Granny flat agreements are not just for old people

In light of the recent Royal Commission into Aged Care Quality and Safety, more people are looking to alternative options for aged care for their loved ones. One option is building a “granny flat” on their property and organising home care services for their elderly relative.

A “Granny Flat Agreement” is when an elderly family member (usually mum and/or dad) loans another family member (typically their child and their partner) a sum of money to erect a granny flat on their property or make modifications to their property to allow the elderly relative to live in it “for life”. This is known as a life interest or life tenancy. That is, the elderly relative cannot be evicted or asked to leave. If the property owner does need to dispose of the property, they must either make it a condition of the sale that the elderly person is given the right to continue living there after the sale, transfer the granny flat interest to another property or give them the “loan” back.

There are many things that families should consider though before moving their relative in. Centrelink, the Council and other family members will usually have something to say about any sort of “granny flat agreement”.

First and foremost, when parties make the decision to have mum and dad move onto one of the children’s properties, they should engage a solicitor to draft an agreement. Any agreement should be written, and all parties should have received some form of legal advice prior to signing it. The agreement should set out the parties involved, how much is being lent to build the flat, who is responsible for any ongoing costs (such as rates etc.), the level of care and support that will be given to the elderly relative and how it will affect the elderly relative’s estate. The agreement will also shed light on what is to happen in the event of things like bankruptcy, divorce, mortgage issues and death.

It is also important that all parties involved consider revising their wills. If one sibling offers to build the flat on their land, the inclusion of a granny flat will obviously add value to their property. Once the money has been transferred, it will no longer form part of the elderly person’s estate. Some other siblings may see this as an unfair “gift” and argue that they should be entitled to a larger portion of the parent’s estate once they pass away. There may also need to be provisions for a parent to continue living in the property, if one of the children pass away and their partner inherits their share of the property. It is common for a “family endorsement” to be included at the end of the agreement. A family endorsement is a signing page signed by other members of the family in support of the agreement.

It is also very important to consider whether the agreement will affect the pension paid to the elderly person by Centrelink. Some people may try to dispose of money to increase their pension payments. Centrelink has strict rules about “gifting”. Centrelink will consider how much money the elderly person has “lent” to the family member taking them in. Centrelink strongly recommends that there be a written agreement and that all parties seek legal and financial planning advice prior to signing.

Finally, you should consider whether there are any Council restrictions on building a granny flat on your property. Council have strict planning guidelines and may prohibit the erection of a further dwelling on your property if it is in a particular zoning area.

At Cooroy Legal Centre, we can help draft an agreement to suit your family. Each family dynamic is different, and it is important to consider each individuals needs when drafting such an agreement. Contact us today to discuss further – 07 5447 7637 or

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