the basic agreement entered into between the owner of a piece of art (the "Consignor") and a gallery or an art broker (the "Consignee"), to govern the terms and conditions under which the art may be sold. Of course, the pieces of art may vary in worth – from not much more than a few dollars or other currencies, to tens of millions of dollars. The contract will usually specify the location where the art will be displayed during the period of consignment, as well as the future disposition of any monetary proceeds from any eventual sale. There are also appropriate representations about condition and ownership. But even between relatively low value art and high value art, the contract is a valuable tool to protect the interests of each party. Not only does it make clear who owns what , and under which circumstances commissions are due, but it also helps facilitate a resolution of any misunderstandings later.
An art consignment agreement, along with a bill of sale, is also how an owner will transfer title to a piece of art. It serves to prove both ownership and transfer. An art consignment agreement will generally state that the Consignor is the outright owner of the art, and that the Consignee is empowered to sell the art on behalf of the Consignor. For most commercial galleries, part of that empowerment, or right to act on behalf of the Consignor, is the consignment. Only a small percentage of galleries act as agents for art owners on exclusive terms. Most galleries have consignment agreements which allow them to sell art, often on a non-exclusive basis, and then pay the owner once the sale amount is received from the buyer.

Key Terms of an Art Consignment Agreement

Art consignment agreements are generally very simple and typically contain the following components:

Identification of the Parties. The names of the consignee (generally a gallery owner or dealer) and the consignor (the artist, collector or other seller), the artist’s contact information and the address of the venue where the artwork will be displayed.
Identification of the Artwork. A description of the artworks being consigned (together with photographs or images of same), the condition of the artwork and the dates on which the artwork was created.
Warranty by the Consignor. The Consignor needs to warrant that (a) the artwork is theirs as opposed to someone else’s, (b) the artwork is free and clear of all claims and encumbrances, (c) the Consignor is authorized to enter into the consignment agreement (d) the artwork is authentic, and (e) that all information given to the Consignee is true.
Pricing and Payment Terms. The Consignment Agreement should state the price at which the work(s) are to be sold and how the Consignee is to be paid. The pricing can be "fixed" or it can be "negotiable" such that the Consignor has the right to change the price, or the Consignee and Consignor can negotiate the price with a third party in order to sell the artwork. It should also state whether the price includes sales tax, returns and discounts, shipping and insurance costs, and whether the Consignor will be involved in the sale of the artwork. It should also state whether the Consignor is owed any payment if the artwork is not sold.
Fees Charged by the Consignee. A description of the fees that the Consignee shall charge and when those fees shall become due (if ever). These fees can include, but are not limited to (i) commissions on sales (typically a percentage of either the gross or net profit) (ii) fees charged for the mounting, framing or display of the artwork (iii) shipping and handling fees, and/or (iv) insurance fees. Any fees charged should be reasonable in order for the Consignor and Consignee to agree to the same.
Duration of the Consignment Agreement. Consignment agreements should specifically provide how long they will be in effect for (on average 6 months to 1 year). If the Consignment Agreement does not provide a specific duration, the Consignee generally cannot terminate the agreement except upon reasonable notice. An agreement may also give the Consignee a first right of refusal to acquire the Consigned artwork, if such artwork is not sold within a reasonable amount of time.
Return of the Artwork. If the Consigned artwork does not sell during the consignment period, the Consignee must return the same to the Consignor in the condition in which it was received. Such artwork should be returned as soon as possible and in any case no later than one week from the expiration of the consignment period.
Invoices and Records. All invoices and records regarding the Consigned artwork should be kept by the Consignee for a minimum of four years after the transfer of title has occurred. Any payments made under the Consignment Agreement should be reflected on a consignment statement and/or invoice.
Agreement of Sale. If the Consignee sells the Consigned artwork, the Consignor should receive a detailed statement and/or invoice including the buyer’s name, payment terms, taxes, commissions, any discounts, and other applicable charges. If a deposit was already paid by the buyer, that amount should be deducted from the total due. Upon demand, the Consignee must make available to the Consignor all books and records of the sale.
Insurance. The Consignee may insure the Consigned artwork at its discretion and the Consignor should reimburse the Consignee for any and all costs associated with such artwork.

Advantages of Art Consigning for Artists and Galleries

Art consignment is a mutually beneficial relationship for both the artist and the gallery. For the artist, the gain is exposure. For the gallery, the benefit is financial. An artist’s work will receive ample exposure in a gallery, and if this artist’s work sells, there is a 50% cut for the gallery. An artist sells to a wider audience. A gallery’s client is broader and more diverse. The downside for an artist is that there is no garantee that their artwork will sell.
Art galleries are exposed to truly unique pieces of art that may not have otherwise been discovered. The artists’ works are often viewed by collectors that would otherwise not even know about them. The gallery does not actually own the work of the artist while it is on consignment. Therefore, there is no up-front cost to the gallery. This allows them to efficiently manage their working capital without the risks associated with inventory costs.
An artist has the opportunity to test the market. If there is a high level of sales, then it promotes confidence in pricing and the artist can increase their prices. Conversely, if very few pieces of work by an artist is sold, the gallery manager can communicate the lower demand to the artist and suggest lowering the price or removing the work from the gallery altogether.
An art gallery is able to easily make money on art consignment. When a piece of art is consigned to the gallery, it will receive it’s cut of the sale price. The gallery receives a payment for every piece of art that is sold. That’s all well and good, but is not as easy as it sounds. Art galleries are only paid for sold pieces of art. Having many pieces of art in a gallery, and therefore being paid for every piece that is sold, increases the likelihood of making money for the gallery.

Potential Dangers Linked to Art Consigning

When written correctly and adhered to by both parties, consignment agreements can create win-win scenarios for artists and galleries. However, the risks involved in consignment agreements can be great, and disputes often have legal ramifications. The potential risks to be considered when entering into a consignment agreement are many.
Non-payment
For artists, the most important aspect of the consignment transaction is probably payment. Given the commission-based direct payment system of most galleries and the long period of time that typically elapses between the time an artist’s work is consigned and the time that that work is sold and commissions paid, payment disputes arise frequently. Artists must ensure that they are satisfied with the terms of payment, including how frequently payment will be made and the circumstances in which payment will be made. For example, if an artwork is returned to the artist because the gallery is unable to sell it. Will the artist be made whole in that circumstance, or is it his responsibility to pay the gallery back for the costs of marketing the artwork?
Damage to Artwork
All too often, galleries cause damage to an artist’s work, either through negligence, carelessness, or indifference, or simply as a result of the normal wear and tear of displaying the work. In such cases, what are the terms of reimbursement? Will the gallery pay for repairs to the work? If so, will it do so in a timely manner, and will the standard of repair be high?
Getting your work back when a consignment agreement is terminated is another issue fraught with potential conflict. Immediately upon termination, are artists entitled to get their work back at all? Are they entitled to get it back promptly, i.e., are there storage fees assessed for the time that the work remains at the gallery? Are there expenses for packing and shipping the work back to the artist?
The Artist’s Reputation
As much as artists are concerned about the price for which their artwork is sold, they are equally concerned with the reputation of the galleries with whom they consign their works. Depending upon the situation, an artist’s work may be displayed beside those of other artists who don’t have the same reputation or who may have lower quality work. Are artists protected from any taint that may occur, if another artist’s works are displayed at the same gallery?
Artists should take great pains to vet the gallery with which they intend to work, and they should be clear as to whom their work is with when they set out to find public buyers.
The Black Hole of Non-Disclosure of Sales
Probably the greatest risk to an artist of a consignment agreement lies in what has become known as the "black hole" of non-disclosure of sales. In this situation, the gallery pays the artist just what it is required to do under the contract, i.e., 45% or 50% of the sale price, but does not disclose the identical price to the customer. Instead, the gallery keeps the delta—often a significant sum per piece per sale.
This is a serious concern for artists because it drops the net price of the artist’s work in relation to that of other artists for whom the gallery has only a 40% cost. Further, in the highly competitive world of art commissions, artists are deprived of a strong economic point in favor of negotiating a better percentage.
Artists must negotiate these terms ahead of time, making sure that they don’t provide any margin for the gallery to pay themselves a greater fee upon the sale of their work. They must insist specifically that the gallery reveal to them any price the work is sold for and that the artist will receive their full share of that price. It is a delicate negotiation between two parties who are both attempting to maximize their share of the profit from a sale, but it is a necessary negotiation.

Legal Consequences and Ways To Safeguard Yourself

For both artists and galleries, the importance of explicit and detailed contracts and art consignment agreements becomes evident when the piece is sold. In any arms-length transaction, the seller (artist) wants to know that he will be paid by the buyer (gallery) after the sale, while the buyer wants to ensure that if something goes wrong with the product, they can go directly to the seller, rather than through a third party who may not be as motivated to resolve the problem.
An artist who consigns a piece of work to a gallery wants to know that if the gallery sells the piece of art, the artist will be able to collect their payment directly from the buyer, rather than having to go through the gallery, which may or may not remit the payment timely or at all. Conversely, a gallery that sells a piece of art through an artist wants to know that the gallery can take ownership of the art piece only when it is sold , at which point the gallery can credit the artist account for his share of the proceeds. The artist and the gallery both want to know that if there is a problem with the sale, each can go to their respective other party to resolve the problem expeditiously.
Fundamentally, both the artist and gallery want a clear understanding of who owns the artwork before, during, and after the sale, and what happens if there is a dispute over the identity of the owner.
A well-drafted contract or art consignment agreement will set out both the righs and obligations of the artist and gallery in this regard, and will set the stage to avoid disputes and litigation down the road. A poorly drafted contract or lack of contract will leave both artists and galleries vulnerable to potential legal disputes that can result in costly and time-consuming litigation.

How To Negotiate an Art Consignment Agreement

When a culture of efficiency and ease creates an opportunity for artists to self-publish, or when an algorithm makes it easy to buy art online, the gallery model has been threatened.
But, as I’ve written about before, there are many reasons to support local galleries – one of which is the negotiation of an art consignment agreement. And even though there are online sites offering to sell your art for you, if you’re an artist that values interaction with your audiences, seeing your art in-person, and discussing potential art sales with your audience, the gallery model will give you that platform.
The Art Market and Negotiation
So now you’ve found yourself a gallery, and they’ve agreed to sell your art. That’s great. But now you want to negotiate the terms of how they will sell your art.
Let’s be clear about this:
You and the gallery should agree to all the key terms and sign a written contract, memorialized in an art consignment agreement. Are there obligations on both sides of the agreement? Absolutely. Do you have to give up the ability to set your selling price? Yes. But the gallery has obligations to you too. And even if the gallery has "full discretion," you can still negotiate for you art, your clients, and yourself.
When it comes to the sale of your art, you give up control, but you also get the chance to get feedback, learn who your audiences are, and get experience selling art that you otherwise might not have had. And you should be able to negotiate all of those things into your agreement with the gallery.
Don’t expect to give up control even if someone doesn’t say so explicitly. Galleries may try to tell you that they have full discretion over your art. Or they may minimize how much they will market your art pieces. Don’t scramble for this information without asking direct questions and getting the answers in writing. You should be able to negotiate favorable terms governing how the gallery sells your art, and be able to set the price for your art.

Practical Examples and Case Law

To illustrate the concepts discussed, let’s consider a fictional art dealer, Art Dealer X.
Art Dealer X is approached by a painter, Artist Y, to sell two paintings and Artist Y wants to be paid for their sale with either cash at the time of sale or by an immediate payment by wire transfer. While Art Dealer X has been selling Artist Y’s works, which it consigned to its customers, for some time now, it actually wrote its first consignment agreement with Artist Y five years back during a "Wrighting Board School – Basics," art dealer course.
Art Dealer X is appointing itself as the sub-agent of each artist. It’s already had disputes with customer/consignees in the past and has even been denied commissions by customer/consignees, because the customers/consignees believed they owned the works outright – not as an inventory on consignment for the dealer to sell for them, and not subject to the conditions of the consignment agreement.
They believe that when the dealer and the artist/sub-agent wrote their consignment agreement with them five years back, that was good enough to protect their commissions as dealer/sub-agent and , of course, their fees as auctioneer, should they come to auction.
Art Dealer X has some conflicting provisions in its standard or boilerplate consignment agreement with Artist Y and the companies sometimes forget which provisions apply to which transactions – is it two months before the end of their relationship or one month before the end of their relationship when commissions must be paid on the last transaction? And what is truly the definition of "prior consent?"
The Company is affected most when its artists refuse to sign their consignment agreements without inserting their right to have their works returned to them at any time. This puts the Company in a difficult place: while their right to act as art dealers/sub-agents would be in jeopardy if the customer/consignees are allowed to literally return the works to the artists, they have been trying to keep Artist Y in business for many years.
So they have had to maintain a balance and bend their own rules.
Let’s turn to consider what real-world examples of successful and unsuccessful consignment agreements look like and how they have worked in the real world.