What are Granny Flat Agreements? 5 things to consider

What are Granny Flat Agreements? 5 things to consider 1 July 2021

Living on your own can sometimes be difficult. In our practice as estate planning lawyers, we meet clients who, as they get older, find that managing their affairs, and running their households, is not as easy as it once was.

Multi-generational living is not a new concept. It can be achieved by entering into an arrangement called a Granny Flat Agreement. However, moving back in with your parents, or children, should be carefully thought through and where necessary professional advice obtained.

What is a Granny Flat Agreement?

This is an agreement usually between parents and their adult child. The parents make a financial contribution in exchange for the right to live in or at a property. Classically, this involves the construction of a granny flat or renovations to their existing property.

Clients often run into difficulties when they have not carefully thought through what will happen if circumstances change or a disagreement arises.

Here are our top tips to think about when considering a Granny Flat Agreement:

1. What are everyone’s expectation?

Does your agreement involve the provision of accommodation only or does it extend to the child providing care for their parent. A parent may enter into a Granny Flat Agreement when they are relatively healthy but this deteriorates very rapidly. This can create a heavy burden for the child both financially and emotionally, even more so if it wasn’t anticipated in the first place. It can also create tensions in the child’s existing household. We therefore recommend that everyone should be consulted about the arrangement, including the spouse of the child and any other children of the parent who could perceive that one child is gaining financially from the arrangement. Transparency assists in minimizing the potential for future conflict.

2. Could the agreement affect my Centrelink payments?

The aged pension is an important source of income for many Australians. The last thing you want to happen is for this income to be lost due to your Granny Flat Agreement.

Centrelink has very clear rules about gifting. Centrelink does however have exemptions for granny flat arrangements which enable property to be transferred without falling foul of gifting rules. The key things to note are:-

  • Centrelink will review the value of the asset transferred to see if the parent paid a reasonable amount. If the amount transferred is more than the ‘reasonable amount’, Centrelink will deem that the parent has been deprived of, or gifted, an asset.  Depending on how much this, it may result in the parent losing their pension all together or by having their pension amount reduced.
  • Assets that can be transferred in return for a Granny Flat interest are wide ranging and include transferring the title of the parent’s home, cash, investments and jewelry.
  • The parent living in the Granny Flat cannot own any other real estate and it must be their principal place of residence.
  • The parent does not have to separate accommodation built for them but must have a designated area that is for their exclusive use for life.
  • Centrelink will review the Granny Flat Arrangement if the parent leaves in the first five years of it being set up.

Click here for more information about Centrelink and Granny Flat Rights.

granny flat agreements

3. Should we get financial advice?

Yes, we recommend this as being a good idea. Granny Flat Agreements involve important financial considerations as well as legal considerations.

4. Does a Granny Flat Arrangement affect my will?

This is where things get a bit technical, but the basic premise of a Granny Flat Arrangement involves a parent transferring an asset to their child. The child then becomes the legal owner of that asset and it no longer forms part of the parent’s Estate. The parent cannot therefore include that asset as a gift in their will. This becomes an important consideration where the asset at the centre of the Granny Flat Arrangement makes up all or a large proportion of a parent’s estate, particularly where there are other children/siblings to think about, who can start proceedings to contest a will on the parent’s passing.

5. Should we get our Granny Flat Agreement in writing?

Incorporating an agreement into writing doesn’t mean that you don’t trust your family but transparency and certainty helps minimise future dispute. It also forces everyone to think about what will happen if circumstances change and the agreement no longer works for everyone. Things to think about include:

  • Is the parent a pensioner?
  • Is the transfer of assets a gift to the child?
  • How will the transfer of assets impact other inheritances?
  • What personal care and support with the child provide their parent with?
  • Who will be liable for the repair and maintenance of the Granny Flat?
  • What will happen if the child sells their property?
  • What happens if the parent needs to move into a residential care facility?
  • What happens if the child separates from their current partner?
  • How will the parent be compensated if the Granny Flat Agreement does not work out?

Granny Flat Arrangements are a big decision and one which we recommend you obtain legal advice on.  The team here at Berryman Partners can help you through this issue.  Contact Us on (02) 4943 3988 to speak to one of our experienced lawyers today.  We have years of experience helping people through the Newcastle, Hunter and Lake Macquarie region.

This blog was written by Senior Associate,
 Liz McIntyre
Liz practises in the areas of Family Law, Wills & Estate Planning,
Deceased Estates, Wills disputes and Conveyancing

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