Deposits and lay-by arrangements
Two common means of selling artworks are through deposit and lay-by arrangements. Though this may be advantageous in terms of sales, problems often arise when the purchaser does not finish or is slow paying and there is no clear agreement dealing with what happens in this situation. The questions then arise “when can the seller cancel the deal and sell the artwork to someone else instead?” and “can the seller keep all or part of the deposit or part-payments they have so far received?”
Make your agreement in writing
Arts Law strongly recommends that a written agreement is used for all deposit and lay-by arrangements. In NSW, Victoria and the ACT it is compulsory for lay-by agreements to be in writing. The agreement should set out a timetable for payment and specify what happens if the deadlines are not met. Written agreements are generally clearer, easier to prove and more likely to be complied with.
A lay-by agreement should contain:
- a description of the artwork;
- its purchase price;
- any deposit paid and the balance outstanding;
- a method for determining when any further payments are to be made on the goods;
- the cancellation charge that will be payable if the purchaser does not proceed or if they do not pay on time; and
- the date by which the final instalment must be paid.
The agreement should be signed by both the seller and purchaser.
When can the seller cancel?
Lay-bys in NSW, Victoria and ACT
The agreement should specify when a deal can be cancelled. This is usually when the buyer does not pay an instalment at the required time. Under the lay-by legislation that applies, the seller must give written notice to the purchaser that the sale will be cancelled if payment is not made. This notice must be at least 14 days (except in NSW where it is 7 days). If the purchaser makes the required payment within the notice period, the seller must not cancel the lay-by.
Other lay-by and deposit arrangements
If there is no written agreement, and the lay-by legislation does not apply, it may be possible to cancel the deal – but only after a “reasonable” period of time has elapsed without payment being made. What is “reasonable” will depend on all the circumstances. If you find yourself in this situation, get further legal advice about whether you can cancel the deal and whether you can keep any of the money that has been paid.
What happens to the money?
Under a lay-by agreement in NSW, Victoria and the ACT the seller must refund all money paid save for a “cancellation charge”. A cancellation charge must be “reasonable”. This means that it should be a fair estimate of the sum of the administrative costs associated with storing and reselling the artwork plus any loss of value to the artwork that occurred from the time that the lay-by was entered in to the time that the lay-by was cancelled. If no cancellation charge is stated in the agreement then the seller must return all instalments made under the arrangement. The seller is not entitled to damages or other remedies.
In the case of deposits, or for lay-by arrangements in other States, where the buyer has put down a deposit on the artwork but defaulted, the seller is entitled to keep the deposit. This deposit must be reasonable. What is ‘reasonable’ may be determined by comparison with industry practice. If the buyer is at fault the seller may be able to claim additional money to cover their probable losses also.
Elizabeth Kazi copleted a University of Sydney placement at Arts Law. This article was written with assistance from Simon Etherington, former Legal Officer at Arts Law.