By Richard McCullagh and Darryl Browne -
Snapshot
- Granny flat arrangements should be carefully recorded. Recollections of oral commitments may not be considered reliable.
- A well-drafted granny flat arrangement should record the agreed consequences of foreseeable events likely to befall the parties.
- Each party should receive independent legal advice.
- Elderly parties will be better protected if they have a legal proprietary interest in the granny flat that is proportionate to their financial contribution.
Three cases involving failed granny flat arrangements (‘GFA’) have reached the NSW Court of Appeal in the space of the last 15 months: Richardson v Lindsay [2019] NSWCA 148; Flourentzou v Spink [2019] NSWCA 315 and Wallis v Rudek [2020] NSWCA 207. Each case has its own message involving pain, pitfalls and predicaments. Combined, they tell a compelling story of the need for careful planning and clear drafting.
What is a granny flat arrangement?
A granny flat arrangement typically involves an older and younger generation making commitments for shared accommodation. In each of the above-mentioned appellate decisions, the younger generation (‘YG’) were daughter and son-in-law of the older generation (‘OG’). However, the arrangements are not confined to the traditional nuclear family. Commonly they involve younger members of a family promising to care for and support an older family member whose ability to live independently has diminished. There is often an element of intergenerational transfer of wealth, e.g. the older person may transfer the whole or part of their interest in their home to the younger generation for sub-market or nominal consideration; they may pay for renovations to the younger person’s house, or buy a property in the younger person’s name without having a commensurate, or any, proprietary share disclosed on the legal title.
The genesis of legal difficulty
At first instance in Spink v Flourentzou [2019] NSWSC 256, the Court reflected on the legal difficulties that arise in these circumstances: ‘The relationship between [the elder] and [YG] in relation to the property was a domestic one, although of a somewhat more complicated and unusual nature than a relationship between a cohabiting couple. When a claim is made by one party to a domestic relationship to have a beneficial interest in the property in which the parties to the relationship have lived that is different to the interest that arises out of the legal title, complicated questions may arise. Those questions involve issues concerning the intent of the parties at the time the property was acquired, the respective contributions in money and kind, whether the parties have agreed the consequences of a breakdown in the relationship, and what consequences should flow in the absence of any such agreement, if the party with legal title seeks to enforce exclusive ownership’ (at [18]).
