When granny flats go wrong – the perils for retired parents

The potential perils for parents in granny flats highlight the need for law reform.

When granny flats go wrong – the perils for retired parents

When granny flats go wrong – perils for parents highlight need for law reform

File 20190219 121757 52twqm.jpg?ixlib=rb 1.1 Granny flats are often the result of informal arrangements between parents and children who assume it will all work out well. Markus J/Shutterstock Patricia Lane, University of Sydney

A “granny flat agreement” is an informal arrangement between a parent and their adult child or children. The parent (often elderly) contributes funds to create granny flat accommodation either by modifying a home or by buying a suitable property in the name of the children. In return they agree to provide the parent with a lifetime right to live in the granny flat, or at least until the parent needs residential care.

Many of these arrangements work out well. The older person then enjoys the love and support of having their family close by as they age.

When an arrangement of this kind goes wrong, however, it can seriously threaten the wealth, autonomy and dignity of the elderly parent. If the relationship between the parent and child, or child’s spouse, breaks down and the parent is asked to leave the property, he or she may be left with nothing.


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How does the law treat granny flats?

The parent’s only chance of recovering her contribution is to go to court. These court cases depend on applying a complex set of rules.

The parent must prove the contribution was not a gift but that they supplied funds as part of an arrangement that the parties would live together. Agreements creating interests in land need to be in writing, and usually there is no written agreement.

The court can apply equitable principles. A parent who contributed to improving the property ought to have the contributions back, or a proportionate share of the property returned if the arrangement ends prematurely, because it is unjust for children to retain the benefit of the contribution without providing the granny flat.

A parent who made a contribution to renovations or extensions ought to get that back if living arrangements break down. Paul Maguire/Shutterstock

Where the court finds that the parent relied on a promise by the child that the parent would have an interest in the house, or at least a right to live with the child for life, the child can be required to repay the contribution.

This often means the child must sell their house if they cannot refinance to obtain the money to pay the parent. If the parent is entitled to a share of the property, the house has to be sold to realise the parent’s share.

The problem for parents is that court cases cost money, unless Legal Aid is available, but only parents who are truly destitute qualify for assistance. The parent has to produce evidence of the arrangement or the promise. They often have to recount conversations from many years ago to prove there was an arrangement. The children have to spend money on their own lawyers.

Parents and children very rarely put these agreements in writing and almost never consult a lawyer. Sometimes, to help the child get finance, a parent may have told the lender the contribution was a gift.

All this makes court cases complex, difficult and expensive.


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In New South Wales, the Property (Relationships) Act 1984 may apply to granny flat disputes, but the parent still has to show how they contributed to the child’s property. Other states and territories – including Victoria, South Australia, Tasmania and ACT – have similar laws for couples, which might apply to family arrangements. However, the NSW legislation is broader, which makes things worse for parents outside NSW.

When a dispute arises, the parties usually want to resolve the matter as quickly and as cheaply as possible. But court cases can take a year or more to get to hearing. Affidavits must be prepared and financial documents reviewed. During this time the parent may be living in emergency housing, often at public expense.

The picture gets worse if the child’s marriage breaks down. The parent’s claim then gets taken into family property proceedings between the child and their spouse in the Family Court or Federal Circuit Court. This can take even longer than going to the Supreme Court.

A better way to resolve disputes

Parties to these disputes need fast access to a system of practical rules for separating the parties’ property interests, and one that offers early mediation. These rules would cover factors such as increases in the value of the property, how long the parties lived together, what benefits they received, and other discretionary considerations. Such rules might provide the basis for a set of statutory guidelines for a tribunal to apply.

Civil and administrative tribunals emphasise informality and conciliation, so giving these tribunals jurisdiction to resolve granny flat disputes according to statutory guidelines would arguably be more efficient than going to the Supreme Court or Family Court.

Parents and children who trust each other may be reluctant to get legal advice on a granny flat arrangement, but they really should. Alexander Raths/Shutterstock

Parties really should seek legal advice on granny flat arrangements before they commit to the deal. But parents often trust their children and are optimistic that they can live together as a family. If a lawyer provides advice to an elderly parent individually and with an awareness of their client’s possible incapacity or vulnerability to undue influence, that gives all parties a chance to decide what they want to happen if the relationship breaks down.

Centrelink recognises granny flat arrangements, so parents’ contributions are not automatically treated as a gift. Gifting attracts an asset test under which the parent might be deemed still to have the funds contributed, which could reduce their pension.

The children can also be worse off if the Tax Office considers that the child accepting the contribution made a capital gain because the parents’ contribution increased the value of the home.

Although the Australian Law Reform Commission has looked at some aspects of this issue, action is need to reduce the complexity of existing equitable and statutory rules. Elderly parents should not have to take their children to court in expensive legal proceedings to retrieve the contribution that was meant to ensure they had a secure home in their later years.


Read more: We need more flexible housing for 21st-century lives The Conversation


Patricia Lane, Senior Lecturer, University of Sydney

This article is republished from The Conversation under a Creative Commons license. Read the original article.

How you had experience living in granny flat? Did you make sure your interests were protected?

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    COMMENTS

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    MICK
    23rd Apr 2019
    10:04am
    This potential minefield is the way of the world with our children, some of whom are great but most of whom are ravenous little princesses who believe their boomer parents owe them.
    The squabbles about money and expectations of living to a certain level of consumption never ceases to amaze me.
    Get financially involved if you will but be prepared to suffer the consequences when you are vulnerable. My option to help out when kids fall on hard times rather than put our own retirements at risk. Of course some people choose the tightrope option and all I can say to these kind hearted foods is 'good luck'. Its a long way down.
    Anonymous
    23rd Apr 2019
    12:51pm
    If you choose the tightrope option it could quite easily change into a noose. Seen in my extended family overseas and I do not think it would be any different here. The "little princesses" comment hits the nail absolutely.
    sunnyOz
    23rd Apr 2019
    1:38pm
    Agree with your comment Mick about the 'little princesses' - because that is exactly my situation! I've always been single, now solely on the aged pension, own my own home after working my butt off. Not so my 'little princess daughter' who lived the high life, bumming around the world, threw her uni degree away, then became single mother to 2 kids to 2 different guys, now lives in govt unit.
    With a 'sort of' shed in my back yard, my daughter has begged and pleaded for me to convert this into a granny flat that they can live in, then when I am old and frail, swap, as she will eventually get the house (well - so she thinks!) Not a hope in hell! I am positive she is already counting her chickens for when I pop off and she gets her grubby little hands on my (as she thinks) inheritance.
    I would never do this - don't even want them living on the property. There are far more greedy relatives out there than friends, and almost daily, you read of these scenarios that have turned disastrous, with elderly parent losing the lot to a scheming greedy child.
    Just wish I could know my pop-off date - then get a reverse mortgage till there was nothing left!
    johnp
    23rd Apr 2019
    10:36am
    Re part that said
    "'older person then enjoys the love and support of having their family close by""
    That is not right as should read :
    ""
    The younger persons then enjoy support of having their elder family close by for performing baby sitting, child minding, working in the garden, automatic access to their parents savings etc etc
    Anonymous
    23rd Apr 2019
    11:31am
    Very well said John, as this usually is the case !

    23rd Apr 2019
    11:39am
    Most importantly, the property tax for people on pensions should be totally abolished so that the pensioners could stay in their own homes for as long as possible and still retain could family relations. The decisions for granny flats is maid only on the basis of raising living cost and the unaffordability to pay the ever increasing bills!

    23rd Apr 2019
    12:34pm
    It's the old, old story: if it isn't written down and signed, it doesn't exist.
    Sundays
    23rd Apr 2019
    2:22pm
    You might trust your child but what about their partner. If their relationship breaks down where does this leave you? Think hard before you go down this path
    Anonymous
    24th Apr 2019
    6:40pm
    Spot on! I know of this happening. Marriage broke down and it all resulted in a hell of a financial mess.

    I well remember a lady on TV show (the old Beauty and the Beast) her hubby was a solicitor and she said " don't think you can trust your children when it comes to money"..obviously she had heard it all from her husband.

    If you do anything financial with anyone, no matter who, get it legally drawn up..otherwise you have no protection if something goes belly up!!
    Eddy
    23rd Apr 2019
    2:45pm
    I recall what was said to me many years ago, "a verbal agreement is not worth the paper it is written on". Fortunately in my own family I do not foresee any such difficulties. However I have seen similar stories in other families, including one where an ungrateful son objected to any extravagance (like new clothes etc) by his widowed mother. She was spending his money (ie his inheritance). That poor woman lived a miserable life bullied by her son, sometimes I felt like murdering him myself he made me so angry.
    Anonymous
    24th Apr 2019
    6:41pm
    Eddy, how do you really know!!
    Eddy
    24th Apr 2019
    8:20pm
    In 1968 we were living in a block of units in Sydney after my first tour of Vietnam. She lived next door, we had adjoining balconies. Her son was not one to conduct his conversations in a quiet tone, we could hear everything he said. My wife consoled her many times after a visit from her son. More than once my wife prevailed on me not to interfere for fear of retaliation. I hated his guts for the way he treated his mother, I have never forgotten it.
    Charlie
    23rd Apr 2019
    5:31pm
    Don't know much about this, but it appears better for granny if she owns the lot.
    GeorgeM
    24th Apr 2019
    9:13pm
    Getting into the hands of lawyers and the courts (starts from the innocent "get legal advice" step) is an expensive business and definitely the worst way to go for resolving a family matter - ultimately only the lawyers win.

    I can't see why our Govts cannot implement strong processes to resolve family matters outside courts with lawyers kept away (except to provide one-off initial list of points to consider), in a supervised and compulsory arbitration process. Will save huge costs, and reduce family angst / hostility against each other.

    The comments at the end of the article are the only sane comments ""Civil and administrative tribunals emphasise informality and conciliation, so giving these tribunals jurisdiction to resolve granny flat disputes according to statutory guidelines would arguably be more efficient than going to the Supreme Court or Family Court". This should be compulsory and arbitration orders binding on all parties.