Museum Loans

by Sheppard Mullin Richter & Hampton LLP

Museum loans have many benefits. Generous lenders serve the public good by making works available for display and exhibition both here and abroad. Lenders should have a passing familiarity with legal issues surrounding museum loan agreements because the agreement is designed to govern all aspects of the loan throughout the specified term. What follows is a brief description of the basic provisions of loan agreements and some issues collectors should consider when lending art to museums.

The relationship created by the loan agreement is classified as a bailment. The museum (the bailee) has an obligation to protect and care for the object until the lender (the bailor) claims the work. This obligation could continue indefinitely unless the contract defines the term and method of return shipment, or a state statute provides the means of terminating the loan.

Every lender should be prepared to affirm that he or she is the true owner of the loaned property, or an authorized agent of the owner with full authority to enter the loan agreement because, obviously, museums must assure that they are not subject to unwanted legal proceedings if an object is stolen or the lender is not the proper party to enter into the loan agreement.

Loan agreements address the subject of insurance, covering the perils that may occur at the museum’s premises or in transit. The typical insurance offered by a museum is wall-to-wall coverage, which protects a lender’s artwork from the time the object leaves the owner’s wall, until it is returned to the lender. If the lender chooses to maintain his own insurance, museums will typically request to be listed as additionally insured on the policy. Insurance coverage should apply to each work, with the agreed value of the object listed, together with a notation as to who will carry the insurance policy. If the museum is holding the insurance policy, the coverage typically will not apply to other museums where the work may travel. If the work travels internationally, it is imperative to address additional issues such as immunity from seizure and it might be important to require that the insurer is U.S.-based.

While the artwork is on exhibition, it is general policy not to repair, restore, or in any way alter an object without the lender’s written permission. In California and Illinois, a museum can apply conservation measures to, or dispose of, property without a lender’s permission if immediate action must be taken to protect the property, the health and safety of the public, or the museum staff. However, these statutes are rarely used and generally arise where a museum is unable to reach the lender, or the lender disagrees with the museum’s protective measures yet is unwilling to terminate the loan and retrieve the property. In states like New York, absent an emergency that necessitates immediate action, a museum must provide a lender with three days’ notice before engaging in conservation measures.

Recently, a number of states have passed old loan legislation in reaction to problems that arise where loans are left in museums for indefinite or long periods of time. Old loan statutes set out mechanisms to terminate loans and add clarity where the lender has gone missing and the property remains in the museum. Limiting the duration of the loan to a shorter term will help avoid problems that arise when lenders lose contact or relocate. Specifying an expiration date within the loan agreement helps put both parties on notice of the duration of the loan. It is important to note that it could be better to renew a loan rather than to agree to a longer initial term up front, or include a clause requiring the museum to hold the object at lender’s expense for a stated period of time before a museum can claim the object as its own. Ultimately, it is up to the parties to address problems that may arise by constructing a loan agreement that clearly states each party’s obligations and intentions.

Loan agreements will generally require that the lender give prompt notice, in writing, to the museum should there be any change of ownership or contact information. It is crucial to maintain contact with the museum to assure prompt return upon termination of the loan. Some states allow museums to take title without giving notice if a long enough period has passed without any contact with the lender. In California, for example, if a lender does not file an action to recover his or her artwork within 25 years after the date of the last written contact, then the lender is deemed to have donated the artwork to the museum. When seeking to terminate the loan, a museum is obligated to provide notice to a lender in the form of a Notice of Termination. Once notice has been provided, a lender will have a specific amount of time within which to respond to the museum’s notice. Failure to respond may result in title passing to the museum, which is then free to sell, dispose of, or retain the property.

Lenders must weigh several considerations when deciding to loan their artwork to museums for display to the public -- insurance, conservation, notice, termination of loans, to name a few. However, museums gratefully assist with such considerations and lenders are not dissuaded from lending works for public enjoyment and education.

In our next post, we will explain immunity from seizure and indemnification laws in the context of international loans – so stay tuned.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Sheppard Mullin Richter & Hampton LLP | Attorney Advertising

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