If a parent makes a decision to go ahead and build a granny flat at their child’s property, then documentation must be prepared including the following:

• A Deed of Agreement setting out who shall be funding the costs of the granny flat and the terms of the occupation, i.e. that the parent can live in the granny flat rent free for the remainder of his or her life or until the parent can no longer live in the granny flat. The agreement should also cover who will pay the rates, insurance, utilities, internet etc.
  • A Mortgage (or second mortgage if there is already a mortgage to the bank) in favour of the parent for the amount spent on the granny flat.  This enables the parent to obtain repayment of the amount paid by the parent if the occupation of the granny flat comes to an end (particularly if the property is sold).
  • An updated Will for the parent compensating any other children as the granny flat shall remain the property of the child after the parent’s death. Also the debt owing under the mortgage may be forgiven. There may be other matters to be included.

Granny flats are a good idea and often solve an accommodation problem for a parent.  However, it is important that all parties understand their rights and obligations before the project proceeds.  Sometimes after considering the risks, families proceed on the basis that the child builds and funds the granny flat and then the parent can leave without any financial loss if the arrangement does not work out.  There are lots of matters to consider and many options.

If you seek advice about anything raised in this article, or want further information, please contact us on 02 4928 7300 or email willsandestates@mullanelindsay.com.au.

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