How to Read a Loan Agreement Like a Senior Registrar
- Sabina Schumpf
- Jan 12
- 9 min read
When an artwork goes on loan to a museum or gallery, the lender and the borrower sign a written contract, which clearly states the terms of the loan. This is called a loan agreement.
Usually, the borrower prepares the agreement, then submits it to the lender for review and signature. Other times, the lender prefers to use his own contract template. In either case, the registrar will carefully read the agreement and, more often than not, negotiate its terms.
How does a registrar read a loan agreement? What red flags does s/he look for? Let's find out.
Personal Details
The first page of a loan agreement should report the borrower’s and lender’s legal name, address, and contact details. Some countries, such as Colombia and Spain amongst others, also require the addition of the party’s VAT number and/or their commercial registry’s identification number.
It’s common for the legal name to differ from the name that the museum or gallery uses in the daily business. For example, your gallery may be called “SAMPLE GALLERY”, while it’s legal name may be “SAMPLE GALLERY LTD.”. Make sure that this information is reported correctly in the loan agreement.
Exhibition and Loan Period
The loan agreement must clearly report the exhibition’s title, opening and closing dates, as well as the address of the exhibition venue. The loan period usually starts 30 days prior to the opening of the exhibition and ends 30 days after the closing of the exhibition. This allows enough time for packing, shipping and handling.
Artwork Details
The loan agreement must include the complete artwork captions, such as the artist’s name, artwork’s title, date, medium and dimensions. Ideally, it should also indicate whether the artwork is framed or glazed, and the respective details, such as frame dimensions, material and type of glazing (plexiglas, museum glas, others).
The exhibition organizers are going to refer to this information to prepare booklets, signs, and labels in the exhibition rooms. Therefore, it’s crucial that the artwork information is correct.
Reproduction Rights
Images are strictly related to art loans. Before the exhibition opening, artworks are professionally photographed for cataloguing, press and/or advertising purposes. Later, photographers shoot installation views, which will be used on the borrower’s website or distributed to journalists. More photos or videos may be taken during events related to the exhibition.
The loan agreement should clearly indicate which use the borrower is allowed to make of the artwork images.
- Can the artwork be photographed and videotaped for press purposes? What about printed and digital advertising, such as newsletters, websites, flyers and invitation cards?
- Can images of the artwork be reproduced on merchandise, such as t-shirts, cups and posters, which will be available for sale in the borrower’s shop?
- Can the borrower crop the images of the artwork, or use an excerpt of the image only?
- Can the borrower superimpose text on the image, e.g. on posters, flyers and other printed adverts?
The loan agreement should also report who is responsible for clarifying any copyright permission (usually the borrower!).
It’s common for the lender to request 1-2 complementary copies of the exhibition catalogue in the loan agreement.
Credit Line
Some lenders wish to remain anonymous, while others want to be named with every publication and display of the artwork. The lender’s preferred credit line shall be part of every loan agreement.
Shipping Requirements
A loan agreement shall clearly state the lender’s requirements for the packing and transportation of the artwork. Most agreements cite general standards, such as the use of climatized fine art trucks with two drivers. However, particularly for high-value loans, the requirements may be more specific.
For example, the lender may request that a security escort accompany the shipment, or that the work only fly on certain times to avoid unnecessary overnight stays at the airport.
Always check the shipping requirements to ensure that you can meet the lender’s expectations. If the contract indicates that a dedicated shipment is required, but you only have enough budget for a consolidated shipment, inform the lender and try to negotiate. Perhaps he will agree to ship the work to you on a consolidated shipment if his artwork is the last one to be loaded on the truck and the first one to be unloaded at destination.
Finally, the loan agreement should always list the collection and return address for the artwork. This is important not only for planning purposes, but also in terms of costs, particularly with regards to the import VAT. In fact, most loan agreements state that the borrower is responsible for covering all costs related to the loan, including shipping and customs clearance. Returning the artwork to a different country other than where it was originally collected, may result in the borrower having to pay import VAT.
Example:
A Swiss museum borrows a painting for its next exhibition. The collection address is in New York and the insurance value is agreed at USD 10 million. The lender doesn’t write the return address in the loan agreement, because he wishes to decide at a later time. The borrower doesn’t insist, and the parties sign the agreement. The loan agreement states that the borrower shall cover all costs, including insurance, shipping and customs clearance. Two weeks before the end of the exhibition, the lender informs the borrower that the work should be delivered to his house in Zurich.
To do so the museum will need to fully import the painting into Switzerland by paying 8.1% VAT, equivalent to USD 810’000. The museum cannot afford this expense and a legal fight with the lender follows.
Solution:
Of course, the above example illustrates the worst-case scenario. Most lenders would never expect the museum to cover the costs of the import VAT, although – according to the agreement stating no return address and making the borrower liable for all costs related to shipping and customs clearance – they could.
To avoid problems down the line I recommend including a small clause to any loan agreement: “The Borrower agrees to return the artwork to the same address from which it was originally collected prior to the exhibition. The artwork will be returned under the identical customs regime as it was initially obtained. In the event that the artwork needs to be returned to an alternate address other than the original collection point, the Parties mutually agree that any import VAT incurred for the return shipment will be covered by the Lender."
If your budget is very tight, it may also make sense to add the following: “Should the Lender change the return address after the execution of this agreement, he will be required to pay any additional shipping costs incurred.”
Courier
Couriers may accompany loaned artworks during the shipment, be present for the unpacking at the exhibition venue, or supervise the installation remotely. The best loan agreements explicitly state whether a courier will be present and in which form (in transit, installation only, remote, etc.).
If the lender wishes to send a courier in-person, I expect the loan agreement to indicate
- the requested per diem and courier's fee, if any
- the requested travel category for air and ground transportation (business class or economy airfare, private car or public transportation, etc.)
- the requested minimum number of overnight stays
Should there be any discrepancy between the lender’s expectations and your exhibition budget or museum’s policy, inform the lender and, if possible, negotiate or compromise.
Liability and Insurance
This is without doubt the most important paragraph in the entire loan agreement. The loan contract should always, ALWAYS indicate:
- the insurance value of the artwork
- who is responsible for arranging and paying insurance coverage
- the type of insurance in place (usually, nail to nail)
- the insurance period (usually, the same duration as the loan period)
- the borrower’s liability in case of loss or damage (full / limited liability)
- the payment procedure to the lender in case of total loss (any deductibles?)
The party providing insurance coverage shall send to the other contractual party a certificate of insurance (COI) for review and approval, ideally at least 1 month before the shipment.
It is important to know that insurance policies normally offer insurance coverage up to the stated insurance value only. If the loan agreement requires you, as the borrower, to be fully liable for any loss or damage to the artwork up to its market value, you are taking a large financial risk upon yourself. Let’s make two examples to clarify this point.
Example 1:
The borrower insured a loaned artwork for $20 million for the duration of the loan. While on display, the exhibition venue caught fire and the artwork was destroyed. In the loan agreement, the borrower had accepted to be fully liable for the artwork up to its market value. Fire is an insured damage, therefore the insurance company will pay $20 million to the lender. However, the lender now says that the market value of the artwork had increased to $30 million just before the fire. He can provide several independent appraisals to prove his claim. Because the borrower agreed to full liability up to market value, he now may be required to disburse $10 million out of his own pocket.
Example 2:
The borrower insured a loaned artwork for $20 million for the duration of the loan and agreed to be fully liable for any artwork damage. Over the course of the exhibition, the venue is attacked by terrorists and the artwork is destroyed. Unfortunately, terrorism was excluded from the insurance coverage. The borrower now needs to compensate the lender $20 million out of his own pocket.
How should you handle the liability term in the loan agreement?
Some lenders are irremovable and will insist that the borrower agree to be fully liable for any damage. In this case, you need to decide whether having the work in the exhibition is worth the financial risk.
If the lender is open for negotiation, then I warmly recommend limiting the borrower’s liability to the proceeds paid by the insurance company for damages covered under the Borrower’s insurance policy.
Click here to read my full post on fine art insurance.
Display and Conservation Requirements
This paragraph in the loan agreement states the climate, light and other display requirements (e.g. barriers, pedestal, vitrines), as well as any necessary maintenance during the exhibition. Can your team and exhibition venue fulfil all the lender’s requirements? It makes no sense to agree to 50 LUX in the room, if the infrastructure doesn’t allow it.
If you have doubts, talk to your conservators, facility managers and art handlers, and make sure the exhibition curator is informed about any special display requirement.
Security
Different countries, different security standards. In the United States is very common for museums to have security guards 24/7, even after the museum opening hours. In Switzerland, this is not the rule. Make sure that you and the lender are both on the same page with regards to security system and surveillance when the museum is open.
Can you arrange 24/7 security, if needed? How many invigilators can you offer in each exhibition room? Check your facility report and budget, and don’t promise anything you can’t afford.
Costs
The loan agreement should state who pays what, without room for interpretation or misunderstanding. It’s standard practice for the borrower to cover all costs related to the loan, such as insurance, crating, shipping, customs clearance, courier, installation and dismantling.
Carefully scan the loan agreement for any clause or requirement, which could cause additional expenses. For example:
Professional condition report before packing the artwork at the lender’s house;
Professional restoration, cleaning or re-framing required before the exhibition;
Any courier’s request that deviates from the borrower’s policy for couriers (e.g. the courier requires a per diem in the amount of CHF 150, while the borrower’s policy states a per diem of CHF 80)
Transportation without any other artwork on board (dedicated shipping makes absolutely sense for high-value artworks, but even then, asking for an artwork to travel alone is not common, unless there is a very good reason to do so, e.g. insufficient insurance coverage)
Unusual requirements
Once, I had to review a loan agreement, which came with a 5-page-long list of insurance requirements. Amongst them, the lender requested the borrower to insure fraud (!!), and he was not willing to negotiate this clause. It took several email exchanges between the lender, the borrower’s legal department and insurance broker to find a good solution. If I remember correctly, we solved the issued by guaranteeing financial compensation to the lender in case the borrower committed insurance fraud, but excluded any form of compensation for fraud committed by the lender or any third party representing the lender.
This is just to say: keep your eyes open for the most unexpected loan requirements.
Governing Law & Place of Jurisdiction
Loan agreements always end with the declaration of the law governing the contract and the place of jurisdiction (e.g. “this agreement shall be governed by New York law. The place of jurisdiction for any disputes arising under this agreement is New York City.”).
When I check an agreement for a Borrower, I always try to have the lender agree to the governing law and place of jurisdiction being in the borrower’s country. Why? Because if a dispute goes to court, it’s much easier for the borrower to defend himself in his own country, where he speaks the language, and his lawyer is familiar with the law. Considering that a trial usually requires the parties to be present in court, it would also be less expensive to the borrower and his lawyer to travel within their own country rather than internationally.
Of course, negotiating this point is not always possible, particularly with institutional lenders who use their own agreement templates. However, sometimes it’s worth a thought and a try.
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