HLAA: HLAA advises that you run a UCC lien search on the gallery and file a UCC-I financing statement, both relatively simple and inexpensive processes. A UCC lien search will reveal the names and addresses of other creditors of record, if any, and the extent of their financial interests. The search may show whether a gallery is experiencing financial trouble or has a high level of debt. After you gather this information it will help you consider moving forward with the deal or not. The search may also indicate whether other creditors have liens that might conflict with the intended consignment. This could occur if say, a creditor has taken a lien on “all inventory of t gallery, wherever located.”
With the UCC lien search in hand, you can then file a UCC financing statement that describes the consignment and makes the consignor the legal owner. The file is usually made with the secretary of state in the state where the gallery is located and must be made within 20 days after delivery of the consigned work The filing is effective for 5 years and may be renewed for successive 5-year periods by filing additional statements. It is important that that UCC-I contain the exact name of the dealer or gallery because a misspelling may result in an incorrect filing by the state. If the filing is made properly and in a timely fashion, the consignor’s ownership interest will supersede any claims by the gallery’s other creditors.
HLAA always advises clients to obtain written agreements with galleries. These form the contractual basis of the deal. Besides addressing such basic issues as the duration of the consignment, the price at which the gallery may sell the work and the amount of the commission, the agreement should clearly state that the consignor retains a security interest in the consigned work..