A Granny Flat Agreement and it Avoids a Dispute?

June 23, 2021

Are you starting to plan for your retirement? Or perhaps you want to keep a closer eye on your elderly parents? Building a Granny Flat on your property is an excellent option to provide personalised support and care for your loved one while adding value to your home. However, when moving family members into a Granny Flat, informal arrangements can lead to misunderstandings and disputes. In this article, we unpack how a Granny Flat Agreement works and how it can help to avoid a dispute:

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What is a Granny Flat Agreement?

Granny Flat Agreements, also commonly referred to as a Granny Flat Interest, are family arrangements where one or both ageing parents are provided with accommodation for life in exchange for payment. For social security purposes, sometimes the ageing relative will either transfer their home to their child or sell their home to pay for a Granny Flat to be built on their child’s land. The parent being provided with accommodation cannot own the property the Granny Flat is built on. In return for this payment, the ageing parent receives the exclusive use of or a lifetime right to live in the Granny Flat.

Usually in regards to gifting rules, the transfer of funds or property to an adult child would be considered a gift from a financial perspective, and could negatively affect the elderly relative’s pension entitlements. However, the Granny Flat agreement rules allow the specific assets transferred to be exempt from the usual deeming legislation by Centrelink.

What are the Granny Flat Agreement Rules?

There are a number of requirements that need to be implemented for a Granny Flat Agreement:

  • A Granny Flat Agreement can be formed when the ageing parent exchanges assets for the right to live in someone’s (usually one of their children’s) property for life. The assets that can be transferred can be the ownership of the parent’s home, or some of their other assets such as cash, stocks or bonds for example.
  • The parent being provided with accommodation, their partner or a trust or company they control, cannot own the property that relates to the new Granny Flat Agreement.
  • In order for a Granny Flat Agreement to be established, in exchange for payment or assets the elderly parent must be given the right of occupancy for life in a residential property that is to be the parent’s principal home.
  • Centrelink must be advised of what asset or payment the ageing family member or parent transferred in exchange for the right to live in the Granny Flat accommodation. In their evaluation, Centrelink will look at the value of the asset transferred to see if the elderly parent has paid a ‘reasonable amount’. If the parent has paid more than the Granny Flat interest is worth, then it may be determined that the parent has been depraved of an asset and this could directly affect the amount of pension they receive.

It is recommended to seek specialised legal advice for more details regarding Granny Flat Agreements.

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How Does a Granny Flat Agreement Help Prevent a Family Dispute?

It is common for family members to get excited about moving in together, and simply (and quickly) form a verbal agreement or casual consensus about the Granny Flat arrangement. However, as time goes on, it gets hard to remember what was initially agreed upon, especially if the ageing family member develops any health issues impacting their memory recall. Formalised Granny Flat Agreements clearly state who owns the home, and should also include;

  • what happens if the elderly parent needs money from their Granny Flat investment to pay for medical expenses
  • roles for each person, such as who will do the cooking, cleaning and washing
  • what happens to the value of the Granny Flat when both ageing parents pass away
  • who will pay for rates, taxes and bills such as electricity and council fees, as well as outlining the proportion of the bill to be paid by the ageing parent as well as the adult child
  • what personal care and support the elderly relative will receive, and by whom
  • if any childcare is expected of the elderly parent
  • how much privacy is expected for each resident
  • an exit strategy, and how the ageing relative will be compensated if the Granny Flat agreement does not work out.

Remember, it is important to seek advice from your legal professional and make sure everyone’s concerns are addressed (including siblings) when creating a Granny Flat Agreement.

What are the Benefits of a Granny Flat Agreement?

As an increasingly popular aged care alternative, Granny Flats can comfortably accommodate elderly parents without the high costs and overcrowding concerns associated with aged care providers and nursing homes. Besides, no-one understands the medical history and needs of your loved ones like you do. Housing your elderly parent in a Granny Flat means you won’t need to endlessly repeat medical and care instructions to rotating aged care staff. Granny Flat Agreements mean you can enjoy the benefits of keeping your family close in a Granny Flat, while avoiding disputes with family members.

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Aged care facilities are also becoming increasingly expensive, and some have extensive waiting lists which may further complicate accommodation arrangements for your elderly family member. Building a Granny Flat, especially using the financial benefits of a formal Granny Flat Agreement, can lessen the financial concerns and are a way to bolster the value to your existing property. Rather than entering a nursing home, living in a brand-new spacious Granny Flat next door to their children and grandchildren is a loving, familiar and personal experience for seniors to enjoy their golden years. It can also benefit the adult children, having babysitters readily available!

Do you want to accommodate your ageing parents in a brand-new Granny Flat on your property? As a family owned and operate business with over 25 years’ experience, Cubitt’s are the trusted name in designing and building Granny Flats throughout NSW and the ACT. We are known for our stress-free approach to building – we handle the council approvals process for you and provide every customer with a dedicated point of contact, to keep you informed every step of the way.

Cubitt’s are passionate about designing and building dream projects for our customers, at value-for-money prices. Unlike most builders, we offer custom Granny Flats with additional features on request including accessibility customisations such as wheelchair ramps and wider doorframes, as well as luxury cathedral ceilings, expanded pantry space, extended outdoor alfresco areas and much more. Plus, every Granny Flat built by Cubitt’s comes with a wide range of value-packed inclusions, such as COLORBOND® roofing in a selection of colours to choose from, an electric or gas cooktop, high-performance insulation and much more!

To find out more, call our award-winning customer service team on 1300 721 150, or to take a more in-depth look and tour our Granny Flat models, why not visit a showroom near you!

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About Kate Cubitt

Kate is Managing Director of Cubitt's. She is an experienced company director, avid investor and keen to share the financial insight she's gained being a female leader in the building industry.