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Art Lending under the Government Indemnity Scheme

Posted on 11 March 2024

Thinking of loaning a work to a UK gallery or museum?

Private loans are a fundamental part of many exhibitions in the UK, contributing to the cultural enrichment of society. They are opportunities for students, experts and the general public to view artworks that would otherwise not be visible. These pieces often attract wider audiences, provide fresh perspectives and valuable academic insight. Loans can also potentially increase the value of a work: displays at institutions are an excellent marketing opportunity in the event of a future sale, and can significantly add to an artwork's provenance.

The Government Indemnity Scheme (GIS)

A substantial proportion of loans to non-commercial institutions in the UK are not commercially insured. The yearly cost of taking out commercial insurance, with increasing policy rates, would be too much for these institutions to bear. Instead, if the value of the work is over £1,001, it can be covered on a "nail-to-nail" basis by the GIS, administered by Arts Council England, subject to conditions. The institutions need to apply to be part of the GIS, signing an undertaking to safeguard and care for the loaned objects in the same way as they do for objects they own, among other requirements. The cover is only for works borrowed by the relevant institutions, and they are not able to lend their own collection works using the scheme.

In 2022-23, over 29,000 works were loaned under the GIS, with a total indemnity value of £21.9bn. On the basis that commercial insurance is charged at between 0.1-0.75% of the total value of items borrowed, the GIS estimates that the scheme has saved between £21m - £159m in commercial insurance premiums.[1] This enables institutions to, quite appropriately, direct their funds towards their core purposes. The GIS facilitates a wider display and appreciation of items, that would have otherwise been impossible. In setting the terms for the scheme, this in turn raises the standards for the protection of works across the UK and arguably beyond, as it has been used as a model for similar schemes abroad.  In summary, the GIS is a means to encourage cultural philanthropy in a way that is both cost effective and yet still protective of loaned works.

Interestingly, the GIS has also been used as part of a recent restitution solution: in 2022, the Horniman Museum and Gardens transferred the ownership of 72 Benin objects to the National Commission for Museums and Monuments in Nigeria. While six were returned, the remaining 66 remain in the museum on loan, covered by the GIS, from the National Commission to encourage research, learning and engagement. This demonstrates the wider and global cultural significance of the scheme: it is not simply a financial solution but a key determiner in the development of the UK's cultural initiatives. [2]

The risks of a loan

Before considering any loan of an artwork, it is important to think about the risks involved. The moment an artwork leaves its usual premises, be it a home or storage facility, the risks dramatically increase. Damage or loss can occur during transport, packaging and during its public display, by various causes including human error, criminal acts, flood, fire or other unforeseeable events. Unlike financial loans, an artwork's value goes far beyond what can be repaid. No financial sum can truly replace a piece of art or historical object that has been lost or stolen. Even if it is eventually recovered, the emotional toll and work involved can be hugely distressing. If an artwork is damaged, it cannot be made whole, no matter how fine the restoration work may be, and the damage will always remain part of the artwork's provenance.

What is recoverable is the financial loss that has been suffered, but this is only possible if the loan agreement is valid and appropriately drafted to protect the lender's position. It is therefore important to seek advice when provided with a loan agreement and to not necessarily accept the terms as standard or unnegotiable.

The loan agreement

Key points of negotiation in a loan agreement are usually: the value of the work, the transport and  storage requirements, the security and display of the work, the credit line, the length of the loan and the limits of the insurance or indemnity coverage. The conversations around these terms will depend on the type of artwork being loaned (e.g. is it a media file, a painting or a sculpture), its fragility, its financial value, its significance to the exhibition, and the significance of the lender to the borrower. It is important to consider each of these factors when negotiating the terms, to avoid the deal falling through.

It should go without saying that it is important to ensure that the loan agreement is valid and properly executed, however this can fall through the cracks where, for example, practical timings to display the work take over. Without a signed agreement, there is a risk that the work (and therefore the lender) is not contractually protected. While there may be some options available under common or tort law, depending on the circumstances, the arguments will be significantly less clear-cut.

GIS coverage

Like commercial insurance, there are limits to the coverage offered by GIS, which will need to be checked carefully. For example, GIS has strict limitations on how the work is to be transported and does not cover for sea freight. It is also crucial that the loan agreement, or a separate addendum, sets out the following conditions:

  • no restoration or conservation work is carried out on the object without the prior agreement of the owner;
  • the borrower is under no liability for the loss of, or damage to, the object arising or flowing from:
    • war, hostilities or war-like operations, but excluding acts of terrorism, riot, civil commotion, piracy and hijacking;
    • the negligence or other wrongful act of the owner, his servants or agents;
    • the condition (including inherent vice or a pre-existing flaw) of the object at the time of its loan;
    • restoration or conservation work undertaken to the object by the borrower, his servants or agents with the agreement of the owner; or
    • a third party claiming to be entitled to the object; and
  • any liability which the borrower may incur to the lender arising out of the loan of the object shall not exceed the specified value. [3]

Where an institution fails to set out these limits, the GIS will fail and there will be no basis for it to pay a claim. In other words, the institution will be financially liable. While this concern largely rests with the institution, it is important to be aware that, as a lender, should such circumstances arise, recovering any losses will likely become more complicated and drawn out. It is therefore in both parties' interest to ensure that the GIS coverage is valid.

When to seek help

Prevention is far better than cure. A clear and valid loan agreement is the best protection when lending items and arguably costs considerably less in the long run, should loss or damage occur.

[1] GIS impact report 2022-23

[2] GIS impact report 2022-23

[3] Government Indemnity Scheme | Arts Council England

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