Granny flat agreement

Granny flat agreement

by Christine Hopper

If Mum sells her home and lives with us do we need to have a formal granny flat agreement?

If Mum sells her home and lives with us a written granny flat agreement could avoid misunderstandings later.

Granny flat agreement ingoing payments specified in the granny flat agreement.

If the granny flat resident is to pay a substantial ingoing payment then you need to agree the amount of the ingoing payment and when it will be paid.

If the granny flat resident is an Age Pensioner then she would need to show Centrelink the granny flat agreement and the bank record of her payment. If the Pensioner had sold her former home to buy into her granny flat agreement then the home sale documents must also be shown to Centrelink.

Ongoing cost sharing to be shown in the granny flat agreement.

Some families are wealthy enough to take in an additional family member permanently and not expect any payment. Many families expect the granny flat resident to contribute to housekeeping expenses. If the granny flat is a self-contained apartment then the granny flat resident could pay of all of her own housekeeping costs and contribute to the utility bills.

How the electricity bills are shared between the granny flat resident and the hosts is a potential cause of friction. A separately metered granny flat is one solution. Where the granny flat is part of the home then a contribution for utility bills could be included in the granny flat agreement.

The Consumer Price Index, CPI, is an index of the changes in the costs of a ‘basket of goods’. Whilst your family might have a different pattern of household expenses to the CPI ‘basket of goods’, you would expect your household operating costs to increase when the CPI goes up. Age Pensions are increased to reflect changes in the CPI. Therefore it is not unreasonable to include in your granny flat agreement some mechanism for the granny flat resident’s contribution to housekeeping and/or utility bills to increase each year.

An advantage of having a documented granny flat agreement is that you could demonstrate that the granny flat resident is just sharing the costs of running the household and her host family is not generating an income from her contribution. Thus the host is not receiving from the granny flat resident ‘rent’ or ‘earned income’ that could be taxable or counted for income means testing at Centrelink.

Care expectations included in the granny flat agreement

Your granny flat resident might be strong and healthy with a full Driver Licence and available to be an active grandparent. But decades later, the grandchildren have their own Driver Licences and the granny is the one who needs personal care and assistance to attend her many doctor’s appointments.

Thus your granny flat agreement could set out your expectations for mutual care. Be specific about how many days each week, the granny is to collect the children from school and care for them until dinner time. Are you expecting the granny to be available all school holidays and as emergency carer when a family member is sick at home? Clarification of expectations and including a mutual care clause in the granny flat agreement could save distress later.

An exit clause in the granny flat agreement

Your family expects that the granny flat arrangement will continue as long the granny flat resident lives. Alas, continuing as a multi-generational family is not always possible. Thus an ‘exit clause’ in the granny flat agreement could be useful later.

Remember that if the granny flat resident exits the granny flat agreement within five years of paying an ingoing contribution then Centrelink would count the ingoing contribution as a ‘gift’ for the means testing purposes. For example, if a very healthy granny flat resident paid $300,000 when she came to live with her son but three years later she had a major stroke and needed nursing home care; Centrelink could count possibly $290,000 of the ingoing payment as an excess gift when calculating her means tested aged care fees and assessing her ongoing Age Pension amount.

Whilst the whole family could be happy with the granny flat arrangement, a change of circumstances could force a review. The exit clause in your granny flat agreement could allow for a gracious termination of the agreement when the host family need to move interstate or overseas.

Alas some families split up, your granny flat agreement needs to provide for its termination in a respectful manner not as another element of dispute.

What else do we write into our granny flat agreement?

The additional topics you could cover in your granny flat agreement are any factors that are important to your family.

One family might specify that the granny flat hosts cultivates fresh vegetables and that are the gardens be well maintained. Another family might insist that the granny flat resident does not smoke tobacco or consume any non-prescription drug in the granny flat and/or the granny flat hosts’ home.

The granny flat agreement for a self-contained unit might specify that other people are not to stay overnight in the granny flat without the written consent of the granny flat host. The granny flat host might not want to provide free accommodation to other family members or ‘friends’ on a long term basis.

Where can we get help with our granny flat agreement?

Christine at Financial Care Services is an independent financial adviser experienced with granny flat arrangements.

Christine also understands the fee scales for Commonwealth regulated aged care, Centrelink Age Pensions and DSP, and the DVA means tested Income Support Supplement.

A consultation with Christine at Financial Care Services could help you clarify your granny flat proposal and consider the potential aged care and Pensions implications of your proposal.

Contact Financial Care Services now to arrange to arrange a granny flat consultation.  

Call Christine now on (03) 9808 0338 to book your granny flat appointment.

Who prepares the granny flat agreement?

A stable and gracious family might be able to write their own granny flat agreement.
Whenever a large ingoing contribution is payable and/or the granny flat host is not the only close relative of the granny flat resident then involvement of a lawyer could prevent a relationship disaster later.

Christine at Financial Care Services could assist you with checking that your draft granny flat agreement actually reflects your granny flat proposal and that you have covered off all likely issues.

Can we change the granny flat agreement later?

As time passes and the granny flat resident gets older, the granny flat host and the granny flat resident might want to change their agreement. If you have a written agreement then you could agree to rewrite a particular clause to reflect your new situation.

For example, if the granny flat hosts are retiring from full time work and want to make a ‘sea change’ then you could revise the granny flat agreement to allow for the granny flat hosts and the granny flat resident to all move to another property. The revised granny flat arrangement might be for the granny flat resident to live in the main house with her hosts rather than in a separate self-contained granny flat apartment.

Big problems arise when the granny flat arrangement started without a formal agreement. If you did not specify the terms of the granny flat arrangement then you could have difficulty deciding what elements of the granny flat deal need changing when problems appear.

Next steps towards a granny flat agreement

Once you have discussed the outline of your granny flat agreement then contact Christine at Financial Care Services to arrange a granny flat consultation. Your granny flat deal might benefit from some modifications before you start drafting the detailed granny flat agreement.

Financial Care Services is an independent financial advisory service specialising in seniors in transition to new accommodation and DVA Centrelink Pensions.

Contact Financial Care Services to arrange for a granny flat consultation. You will receive the Financial Care Services’ Financial Services Guide and the Financial Care Services Granny Flat Arrangement Personal Financial Facts form.

To make an appointment for confidential, independent and professional advice about pensions, lifestyle or financial issues please contact Christine at Financial Care Services 03 9808 0338.

Disclaimer:
The information contained in this website is of a general nature only and does not constitute “financial advice”. You should obtain your own personal financial advice before borrowing or investing any money, entering a granny flat arrangement or moving in to any retirement village, lifestyle community or aged care facility.

Financial Care Services is licensed to provide financial advice to individual clients based on their personal situations.
All eligibility for Commonwealth benefits will be determined by Centrelink or DVA, based on your personal position as documented and the legislation and Regulations in force at that time.
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Contact Financial Care Services to start your granny flat discussions.