What is a Granny Flat Arrangement?

A granny flat arrangement or agreement is a legally binding document generally entered into by family members. The most common scenario is between the parents/family members and their children where the former is provided accommodation in the property of the latter in lieu of some monetary consideration or asset.  Granny Flat Agreements are a life estate agreement and the parents enjoy the right of occupancy for the remainder of their life, at this stage the property reverts to the original owner. This arrangement does not require construction of a fresh property or flat to be built specifically for the family member.

What are the things to be considered?

Long term arrangement: Since Granny Flat Agreements can have a long-term effect on both parties, i.e., the parents as well the child/children, it is of utmost importance that the pros and cons be considered before entering such an arrangement. Agreements can either deal only with accommodation of the parent or it may also include a care agreement between the parties considering their age and health. Thus, all parties who will be affected by the Agreement should seek opinion and advice from a lawyer before signing such a document.

Centrelink: As the Department of Human Services generally consider the giving of assets as a “gift”, certain considerations have been put in place to protect granny flat agreements.

  • The value of assets transferred by the parent must be considered to determine if it is a ‘reasonable amount.’ If the parent has given up more than the value of the property they are entering into, this could affect their amount of the pension;
  • No right of ownership is to be enjoyed by the parents in respect to the granny flat;
  • Assets such as title to the parental home, cash, jewelry can be transferred by the parent in a granny flat arrangement.

Wills and Estates: The asset or money given to a child in lieu of the granny flat arrangement shall no longer form a part of the parent’s estate and hence cannot be distributed after the death of the parent.

Sale of Property: It should always be kept in mind that granny flat rights cannot be revoked and in case of any sale of such property, the granny flat arrangement must be made a condition of such sale. Otherwise, the interest of the parents may be transferred to another property or reasonable compensation must be given to the parents.

It is always advisable to seek legal advice when entering into a Granny Flat Arrangement as there are a number of legal issues that may arise. If you require assistance please call WMD Law today on (02) 9525 8688.