A well-drafted granny flat agreement should be clear about each parties’ expectations and obligations.
It should make provision for future changes, such as:
- what happens if the person who owns the property wants to sell up and move; or
- what happens if the elderly parent deteriorates in health and needs increased care?
Nobody can predict the future. However, you should discuss the following situations to make sure you’re all on the same page if anything changes.
The parent needs a higher level of care
When the agreement is signed, both parties may be in excellent health. Time moves on, and now the parent‘s health has deteriorated and requires a level of care the child cannot provide.
This raises the question: how will that care be funded? The parent may have given all or most of their savings to the child in exchange for a lifetime right to reside in the property. They can no longer safely reside there, but their assets are exhausted.
A good agreement should contain clauses specifying how that care will be funded.
The parent and child have a falling out
What if the relationship between parent and child breaks down? Especially where both parties live under one roof, a falling out can prove fatal to the agreement.
If the owner of the home no longer wants their parent living there, the agreement should contain a mechanism to allow them to move on (with compensation).
The child’s marriage ends and the matrimonial home needs to be sold
As we’ve covered previously, the Family Court is not bound by a granny flat agreement. However, the agreement does create a personal right that is enforceable against the children by the parents (and vice versa).
If the child and their partner separate and there is a formal division of property, the house may need to be sold. In this case, what do the parties intend would happen next?
There are a few options in this situation. What is best suited will depend on your own individual circumstances.
The children lose capacity
Less common, but equally important to contemplate, is the scenario where the child loses capacity. Their attorneys can generally sell the property, if necessary, to pay for their care in an appropriate facility. However, if there is a parent residing in the home under a granny flat agreement, there are competing interests.
The agreement should contain a clause stating what would happen in that circumstance so that the parents aren’t rendered homeless.
The child dies before the parent
If this situation were to occur, have the parties considered (and documented) what would happen? If the parent is to continue to reside in the home, will this be workable if they are now to reside with the child’s widow/widower (and down the track, their new partner as well)?
Does the child’s own Will complement the granny flat arrangement between the parties? Are there young grandchildren who would rely on the sale of the home to fund their living requirements if their parents were to die before them?
Many families have not considered these situations, let alone what a workable resolution would be.
The property needs upkeep
A requirement of a granny flat agreement is that there is a distinct space in which the parent resides as their primary residence. It doesn’t have to be an actual self-contained granny flat. A guest room that they visit occasionally will not qualify; a dedicated bedroom under the main roof will.
Unlike a tenant/landlord relationship, there is no legal requirement for the property owner to make repairs to that space. It is, therefore, worth documenting who is responsible for upkeep. Does the parent have the right to redecorate or make improvements? If the roof leaks or the fuse box needs replacing, who pays for that?
The experienced legal team at Murdoch Lawyers have drafted a substantial number of granny flat agreements in a range of situations. Get in touch with our Future Planning team and we’ll help you identify possible issues for the future so that your agreement reflects your true wishes.
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.