Granny flat arrangements and why they should always be in writing

Granny flat arrangements and why they should always be in writing

With our aging population and the escalating costs of aged care, there is a trend developing for elderly parents to move in with their children later in life. If this is a choice your family has made, or something you are considering in the future, have you got a plan in place if problems arise?

What is a granny flat arrangement?

It most commonly involves an elderly parent agreeing to make some financial contributions to the purchase or renovation of a residential property, owned by a younger family member, to create a separate self-contained residence or “granny flat” on the property where they are able to live independently with care and assistance being provided as needed by the younger family member. It can allow an elderly parent to continue to live independently when they may not otherwise be able to do so and is a great solution for some families, but only if the family has catered for the potential issues that could arise.

What do you need to consider?

The most common problem is families not considering the potential problems of a granny flat arrangement not working out for some reason. Keep in mind that often that reason might be beyond your control. Things like the younger person’s relationship breaking down and the property becoming part of a family law dispute, a need to move due to work, the younger person not having the ability to care for an elderly parent once their care needs become more complex, or the young person predeceasing the elderly parent could all affect the arrangement. On the other side, the older person needs to consider whether their financial contribution will affect their Centrelink entitlements, whether there is a need to change their will to cater for any other children, what their options are if they are asked to vacate the property, and whether their financial contribution to the property is able to be recovered from the property owners if circumstances change.

The Court of Appeal has had to consider at least 3 granny flat arrangements that didn’t work out in the last 15 months and the difficulty for the Court in each case was trying to determine the intent of the parties at the time the property was acquired, the respective financial contributions made and whether there was any agreement as to the consequences of a relationship breakdown between the parties involved. In at least 2 of these cases, the agreement was oral only and each party’s perception of the so-called agreement was different. In all of these cases it was clear to the Court that the parties had not properly considered or agreed on the circumstances when the property owners could force the older person to vacate the property or what financial contributions the older person could recover if that situation were to occur.

While there is no simple solution to any of the problems I have noted above, the best course of action is for a family not to ignore that there is a potential for disagreement in future. You should obtain both legal and financial advice in relation to the proposed granny flat arrangement and put the agreement in writing before any financial contributions are made. A written agreement can solve a lot of problems before they occur and make sure that everyone involved understands what their legal obligations are. The written agreement should set out what financial contributions will be made by each party and when; that the older person has the right to reside in the property for an agreed period and on what terms;  provide for the payment of utilities, insurance and other expenses by each party; indicate whether the agreement is intended to be binding on each party’s estate; and set out the terms of any repayment of financial contributions required including whether it would be a set sum or whether interest is to be accrued.  Once you have considered and agreed on these issues beforehand, a lot of the potential future problems can be resolved by referring back to that written agreement. The only disagreement you may need to worry about then will be if Mum wants the yellow flower tile in the granny flat and you want a modern white subway!

If you would like any advice in relation to a current or prospective granny flat arrangement, contact KC Hilton at WNB Legal, 0419 464 946.