Intergenerational Planning Part 1: Unpacking Granny Flat Agreements

With growing financial pressures and the motivation to maintain both connection and independence, intergenerational planning has become more complex for some families. In fact, many are having to be creative with the options they pick to ensure that their elderly parents are properly looked after. One of these options is a granny flat arrangement. In the first part of our granny flat arrangement blog series, SE Lawyers Director Principal Melanie Heffernan looks at what a granny flat arrangement is, its advantages, and what to be aware of when entering into an agreement for one. Read on.

What is a Granny Flat?

By definition, a ‘Granny Flat’ is traditionally thought of as a self-contained bungalow on the adult child’s property, which can also be referred to as a Dependent Persons Unit. A granny flat does not need to be a separate dwelling. It can be either a separate room or space in the child’s home, as long as it provides exclusive occupancy for the elderly parent.

If both the child and their elderly parent agree to build a second dwelling for the granny flat in the child’s property, it must comply with council requirements and building regulations.

In Victoria, granny flat requirements are set by the Victoria Planning Provisions of the Planning and Environment Act 1987 and have certain requirements such as:

1. The granny flat unit must be movable, built on stumps or piers and not a fixed concrete slab;

2. Construction materials should be non-permanent;

3. The land size must be at least 450 square metres;

4. The granny flat unit must not exceed a gross floor area of 60 square metres or a planning permit will be required;

5. The granny flat unit must be self-contained with its own doorway, bathroom, toilet, kitchen, bedroom and living area;

6. Sewerage and water connection should be shared with the primary house on the land;

7. Some Councils require that the occupier of the granny flat unit be an elderly parent-dependent person only;

8. When the elderly parent stops living in the granny flat, the granny flat must be removed. 

The benefits of granny flat arrangements

Granny flat arrangements may suit an elderly family member who takes comfort from being close to their loved ones. A granny flat often allows an ageing parent to maintain independence whilst having ready access to family members for support, care and companionship.

It is important to formally document a granny flat arrangement between each party, particularly as the agreement helps the parent to secure entitlement to receive social security support (if eligible). An agreement also helps to minimise future family conflicts about the nature of the interest.

Granny flat arrangement with Centrelink

If a granny flat agreement is done properly, the sum of money paid by the elderly parent to the child in exchange of granny flat interest is likely to be exempt from activating the Centrelink gifting provisions. Depending on Centrelink's assessment of the elderly parent's financial situation, the parent may be eligible to keep their pension and Centrelink benefits such as concessions and rental assistance.

Thank you for reading part one of our granny flat blog series. In the second and final part, we will look at how granny flat arrangements can be treated in Wills and Probate, an example of a family pursuing this type of arrangement, plus how separation and financial difficulties can create different outcomes for each party in their agreement. To discuss the practicality and suitability of a granny flat arrangement for your family with our team at South East Lawyers, contact us to book an appointment.