There are several different ways to invest in art. A collector may buy a painting with the expectation that it will increase in value and then sell it when that increase becomes apparent. In addition, there are also high-end art funds, including Artemundi, Anthea and Luxembourg, which are pooled investment vehicles that cater to high-net-worth individuals who buy a collection. New companies like Rally, Masterworks and Yieldstreet are aimed at wealthy investors who can buy shares of a single artwork for as little as $20 to $100. Another option that has become increasingly popular is for two or more people to jointly purchase an expensive work of art, splitting the cost, with the agreement that they will sell the piece when the opportunity for profit has increased.
“Partial ownership of works of art is rare in the art market; in fact it has been for a long time,” Kate Lucas, special counsel at Manhattan law firm Grossman LLP, told the Observer. He regularly works with art collectors, dealers and investors and explained that these types of ownership arrangements “may also arise in cases where multiple family members own a partial share of a single work of art. Generally, unless there is a contract that states otherwise, when the work is owned by multiple fractional owners, one of those owners may agree to sell or pledge his share, but not one of his shareholders.”
An obvious feature of fractional art ownership is that it allows investors to gain exposure to high-value works of art that would otherwise be financially inaccessible, often with a relatively small investment. Partial ownership allows for diversity across artists, eras or individual works without pooling large sums of money into a single piece. The most important thing for some is that the model removes many burdens of art collection: storage, insurance, conservation and sales are often handled by an investment platform, which provides investors interested in art as a commodity class rather than a personal inroad that does not require deep market expertise or dealer relationships.
The disadvantages of fractional art ownership are mainly related to structure. Investors often cannot sell their shares at will and instead must wait for a regulated exit or a secondary market that may be small or non-existent. Control is also limited, as part owners may have little or no say in when the artwork is sold, how it is displayed or how it is preserved, all of which can affect the price. Valuations may be unpredictable and based on internal evaluations rather than active market prices, making it difficult to assess actual performance. Legal complexity adds risk, as ownership interests are contractual rather than material, and disputes can complicate claims.
Proprietary preparations generally work well, but as always, an ounce of prevention is worth a pound of cure. William Pearlstein, a New York City attorney who regularly works with commercial clients, noted that informal partnerships, usually involving two or three collectors or dealers, “are often not formal or documented.” Under state law, these relationships are known as “tenants in common” and are attractive because of their flexibility. “In contrast, art funds, like other private funds, are well-organized and well-documented.” Earlier arrangements, he said, “could go awry if partners disagreed on when to sell and for how much,” but the rise of partial ownership suggests that disagreements are rare and that disputes are resolved privately with little fuss.
However, this is not always the case. Between 2016 and 2019, according to the U.S. Attorney’s Office for the Southern District of New York, post-war art dealer Inigo Philbrick and his partner Robert Newland defrauded many individuals and organizations in New York and the international art market by deliberately misrepresenting “the ownership of certain works of art, for example, the value of more than 10 percent of the owners of works of art, for example, the value of more than of 10 percent of the artwork. many individuals and organizations without their knowledge and selling artworks and/or using artworks as collateral for loans without the knowledge of co-owners and without disclosing third party ownership interests to buyers and lenders.” The value of the works of art involved reached $86 million. Newland, a British citizen who was extradited to the US, received a 20-month prison sentence, while Philbrick was sentenced to seven years in prison.
Collectors should be sure that when shares of a work of art are sold by a group of shareholders, every shareholder has agreed to both the sale and the negotiated price. Auction houses only offer items if they are confident that good title will pass to the buyer, but because art dealers sometimes make partial ownership arrangements with investors, it may make sense for potential buyers considering a gallery purchase to conduct a UCC-1 search to determine whether the owner or consignor of the artwork is one person or multiple parties.
Consignors of works of art or other property to galleries usually submit these forms to the corporate section of the state’s Secretary of State’s office. The documents identify the owner or owners of the consigned items, allowing them to receive works if the gallery declares bankruptcy and ensuring that the pieces cannot be used as gallery property to pay off other creditors. Similarly, when a work of art is loaned by a collector to a gallery for an exhibition, the UCC-1 form specifies that the piece is in the gallery temporarily and has not been offered for sale, protecting the owner from potential loss.
For shippers who are also part owners of works of art, filing a UCC-1 form serves an additional purpose. According to Megan Noh, a partner at the law firm Pryor Cashman, it warns potential buyers of the property, as well as creditors of other owners of the platform, about their interest in the work. “It’s saying to the rest of the world, ‘Hey, Joe Schmoe can’t pledge this artwork as collateral, because he’s not the sole and full owner of this property—I own part of this property.’ Or, similarly, ‘Hey, Christie’s, Joe Schmoe can’t send you this property without my permission, because I’m a part owner with Joe Schmoe.’”
For buyers, the UCC-1 filing also provides a measure of protection by showing whether someone has asserted an ownership interest or lien against the artwork that would prevent good title from passing to the buyer. However, the UCC-1 form cannot answer every question a consumer may have. It may list multiple owners but not whether all have agreed to the sale or whether one or more have pledged or sold their shares to another party. It will not be disclosed if the owner of the part is facing financial pressure or if the price is suspiciously low. As with any art purchase, buyers should always be proactive, asking the gallery owner questions about the work’s condition and provenance and researching its quality, value and price. At higher price points, attorneys are sometimes brought in to review purchase agreements and secure contractual protections such as representations, warranties and return provisions.
As for how often art purchases happen, the data-shy art world does its best to blur the number of partial ownership schemes, even though the total number of people buying partial art is probably relatively small. ArtTactic’s 2023 report found that 9 percent of art collectors bought partial art stocks, although 61 percent of those surveyed indicated they would do so within 12 months. Since then, proprietary platforms have expanded their reach as the model attracts new and smaller investors who may not be able to afford the full art but can spend a few hundred dollars for a few shares.
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