Art Investment Contracts: Application of securities law to art purchases in Belgium


In the world of contemporary art trading, it is difficult to use names of promotion galleries without entertaining thoughts of a financial investment environment. However, in Belgium, the tendency to no longer regard art promotion as art criticism – but as a service for the art buyer – means there is a real chance that the promotion gallery will turn into an investment consultant that defends the interests of the buyer.

A work of art no longer belongs to an art movement, but to a certain investment category with associated risks. In legal jargon, this means searching for clarity about the dividing line where consumer purchasing ends and legislation on alternative investment instruments begins.

The purpose of the laws governing the management of investment instruments is to oblige the provider of such instruments to disclose information about what is offered and under what conditions. The Financial Services and Markets Authority (FSMA), Belgium’s financial regulatory agency, has developed several criteria to determine whether a particular agreement should be considered a sale or an investment contract.

It states: “If rights are acquired which make it possible to execute a financial investment and which relate to one or more movable goods that are part of a group and whose collective management is assigned to one or more persons acting in a professional capacity (unless those rights provide for unconditional, irrevocable and complete delivery in kind of the goods).” That’s what it all boils down to.

The criterion that raises the most questions is the concept of ‘collective management’, or in other words, the ‘commotion’ around selling an artwork. It concerns the fact that an art gallery is often an artist’s exclusive representative, so collectors depend on the efforts of the art gallery to promote the artist’s oeuvre (including their art). They can also be offered additional services as a result of a purchase in the form of ‘remarketing’. Basically, the gradations in which this advisory function is exercised determines whether it can be considered ‘collective management’. Meanwhile, any rebuttal by an annoyed gallery owner that this is not laid down in any contractual framework is irrelevant. It is ‘substance over form’, as they say in the trade.

The only element where there is no clarity in the current advisory practice of the FSMA concerns the criterion that an artwork can only be considered an investment instrument if the buyer-collector waives any physical enjoyment. This deals with situations in which the artworks are kept (or can be kept) in deposit with the gallery owner or in a warehouse. The question is whether the market watchdog (FSMA) will be awakened if the lines are less clearly drawn.

For example, according to a case manager at the FSMA, the ongoing practise in the context of gallery sales whereby the artist does not transfer their IP rights in order to allow borrow-backs for future exhibitions and fairs, is sufficient proof that delivery of the artwork to the buyer-collector is conditional, which, in turn, indicates that the artist waives – at least partly – any physical enjoyment.

Recently, this entire theoretical exercise has acquired some practical and concrete importance. If an offer of artworks is considered a public offer of investment instruments, then the gallery owner may be obliged to comply with far-reaching information obligations under the current prospectus law (e.g. information on the offeree, information on the offered artworks, risk factors, etc.). Non-compliance with those information obligations can even be subject to administrative and criminal sanctions.