Moving in with your adult children? Three considerations for your granny flat agreement

granny flat agreement

A granny flat agreement is a flexible document. As long as all parties agree, it can be tailored to your specific circumstances. However, there are some things that everyone signing a granny flat agreement should consider. In particular:

  1. have you protected your interests;
  2. if you are intending to claim the Age Pension, is the amount you are paying for your granny flat interest ‘reasonable’; and
  3. does your estate planning compliment your agreement?

Are your rights protected?

An informal granny flat agreement can put elder Australians in a vulnerable position. You don’t have an interest in the property, and you aren’t covered by tenancy law. Unless you have a documented agreement, it is very difficult to enforce the rights available to you.

Even if all parties enter the arrangement in good faith, relationships change. There may be a falling out between parent and child, or parent and the child’s spouse, or even between the child and their spouse.

As the more vulnerable party, it is the parent who usually ends up disadvantaged, and in some cases, they can fall victim to financial abuse.

When entering into a granny flat agreement, it is vital that you have thought through these scenarios and put protections in place. A written granny flat agreement gives you enforceable rights against the other party. This might include:

  • the right to reside in the property if the child dies;
  • the right to recover some or all of your original lump sum if the arrangement falls through; and
  • the right to transfer your interest to a new property if the home is sold.

What is a reasonable amount?

Before signing a granny flat agreement, make sure that it makes financial sense for you to do so. If you’re the parent, will the agreed-on amount leave you enough money to be secure? If you have any doubts, it is strongly recommended that you receive financial planning advice before entering into any arrangement.

It is also important to note that, if you are claiming an Age Pension, Centrelink will determine whether the granny flat arrangement (in particular, the amount you have paid for this right) is reasonable. If Centrelink believes that you have paid anything over what is ‘reasonable’, they can count the difference towards your asset test. This is to stop people from giving away all their money in order to qualify for the pension, while still benefiting from that money in the background.

Centrelink considers the question on a case-by-case basis. Variables include:

The space you’re buying

The amount of money that is reasonable to build and occupy a detached granny flat might be substantially more than that to occupy a small guest bedroom.

Your age

You are effectively buying the right to occupy a second dwelling or part of the main house. The younger you are when the agreement is made, the longer you’re likely to be there. If you’re in your 60s, the amount Centrelink deems reasonable may be higher than if you are in your 90s.

The care you’re receiving

Consider documenting the care your children will provide as part of the arrangement. Levels of care may be difficult to enforce on a practical level however, Centrelink will consider care as part of the reasonableness test since the care you’re receiving is part of the value you are paying for.

Do you need to adjust your estate planning?

If you are paying to build a granny flat on one of your children’s properties, you are adding value to that property. Effectively, the child is receiving an early inheritance. Equally, if you pay them a large lump sum to live in their guest bedroom, you’ve transferred a significant asset to them.

Of course, if you live with them for several decades, and they provide care to you that would otherwise be provided by a paid professional, it might even out.

However, if you have other children, it is advisable to look at your estate planning in conjunction with the granny flat agreement. To avoid potential disputes, your plan should reflect the fact that you have already significantly provided for one child over the others, and whether your Will should be adjusted to deal with your remaining assets in light of this.

You may even want to consider having other children ‘sign off’ on the granny flat agreement. This won’t bind them to anything, however, it can help avoid disputes down the track by showing that everyone was aware of the arrangement at the time.

If you’re the child, and your parent is paying for the right to reside on your property, you also need to make sure that is reflected in your own estate planning. If you die before your parent, your Will should complement the terms of the granny flat agreement.

A granny flat agreement is one of those classic documents where it’s better and easier to document everything early on, while the relationship is amicable and everyone is keen on moving forward, rather than once things start to go astray.

By taking the time to document the agreement, you can set the scene for a strong and amicable arrangement that benefits parents and children alike. Get in touch with our Future Planning team to discuss your granny flat agreement.


This publication has been carefully prepared, but it has been written in brief and general terms and should be viewed as broad guidance only. It does not purport to be comprehensive or to render advice. No one should rely on the information contained in this publication without first obtaining professional advice relevant to their own specific situation.

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