Is a Granny Flat Agreement right for us?

Granny Flat Agreements

Granny Flat Agreements (GFA) are becoming increasingly common, but the term itself is misleading. A GFA is simply an agreement where there is an exchange of assets for the right to accommodation, and sometimes care, for life. The most common scenario is where adult children grant (Grantor) their parents (Grantee) the right to reside, but the parties do not have to be related. Further, whilst the accommodation can be in a ‘flat’ or unit, it does not have to be. It can be in a self-contained section of a main residence. There are many ways that these agreements can manifest, including a transfer of the title of a property to the Grantor, payment for the construction of a granny flat, or payment to have a main residence renovated so that the Grantee can live there.

GFAs are often used for the following purposes:

  • To provide accommodation close to family as an alternative to aged care; and
  • To assist children financially during the parent/s lifetime

Before entering into a GFA it is important that everyone is clear on what is being exchanged from the beginning. As of mid-2021, Centrelink and the Australian Tax Office now require GFAs to be in writing if the parties are going to comply with their respective rules around gifting and tax exemptions. Factors to be considered include, but are not limited to:

  • The impact of the GFA on the Grantee’s Centrelink entitlements
  • Will the transfer of money or real property comply with Centrelink’s gifting rules for the Grantee
  • The tax implications for the Grantor, especially when a transfer of real property is involved
  • Who will pay for ongoing maintenance, rates etc.
  • Impact on family members – will other family members feel that they have missed out on an entitlement
  • What will happen if the house needs to be sold early
  • The level of care, if any, that will be provided

Parties should aim to agree on as much detail as possible before the agreement is finalised. The more detail you can agree on, the more specific your agreement can be which reduces uncertainty for everyone.

It is worth noting that there are other options available to people wanting to enter into this type of agreement. Like with all contracts, everyone’s circumstances are unique and what works for one family will not be suitable for another. For this reason, it is important that both parties obtain independent legal and financial advice before entering into a GFA.

To discuss your options around Granny Flat Agreements, please call our Property Lawyer, Cat McGauran today in Castlemaine on (03) 5472 1588.