Petra Warrington discusses how to protect your business when holding online auctions in The Art Newspaper
This article was originally published in The Art Newspaper and can be accessed here.
Selling art online? Here are the legal pitfalls to avoid
Art businesses are increasingly turning to online solutions in the hope of keeping at least some sales transactions going. But holding online auctions, exhibiting and selling works on Instagram, or entering into sale contracts by email and other means of distance communication, is not without legal, business and reputational risk. With that in mind, here are a few key points to bear in mind to protect your business.
Using social media to do business
Social media platforms are increasingly being used by the art trade to promote their stock and targeting consumers directly through these platforms is becoming more common. The format can be deceptively informal, and it is important to treat social media marketing and sales with due formality and ensure that anyone posting material on your behalf is doing so responsibly by having a social media policy in place. Anything you publish must comply with copyright (in particular, when it comes to the use of images), data protection and privacy laws and, although you will be subject to the platform’s policies, you should understand how you can control user-generated content. What you say on social media about a work of art may well be interpreted later as a contractual representation or warranty, so appropriate disclaimers and a tie-in with your terms and conditions of business are essential.
Terms and conditions of business
Auction houses are likely to be accustomed to transacting on the basis of their terms and conditions, but may not have focused on the contractual differences between traditional and online sales. Auction houses that generally hold public live sales, which fall outside of the remit of some consumer protection legislation, will need to ensure their terms are appropriate for online-only sales.
If they do not already have them in place, dealers should adopt written contracts for online sales that incorporate valid and effective terms and conditions of business. The contract should clearly describe the sold item, include the terms required by statute (including in relation to consumer salessee below), make clear the scope of any warranties and limitations of liability, and cover the mechanics of the sale, such as passing of title and risk, payment provisions, and transport and storage.
Consumer contracts
If you are contracting at a distance or off-premises as defined in the Consumer Contracts (Information, Cancellation and Additional Charges) Regulations 2013, you will need to provide consumer clients (but not members of the trade) with certain information about your business, the work you are selling and their right to cancel the contract if they change their mind within 14 days of receipt of the work. This information must be conveyed in writing and brought to the consumer’s attention before the contract is entered into. While not all sales conducted remotely will be classified as distance or off-premises, it is important to understand whether your business model falls within the scope of the regulations and seek legal advice if necessary.
Know your customer
As of 10 January (in the UK), art market participants have become part of the regulated sector for anti-money laundering purposes. This includes auction houses, galleries and dealers who transact in works of art valued at more than 10,000 either individually or in a series of linked transactions, regardless of the method of payment. One of the key requirements under the legislation is that you conduct customer due diligence when you establish a business relationship.
But how do you know your customer in a virtual world? In the first place, try to obtain copies of government-issued identity documents (such as a passport), as these are the most reliable sources of verification. In appropriate cases, you may rely on a combination of document and electronic checks for identity verification. In every case, make sure that the approach you take is in line with your written anti-money laundering policies and compliance procedures, and bear in mind that your risk profile will be raised when transacting with someone you have not met face to face. The British Art Market Federation’s guidance (available at tbamf.org.uk/publications/bamf-publications/) represents industry good practice and is an essential resource.
Combating fraud
While the art world tends to associate fraud with fakes and forgeries, you need to be equally aware of the rising risk of cybercrime, client data theft and other scams that can affect any business. Relying on online sales may increase the risk of becoming a victim of fraud, whether in the form of identity theft or payment fraud, and evidence shows that fraud has been increasing during the current health and economic crisis. Taking simple steps, such as confirming bank account details by phone as well as email before sending or receiving funds will help. Protecting your employees’ and clients’ personal data is not only a legal requirement but an essential tool for fraud prevention, as is conducting due diligence on customers, suppliers and contacts.