Asset Management Agreement

SHORT ANSWER TO THE MAIN QUESTION

Management of another person’s assets means that one person takes care of property that does not belong to them for the benefit of its owner or another entitled person.

The contractual arrangement should therefore define what property is being managed, the purpose of the management, which powers the manager has, and where the manager’s independent decision-making authority ends.

It is equally important to regulate the handling of money, costs, remuneration, reporting obligations, accounts and the manager’s liability.

A good asset management agreement therefore defines not only what the manager is expected to do, but also what the manager may not do without the owner’s approval.

YOU MAY BE THINKING…

“Isn’t it enough to say that the manager will properly manage the assets?”

“Can the manager sign contracts on my behalf?”

“Do I need to give the manager a power of attorney?”

“Can the manager decide on repairs and expenses independently?”

“How often does the manager have to report to me?”

“What happens if the manager makes a bad decision and causes damage?”

“And how do I regain full control of the assets when the relationship ends?”

These are all questions that should be answered before the manager actually starts dealing with someone else’s property.

THE REAL PROBLEM IN PRACTICE: THEORY VS REALITY

On paper, asset management may look simple.

The owner has property.

The owner does not want or is unable to deal with its day-to-day management.

A manager is appointed.

The manager takes care of it.

But actual management is not one single activity.

Depending on the situation, it may include:

• monitoring the condition of the assets,
• routine maintenance,
• arranging repairs,
• dealing with suppliers,
• entering into contracts,
• collecting income,
• paying expenses,
• communicating with tenants or other users,
• maintaining records and documentation,
• enforcing receivables,
• arranging insurance,
• making investment decisions,
• representing the owner in dealings with third parties.

And this is where the practical problem begins.

Which of these actions can the manager take independently, and which require the owner’s prior approval?

A manager without sufficient authority cannot operate effectively.

A manager with excessively broad authority may, on the other hand, make decisions that the owner never intended to delegate.

The agreement therefore needs to find the right balance between effective management and the owner’s control.

BIGGEST RISKS AND COMMON MISTAKES

With an asset management agreement, I would pay particular attention to:

• vague identification of the assets being managed,
• broad wording such as “the manager shall provide all management services” without defining any limits,
• unclear scope of the manager’s authority,
• missing financial limits,
• uncertainty about which actions require the owner’s prior approval,
• failure to address representation before third parties,
• confusing the manager’s contractual authority with a power of attorney,
• unclear handling of income generated by the assets,
• mixing the owner’s money with the manager’s own funds,
• unclear reimbursement of expenses,
• vague remuneration arrangements,
• insufficient record-keeping and reporting,
• failure to regulate the transfer of documents,
• overly general provisions on liability,
• failure to address the involvement of subcontractors or other third parties,
• no clear handover mechanism when the management relationship ends.

A typical mistake?

The manager is authorised to “arrange repairs”.

But the agreement does not say whether the manager may order a repair costing CZK 5,000, CZK 50,000 or CZK 500,000 without the owner’s approval.

As long as nothing significant happens, the clause seems to work.

The first expensive repair reveals that it does not.

HOW TO APPROACH IT: REALITY, NOT THEORY

With an asset management agreement, I would not start with a contract template.

I would start with a list of decisions the manager will actually need to make.

1. Define the assets being managed

One property?

A portfolio of properties?

Movable assets?

Receivables?

Another group of assets?

It must be clear what the management actually covers.

2. Define the purpose of the management

Preserving the assets?

Day-to-day operation?

Generating income?

Leasing?

Long-term appreciation?

The manager’s authority should reflect why the management arrangement exists in the first place.

3. Divide decisions according to their significance

Routine matters may be handled by the manager independently.

More significant decisions may require the owner’s prior approval.

Financial thresholds can also work well in practice.

4. Deal with the money

Where is income paid?

How does the manager pay expenses?

Does the manager receive an advance?

How are expenses documented?

5. Set up control mechanisms

How often does the manager report?

What information and documents must be provided?

Does the owner have access to the records?

6. Think about the end at the beginning

Who receives the contracts?

Accounts and records?

Keys?

Access credentials?

Unused funds?

Information about ongoing matters?

Good asset management must not only be capable of starting smoothly.

It must also be capable of being cleanly handed back to the owner or transferred to a new manager.

PRACTICAL EXAMPLES

👉 Managing a rental property

The owner does not want to deal with tenants, maintenance or minor repairs every month.

The manager therefore takes over day-to-day operation.

But this still does not answer whether the manager may:

• select a new tenant,
• determine the rent,
• sign a lease agreement,
• terminate a lease,
• order major renovation works,
• start debt recovery proceedings.

“Property management” is only a heading.

The individual powers granted to the manager determine what the agreement actually means.

👉 A repair cannot wait

The manager discovers an emergency that could cause further damage to the property.

There is no time to obtain the owner’s approval.

If the agreement merely states that every expense above a certain amount requires prior approval, a practical problem arises.

A good agreement therefore deals not only with ordinary operations but also with situations where the manager needs to act quickly to protect the assets.

👉 The management ends, but nobody knows what must be handed over

The owner terminates the relationship.

The manager holds contracts, invoices, login details, keys, supplier correspondence and information about ongoing repairs.

The agreement describes the beginning of the management relationship in detail.

For its ending, it simply states:

“The agreement may be terminated by notice.”

Formally, we know when the agreement ends.

Practically, however, we do not know how the assets actually return to the owner’s full control.

WHY YOU SHOULD BE CAREFUL WITH “I’LL DO IT MYSELF”

The main challenge with an asset management agreement is not creating a long list of the manager’s duties.

The challenge is defining the boundaries of decision-making authority.

A generic template does not know:

• what assets you own,
• how valuable they are,
• how frequently management decisions need to be made,
• what level of expenditure is routine,
• which decisions you want to retain personally,
• which powers the manager needs in order to function effectively,
• what income the assets generate,
• who will handle the money,
• whether the manager will deal with third parties on your behalf,
• how quickly you need to be able to take control of the management back.

An agreement that is too restrictive can paralyse the manager.

An agreement that is too broad can deprive the owner of practical control over decisions they never intended to delegate.

A good agreement needs to achieve both: give the manager enough room to work while defining the limits they may not cross without the owner’s approval.

LAWYER’S RECOMMENDATION + CHECKLIST

For an asset management agreement, I recommend one simple test:

If the owner were unavailable for a month, could the manager determine from the agreement what they may handle independently – and what must wait for the owner’s decision?

If not, the boundaries of the management arrangement are not sufficiently clear.

Quick checklist

• The managed assets are precisely identified.
• The purpose of the management is defined.
• The manager’s routine activities are described.
• It is clear which decisions the manager may make independently.
• Decisions requiring the owner’s approval are identified.
• Financial thresholds are defined where appropriate.
• Dealings with third parties are addressed.
• The need for a power of attorney has been considered.
• Collection of income is regulated.
• Payment and documentation of expenses are clear.
• The manager’s remuneration is defined.
• Reporting and control mechanisms are established.
• Record-keeping and transfer of documents are addressed.
• The manager’s liability is regulated.
• It is clear whether and how the manager may involve third parties.
• Emergency situations are addressed.
• The handover of assets, funds and documentation upon termination is regulated.

FAQ

What is an asset management agreement under Czech law?

It is a contractual arrangement under which one person performs agreed management activities in relation to assets for the benefit of another person.

The specific legal regime and content of the agreement depend on the nature of the assets, the required scope of management, and the activities the manager is expected to perform.

What can an asset manager do?

That is exactly what the agreement should define as precisely as possible.

The manager may be responsible only for routine maintenance and administration, but their role may also be considerably broader – for example, entering into contracts, collecting income or dealing with third parties.

The scope of authority cannot safely be determined merely by using the word “management”.

Does the manager need a power of attorney?

If the manager is expected to perform legal acts on behalf of the owner in dealings with third parties, the authority to represent the owner needs to be addressed in addition to the internal contractual relationship.

The management agreement and the power of attorney serve different purposes, and depending on the particular arrangement, both documents may be required.

Who pays the costs of asset management?

The agreement should regulate this expressly.

It is important to distinguish the manager’s remuneration from expenses incurred in managing the assets and to determine which expenses the manager may incur independently and which require prior approval.

Is the manager liable for damage?

A person managing another person’s assets does not have unlimited discretion. The manager’s obligations arise from both applicable law and the specific agreement.

When assessing liability, the key questions are therefore what duties the manager had, how the manager was required to perform them, and whether those duties were breached.

How can an asset management agreement be terminated?

The method of termination should be regulated by the specific agreement.

However, in addition to notice or another termination mechanism, the agreement should also deal with the practical handover – including assets, documentation, funds, access credentials and ongoing matters.