THE BLOG
02/04/2013 04:03 pm ET Updated Apr 06, 2013

Who Owns Artwork Abandoned in a Fine Art Storage Facility?

Poor guy. An automobile collector places his prized 1931 Duesenberg Model J and several other antique cars in storage in Manhattan but, suffering from dementia, neglects to pay the storage warehouse owner. That owner is empowered by the New York State law to sell the now abandoned cars (to cover the unpaid fees that added up to $22,000), and late night talk show host Jay Leno, a car collector, paid $180,000 for the Duesenberg. After a fix-up, the "Duesy" now may be worth $1 million. Beyond getting his delinquent rental charge cleared, the original owner gets squat.

Could the same thing happen to an art collector who places works in a fine art storage warehouse? Undoubtedly, yes, although problems that may have occurred have been attended to with less publicity than Jay Leno's Duesenberg. Over the past decade, there has been significant growth in the number of fine art storage facilities in the United States and elsewhere, as private collectors, art dealers, museums and even individual artists increasingly need some place to stockpile their excess art. "It's a very new industry," said Chris Wise, director of SD Fine Art, a storage site in the Bronx, New York. "We see people amassing larger and larger collections, and artwork itself is getting bigger -- too large for someone's home. Jeff Koons is producing things the size of tool sheds, and he is making several of them a month."

With all that art to put in storage, it is not difficult for collectors -- even those untroubled by dementia -- to lose track. "Every business has people who have missed a payment," Wise said, noting that when a collector fails to pay the storage fee, "we call them on the phone or send them a letter," which generally solves the problem.

The law in all 50 states requires storage warehouse owners to make a "reasonable effort" to locate the late-to-pay person who had rented storage space, which usually means sending a notice to that person's last known address. Under New York State law, the warehouse owner is empowered to sell abandoned property (the rental agreement often stipulates 90 days), paying the person who rented the space the additional amount over what is owed, and that total may have increased with the costs of inventorying the objects in storage, advertising the sale, hiring someone to hold the sale and paying for any other sale-related expenses. Ten days before the public sale, the warehouse owner must notify the owner of the property that there will be a sale, in effect giving that person a last chance to work something out.

If no arrangement is reached between the property owner and the warehouse owner, and no court intervenes at the request of an interested party, the objects will be auctioned to the highest bidder. The proceeds of the sale are used to satisfy the warehouse owner's "lien" -- the right to take possession of the property until the debt has been paid -- although any amount of money above and beyond the amount of the debt is required by law to be passed on to the original owner. (In order to insure that the debt is paid, or if the warehouse owner would rather keep the stored objects rather than sell them, the property may be auctioned with a reserve.) If the original owner cannot be found or does not come forward to claim remaining proceeds within two years, New York State's abandoned property law requires the proceeds to be turned over to the state.

The warehouse owner is not obligated under New York State's Uniform Commercial Code to obtain a fair market price for the abandoned property. "The fact that a better price could have been obtained by a sale at a different time or in a different method from that selected by the warehouse is not of itself sufficient to establish that the sale was not made in a commercially reasonable manner," according to one section of the code, although the statute does not spell out what a "reasonable manner" is and the type of sale that may be deemed reasonable for the sale of automobiles could be inappropriate for works of art. As one Manhattan lawyer noted, is that it is "not the warehouse owner's business to own and sell things," and, in general, fulfilling the basic obligations for a sale is good enough. That the warehouse is generally, "they'd prefer to have the money (and clear out the space) than to speculate in the future value of that abandoned property."

The winning bidder at the abandoned property sale may or may not get a bargain. What that person does get is unencumbered ownership. "Title passes when the gavel falls on the sale and the money is paid," said Bruce F. Bronster, the New York lawyer who represented Jay Leno when the children of the former Duesenberg owner brought a lawsuit, claiming that the sale was a "sham" (Leno did not pay anything additional to the family, Bronster claimed).

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