Making a Granny Flat Agreement

Get in touch: 1800 770 780

How can we help?


The purpose of this blog is to inform readers about:

  • Granny flat agreements (GFAs) and what they entail
  • What assets can be transferred in exchange for a ‘granny flat interest’
  • How Australia’s Centrelink assesses a ‘granny flat interest’
  • The impact of a granny flat agreement on estate planning and why writing down a formal granny flat agreement is important.

Our experienced estate planning lawyers often advise clients on the legal nuances of granny flat agreements and provide independent legal advice on how to structure such agreements. To ensure that interests are protected and to avoid expensive future litigation, here are 6 important things to consider when making a granny flat arrangements in Australia.

1. What are Granny Flat agreements? 

Granny flat agreements are where one or both parents are provided with accommodation in the home of an adult child. The accommodation is usually provided by the child in exchange for some payment, and sometimes the parent will sell their home to pay for a granny flat to be built at the child’s home. In most cases, care is required for the parent or older person, and is in fact the impetus for considering a granny flat agreement in the first place.

Whatever the family arrangements are for security in old age, a granny flat agreement needs to establish a ‘granny flat interest’. There needs to be a transfer of assets/money to the owner of the property in which the parent will live in exchange for a tenancy or ‘life interest’ in their property.

2. Accommodation, Care and the Importance of Transparency

Although most granny flat agreements often include arrangements for the care of the parent, this does not necessarily have to be the case. Arrangements may just be for the provision of accommodation alone, but problems can set in if parties do not take a long term view. A parent may enter into a granny flat arrangement when they are relatively healthy, but their health may deteriorate drastically and can place a heavy toll on emotions, finances and lifestyle adjustments. Therefore, not only must the child who is party to the granny flat agreement be involved, but every family member in the household (such as the child’s spouse) should be consulted about the arrangement as well. Siblings not living in the same household should also be consulted because it may be perceived that one child is receiving an advantage over another.

For these reasons, we often advise our clients that all affected family members should “sign off” on the granny flat contract. Not because they are direct parties to the agreement but because it is vital they acknowledge witnessing and understanding the arrangement – which should be as transparent as possible to avoid disputes later on.

3. Granny Flat Rules Centrelink 

Centrelink rules are designed to facilitate granny flat agreements being entered into. Normally, transferred property or funds would be deemed to be a gift, however, Centrelink’s granny flat rules allow for any property transferred or money paid to the parent’s child to be exempt of the deprivation/gifting rules.

Whilst we have observed a lot of flexibility by Centrelink in recognising different styles of arrangements, there are certain rules which need to be adhered to. These include:

  • Centrelink will look at the value of the asset transferred to see if the parent paid a ‘reasonable amount’. If they consider that the parent has transferred more than the value of the granny flat right, they will determine that the parent has been deprived of an asset. This will directly affect the amount of pension received
  • Assets that can be transferred in exchange for a ‘granny flat interest’ include transferring the title of the parent’s home, plus other forms such as cash, stocks, bonds or jewellery and heirlooms
  • The parent being provided with accommodation and/or care cannot own the property
  • The home in which the accommodation is provided must be the parent’s principal home

While there is no need to physically “build” a separate granny flat or a separate residence, there must be a designated room or area that allows for the parent’s exclusive accommodation for life.

4. Getting Financial Advice

The issues surrounding a Granny Flat Agreement involve not only legal but also financial matters. This is particularly the case where the parent receives a benefit from Centrelink or Department of Veterans Affairs or if the requirement for aged care is possible in the future. We work with specialist financial advisers who can address those issues with you.

5. Impact on Wills & Probate

Parties entering into a granny flat agreement need to be aware that money or assets given to the child in exchange for the ‘granny flat interest’ no longer forms part of the parent’s estate. This means that upon the death of the parent, any property or money handed over to the child will not be distributed in accordance with their will. At Owen Hodge Lawyers, our experienced will and estate lawyers advise parents on their requirements for a granny flat agreement and take into account their estate planning needs as a whole.

6. Important Questions in a Granny Flat Agreement

Getting granny flat arrangements written down will force you to think about contingency plans and what can happen if an agreement is no longer workable or an unplanned event occurs (for example, the child’s relationship with their partner may break down and they decide to sell their house).

Below are just some of the points we discuss with our clients so we know how best to protect their interests when drafting a granny flat agreement:

  • Do they want their name to be retained on the title to the property?
  • Are they a pensioner?
  • Are the assets/money pledged to be gifts to the child?
  • Do they have other children and how will the Granny Flat Agreement impact on their inheritance?
  • How will the parent’s contribution be calculated?
  • What kind of personal care and support will their family provide them with, if any?
  • Will they be liable for any upkeep of the property?
  • What if their health worsens and they need to be moved out to a medical facility for a prolonged period?
  • If assets are involved, under what circumstances would they allow them to be sold?
  • What if the child passes away?
  • How will the parent be compensated if the Granny Flat Agreement does not work out?

The general rule is that once established, granny flat interests or rights cannot be revoked simply because a child wishes to sell the property. They may:

  • sell the property with the parent’s arrangement as a condition of sale;
  • transfer the parent’s life tenancy or interest to another property, or
  • compensate the parent financially for losing their ‘granny flat interest’.

Granny flat agreements should not be entered into lightly. At Owen Hodge Lawyers, we understand that it is particularly important for the parent to obtain independent legal and financial advice given that so much is at stake, and to prevent the possibility of financial abuse occurring. 

Call us at 1800 770 780 or contact us via [email protected] to schedule a consultation with our team of property settlement arrangement and estate planning lawyers. We look forward to assisting you.

At Owen Hodge Lawyers, we always strive to provide you with the best legal advice and guidance – no matter your issue. We specialise in a range of law matters, and have a blog that offers in-depth and comprehensive articles. Learn about the family court process australia and much more on the Owen Hodge Lawyers blog today.

Just ask us a question

We are always ready to help you.