Granny Flats – Not as Cozy as You’d Think

In this older case, a father and mother migrated to Australia from England to live with their only son and his wife. The Parents contributed the required money for the purchase of a property, which contained separate living areas for both the parents and the son & his wife. The property was held in the names of the son & wife subject to an oral agreement where the parents were provided accommodation for life. Tragically, the mother passed away and the son & wife divorced. Unfortunately, the son left the house following the divorce and the father and the ex-wife of the son continued to live in the granny flat arrangement together. This resulted in the father suing both the son and his ex-wife in the Supreme Court of NSW to regain the contributions the parents had made to the property so that the father could return to England. The father ultimately won based on principles of equity and trusts.

In the more recent case of Spink, an elderly mother contributed part of the purchase price for a property to live in with her daughter and her daughter’s husband. This was based again on an oral agreement where the property would be held in the children’s name in exchange for the mother being able to live in the property indefinitely. The mother did not seek any legal advice and relied on the generosity of the children in seeking a lifetime living arrangement.

As is all too common in these cases, the relationship between the mother and children broke down, and the children forced the mother out of the house. Such a falling out led to potential homelessness for the mother, as she was forced to live with close friends until she was approved for public housing. The mother sued her daughter & husband in the Supreme Court of NSW to regain the money she had contributed towards the property. The mother ultimately won based on principles of equity and trusts, similar to the outcome in Malsbury.

What Do These Cases Tell Us?

Although we can never imagine such granny flat arrangements going astray, this is almost always what people think before entering into such an arrangement.

It is much better to save costs by engaging lawyers to plan for these situations rather than paying hefty fees down the line to go to court. You should always be mindful of the following before entering into a granny flat arrangement:

• Always have a written agreement – all too often, oral agreements are difficult to prove and turn into the typical case of your word against theirs.
• Ensure your name is registered on the title if you contribute money – Malsbury and Spink arose as a result of the parents in these cases not having their names registered on the title. Your share in the property should be commensurate with the contribution you make and recorded on the title to reflect this.
• Seek advice on how such an arrangement may affect your pension or tax position – unfortunately, people enter into these arrangements without seeking advice on the taxation implications that arise.
• Always think of the worst-case scenario and plan accordingly – although we don’t like to imagine such things, it will save a significant amount of money down the line if something does go wrong.
• Open a dialogue – be transparent with your relative about what you want out of the arrangement. For instance, as a child in the arrangement, do you plan on selling the granny flat down the line to upgrade to a larger property? What happens if such a situation does arise? Conversations like these can be extremely beneficial to the long-term viability of this type of arrangement.
• Set out how costs will be shared for services including water and land rates.

This article was co-written by Lawyer, Jack Harman.