The idea behind Granny Flat arrangements seems so sweet –a loving child provides care and accommodation for the elder person, whilst perhaps enhancing the home and saving money in the process. Three generations of a family sharing meals, stories, and happy times.
Sometimes that’s the way it ends up, but sadly often the arrangement falls apart in acrimony and bitterness.
Putting aside the complex Social Security and Tax issues that can arise with Granny Flat Agreements (which are lengthy topics in their own right) to get them right (and protect all parties) they involve careful and detailed discussion before they are entered into. If not, there is a substantial risk that the end of the arrangement will not be pretty, with recrimination on all sides.
The key rule – PUT THE AGREEMENT IN WRITING!
A recent case involved the classic scenario. Mum put $200,000 into the construction of a self-contained unit on the son and daughter-in-law’s property. Happy days. What could go wrong?
In time, the mother and the daughter-in-law started to get on each other’s nerves, then it progressed to outright shouting, and the situation became (in the older person’s eyes) intolerable. The son took his wife’s side. There was nothing in writing.
Mum now lives in a caravan and would like her money back. The response “But Mum it was a gift. You chose to move out. It’s our property. Sorry but it’s bad luck for you”.
Mum now faces expensive court action (in her 80s) to get her money (or some of it) back.
Before a Granny Flat arrangement is entered into, the parties need to consider such things as:
- What happens if a party changes their mind?
- How/can it be unwound? At what/whose cost?
- What happens if granny needs to go to Aged Care, because her needs become beyond the capacity of the child to assist with?
- Who pays rates, insurance, electricity, maintenance, and other outgoings?
- What if the child becomes sick, or has to move away, dies, or separates?
- What happens if the property is to be sold – does the granny flat interest pass to the new property?
- Is the payment treated as a debt, which is eroded over time, or a percentage of the value of the property, which increases over time?
- Is there a fee (offset against the contribution) for the care assistance, and living accommodation the flat provides?
- What do the other children say, if their hoped for inheritance is effectively (partially or wholly) passed on to one child only?
Frankly, this list only scratches the surface of the matters that should be discussed, and then documented. Expert Legal Advice is essential.
When these arrangements are first discussed no one wants to face up to what may happen if the arrangement fails, but the reality is that often it does, and then there is the challenge of trying to determine what the parties are entitled to when there is no agreement setting that out.
