Tips for Negotiating an Art Consignment Agreement with a Gallery

In an ideal world, selling work through a Gallery would be like any other product. An artist would create work and a Gallery would purchase the work at a discounted or wholesale price. Once that sale occurs, the artist’s job is done. The Gallery would maintain an inventory of artwork that it owns that it can sell to consumers at whatever reasonable fair market or retail price will generate a sale and create a profit for the Gallery. Unfortunately for artists, that world does not exist. Original art is not a mass-produced commodity item, like kitchenware or cleaning products, so the potential desire for it and the price that someone will pay for it can vary significantly from year to year.

A gallery instead relies on an art consignment sales model where the artist provides the gallery with artwork to sell at (typically) no cost to the gallery. In exchange, the gallery agrees to sell the art for a commission, which is typically around 50% of the sale. While that commission may seem high at first to an artist, this arrangement is often beneficial. Many artists don’t have the sales acumen, financial resources, or desire to build and maintain an audience of potential buyers. By relying on the gallery to show their work, market it to their collectors, and handle the sale transaction, taxes, and other accounting requirements, artists can concentrate on what they do best, creating art.

Unfortunately, getting gallery representation is very competitive so when a gallery agrees to represent an artist, the artist is often eager to sign whatever art consignment agreement is put in front of them. Artists are generally reluctant to negotiate the contract terms as they believe “rocking the boat” would just cause the gallery to find another artist instead. In reality, galleries are often willing to make concessions to artists in order to get their hands on the artwork they know they can sell.

However, in order to negotiate the terms of any contract, including an art consignment agreement, both the artist and the gallery need to understand the right and protections found in the agreement. Even more importantly, in the event that something goes horribly wrong with a sale, such as damaged artwork, or the relationship between the artist and gallery becomes strained, the art consignment agreement should detail what to do and what recourse is available.

There are many ways to structure an art consignment agreement but here are some of the more major deal points and questions each party should be considering.

An art consignment agreement should outline essential terms like the length and nature of the contract.

Defining the Art Consignment Relationship

The art consignment agreement usually begins by defining the relationship between the artist and the gallery.

First, the agreement should begin with an “agency clause” designating the gallery as a “fiduciary agent” for the artist. A fiduciary is a person or business who is responsible for another person or business’s assets, in this case, the artwork. Fiduciary agents have a legal responsibility to act in the best interests of their clients and permit the gallery to represent the artist in the sales of artwork. Remember that the gallery did not buy the artwork. The artist owns the artwork and the gallery is merely acting as the salesperson so we need to make sure that the gallery has both the legal right to sell the artwork on the artist’s behalf and also to act in the best interests of the artist, not themselves. For example, selling work to someone who intends to display it or use it in a manner that would be detrimental to the artist’s brand, would not be in the interest of the artist. Being a fiduciary agent means that the gallery has to consider the artist’s long-term goals and not just a specific sale.

Besides designating the gallery as a fiduciary agent, the agency clause should cover the following items:

• Exclusivity – Is the agency grant exclusive or non-exclusive? Can the artist contract with another gallery for the same artwork? What happens if the contract is exclusive but the artist makes the sale rather than the gallery? Does the gallery commission get lowered? If not, you may want to negotiate the point since you were the one who is acting as the salesperson in that case.
• Geography – Is the agency grant restricted to a certain geographic area and can the artist contract with a different gallery outside the area?
• Length – How long is the agency grant for? Typically art consignment agreements are for a year but they can be longer.

Artwork Inventory Management

Typically, if the art is available for sale by the gallery, it usually must be transported to the gallery’s location so that it can be shown to potential buyers as well as be available for quick shipping after a purchase is made. So it is important to consider which works will be available and how how they will be presented and stored.

• Identification – The consignment agreement should clearly identify the artwork being given to the gallery, including any size or quantity requirements or restrictions. Does the art consignment include all the work in a series, including future work from the series, or does it only includes specific works? Are they being sent to the Gallery unframed? If so, are they being sold unframed or framed? Who pays for the framing, the artist or the gallery?
• Inventory – How and where is the gallery storing the work? In a warehouse or at the gallery? What are the gallery’s ongoing inventory obligations to the artist? What is the process for a potential customer to see the artwork if it is not readily available on the gallery premises? Once the agreement expires, how are they being returned to the artist? Who pays for the shipping to return the work? Does the artist have the right to go to the gallery or the warehouse to inspect the artwork to ensure there is no damage? Are their limited edition prints available? Who is responsible for printing and/or framing? What happens if an artwork is damaged?

As you can see, there are many potential hidden costs that could affect your bottom line. Imagine this scenario:

You send the gallery 15 large paintings on canvas, unframed. You are responsible for the shipping, which cost around $700. The gallery wants to have them framed and will handle the framing process but you are responsible for the cost of the framing. Each canvas frame costs about $250. Over the course of the year, the gallery doesn’t focus on your work as much as you would like and only two sales are made, generating about $4000 to the artist after commissions. You decide to end the contract and the gallery sends back the framed artwork to you. You are reponsible for the shipping, which being framed now, costs $3200. So, the total revenue for the year is $4000 but the costs for framing and shipping are about $7650.

Negotiating to have the gallery pay for part of these costs would not only reduce your risk and exposure but likely provide an incentive to the gallery to make sales for you so they would recoup some of their expenses.

Pricing

While a gallery may owe an artist a fiduciary duty to sell artwork at a reasonable market rate, the overarching issue with the sale of an artwork is that art is an incredibly subjective product. Different highly sophisticated buyers may have varying opinions on the price of the artwork. Without any language in a contract specifying pricing requirements, a gallery’s assumed expertise in the art industry may trump an artist’s belief that their artwork was sold undervalued. This could create a situation where one of the parties has little recourse against the other in a dispute over pricing. Some common scenarios that should be discussed between the artist and the gallery are:

• Mutual determination – Are both the artist and gallery setting the prices together?
• Sole determination – Does the artist or gallery have unfettered power to set or negotiate the pricing? Galleries often demand to set the pricing so they have greater control over their business, as well as having more market expertise in selling artwork to buyers. In such situations, an artist should ask a gallery to have a meaningful, good-faith consultation prior to the pricing being set, so even if the gallery ultimately decides on the pricing, the artist’s perspectives must be taken into account. It’s also suggested that an artist and gallery decide how far they’re willing to negotiate before determining whether to make the sale.
• Pricing Tiers / Terms – Is there different pricing for bulk/wholesale deals? What about the gallery using its discretion to offer a discount to a buyer at an art fair to seal the deal? In such an event, does the discount come out of the gallery’s commission, the artist’s profit, or both? Is a buyer allowed to pay in installments and if so, who gets paid first, the artist or the gallery? What about returns where the artist has already been paid? These are all considerations to make and define within your art consignment agreement.

Payment Under the Art Consignment Agreement

Gallery commission and accounting terms should also be defined in the art consignment agreement detailing all the steps, timeline, and process by which the artist gets paid once a sale is made.

• Commission – How much is the gallery getting paid for each sale? As discussed earlier, the commission can be 50% or higher. That may seem high but it really depends on how much you are getting for that 50%. Will the gallery provide you with a solo show? What kind of marketing will the gallery do for your work? How often will your work be posted to their social media accounts? Will your work get prominently displayed on their website? Will there be a representative work on display permanently at the gallery or other marketing materials such as a catalog or book of your work? Each of these items as well as the commission itself are all negotiable. How much you can negotiate these items will depend on your bargaining power, meaning, the more in demand your work is, the greater leverage you have.
• Accounting – What happens when a sale is made? Do you receive money as soon as the gallery receives it or do they hold it and send you money on a specified time period, such as the last day of the month? How is the payment made; by direct deposit, Zelle, Venmo, or do they just mail you a check? Your art consignment agreement should be very clear on these terms, as it’s not uncommon for artists to find themselves in a non-payment situation when a gallery falls upon hard times.
• Advances / Gallery Purchase – While not the norm, is the gallery advancing any sums to the artist in connection with the projected future sale of artwork? Is the gallery purchasing a portion of the artwork from the artist as a showing of good faith so the artist can get paid a little faster?

Determine how accounting and inventory management will be handled under your art consignment agreement.

Determining Who Really Owns the Art

Another important term within an art consignment agreement is defining who can claim title to the work. Under the Uniform Commercial Code (the body of law that governs all sales transactions in the United States), the title, or ownership, to artwork will typically transfer to the buyer at the time of sale, even if payment has not been made in full (such as in an installment payment scenario). In the event the buyer fails to make full and final payment to the gallery, the artist and gallery may not have recourse against the buyer to reclaim the piece of art and may only be able to seek monetary damages against the buyer. Both the gallery and artist should ensure in an art consignment agreement that the gallery is selling the artist’s work pursuant to a written agreement with a buyer that specifies that the title to the artwork does not transfer to the buyer until after the buyer has paid in full. This way the gallery or artist can reclaim the physical piece of artwork if they haven’t been paid in full for the artwork.

• Creditor Concerns – The consignment agreement should also clearly state that the artwork is titled in the name of the artist, not the gallery (unless of course, the gallery purchased some inventory). This is an incredibly important term and best shown by an example.

Let’s say a gallery goes bankrupt and the gallery’s landlord takes possession of everything in the gallery pursuant to the gallery’s lease agreement. Can the landlord sell an artist’s work being kept by the gallery on consignment to pay the gallery’s back rent? There are scenarios where a landlord can, in fact, do so if an art consignment agreement does not address that the artwork is not an asset of the gallery. The artwork can be presumed to be the property of the gallery, as it was inside the property at the time of repossession and the landlord may have a right to sell the artwork without accounting to the artist. If this happens, the artist would likely not have legal recourse against the landlord, and would have to look to the gallery to get paid.

While some states have passed statutes protecting creditor seizures of artwork in consignment arrangements, an artist should strive for the best protection possible and make it extremely clear in an art consignment agreement that the artwork is not the property of the gallery.

Marketing Terms Within an Art Consignment Agreement

While it is likely that a gallery will market the artwork they have for sale, it is still important to make sure that parties to an art consignment agreement understand what is expected of them in regard to marketing the artwork.

• Marketing costs – Has the gallery promised to expend a certain amount of time and energy on marketing? Are there minimum days required for showcasing the artwork in the gallery or regional/national art fairs? Who is paying for the marketing materials; the gallery or are marketing costs treated as an expense that comes out of the artist’s profit?
• Artist responsibilities– Does the artist have a requirement to appear for personal appearances and press? If so, who pays for the travel expenses? Does the artist have to post about the gallery on social media? if so, how often and who creates the post content? While it may seem obvious that an artist should help the gallery sell the artist’s artwork, how much engagement and who controls the messaging should be included in the art consignment agreement.
• Likeness rights – Does the gallery have the right to use the artist’s name, likeness, and biographical materials in connection with the sale of artwork? Such publicity rights belong to the artist and the gallery should have the approval to use those materials in writing.

Insurance

It is important for artists to insure their artwork when entrusting it to a gallery. Therefore, make sure insurance obligations are addressed terms within your art consignment agreement:

• Risk of loss – Who bears the burden of loss in the event the artwork is destroyed or damaged? Typically, the gallery will assume this risk when storing artwork but what if the gallery does not have adequate insurance to cover the costs of the artwork? Are they only responsible for giving you only the money received from the insurance company or the total value of the artwork? What if the damage is from a third party, such as a shipping company? Who is responsible for negotiating reimbursement? If legal action is required, who pays the legal fees?
• Insurance Amounts – Will the insurance cover the replacement cost of the artwork? Wholesale price? Expected total profit? The parties should determine who has the insurance obligation and that the terms of the policy are adequate to recover any losses.

Miscellaneous Provisions

• Damages / Indemnification – In the event that one of the parties breaches the agreement and legal action is required by the other party, does the loser of the case have to pay not only the damages incurred by also the legal fees of the winner? Some remedies, such as attorney’s fees, lost profits, or injunctions, will need to be specifically set forth in the contract to be enforceable.
• Copyright – The parties should discuss a declaration that states the artist warrants that they own all rights, titles, and interests in the artwork and that the artist is not conveying the underlying copyright in the artwork to the gallery, or to a buyer, as part of the art consignment agreement.
• Termination – Under what circumstances can either of the parties break the agreement? Do they merely have to give the other party notice or does something have to happen, such as no sales in a specific time period? If the artist has to pay for the shipping cost to return the work after the contract is terminated, is that still the case if the gallery terminates the agreement prematurely? If one of the parties engages in an action that adversely impacts the art consignment agreement, such as creating bad press by defaming someone in the media or being arrested for a felony, can the parties terminate the agreement?
• Choice of Law – In the event of a dispute, where will the parties settle their dispute? An artist and gallery may be located in different states, if not internationally, so the parties should determine the proper forum in the unfortunate event a dispute arises. Also, some jurisdictions have special laws concerning consignment relationships. For instance, in Florida a gallery must hold money owed to an artist in trust and affix the artist’s name on the artwork being sold. In Oregon, a gallery must keep heightened sale records and provide an artist with the names of customers for artwork sold over $100. The gallery and artist should be aware of any additional local requirements before deciding which state laws should apply to the art consignement agreement.

When approaching the drafting and signing of an art consignment agreement, an artist shouldn’t be scared of negotiating. The agreement should be discussed in detail so that it can be drafted in a way that both parties feel adequately protects their interests, can help solve problems before they happen, and provide guidance for when problems do arise. Any astute gallery will not be scared away if the terms you are negotiating are reasonable and well-thought-out. If a gallery does balk after you raise your concerns, that may be an indicator they are not the right fit for you.

As a photographer and Patent Attorney with a background in marketing, Steve has a unique perspective on art, law, and business. He is currently serving as the Chief Product Officer at Artrepreneur. You can find his photography at artrepreneur.com or through Fremin Gallery in NYC.

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