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  • There is growing interest in granny flat arrangements as a way of providing accommodation and care for older Australians.
  • Significant legal issues arise when such arrangements are not properly documented or not documented at all.
  • Parties may mitigate the risks involved in granny flat arrangements by seeking independent legal advice and ensuring the parties’ contributions and intentions are clearly documented in a legally enforceable agreement.   

Simply put, a granny flat interest is an agreement or arrangement for accommodation for life.  It sounds simple, but the reality is far more complex.  If there is an arrangement for accommodation for life but there is no formal written agreement in place between the parties, the arrangement may attract only equitable relief at best. Invariably, it is the older person who will need to seek relief (which can be problematic in terms of both financial cost and the impact on family relationships).

The real estate sector generally views granny flats as self-contained dwellings built as a secondary dwelling alongside a larger dwelling. A 2023 report identified granny flats as having the potential, across Australia’s three largest capital cities, to introduce 655,792 additional dwellings providing an immediate opportunity to address the severe shortage of housing in the cities (CoreLogic, Archistar, Blackfort Report Granny flats. Where are the greatest opportunities for development? October 2023).

However, for pension purposes, a ‘granny flat interest’ arises where the older person pays for a life interest or right of accommodation for life in a private residence wholly owned by another person(s), which will be the pensioner’s principal home. It is not necessary for accommodation to fall within the real estate industry’s definition of a granny flat for a granny flat interest to arise and what constitutes granny flat accommodation may vary. For example, the accommodation could range from a bedroom in someone’s home to an entire self-contained unit in someone else’s residence.

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