Beware of Granny Flats

(By Keith Hunter, Principal of Hunter Solicitors)

Over the years Hunter Solicitors has received numerous instructions from clients relating to disputes over arrangements with granny flats.

Initial intentions of the parties are usually good, with the adult child wanting to buy property incorporating a granny flat for a parent to live in, and in most cases the parent usually contributes quite a substantial amount of money towards the purchase of the property.

A pitfall can arise however if the relationship between the parent and child breaks down, and no formal document has been prepared to cover what is to happen in that event.

In the case of Swettenham v Wild held in the Court of Appeal, our client the Appellant, (the father), was successful in a claim against his daughter over a dispute arising over a granny flat. The father had previously struck a deal with his daughter and her husband that the father would buy a property for his daughter and son-in-law, on the basis the father would have the right to live in the granny flat attached to the property, for the remainder of his life.  Although the property was initially purchased in the father’s name, it was transferred after some time to the daughter and son-in-law, with the intention between the parties that the daughter and son-in-law would look after the father in his advancing years.

The situation worked well for a number of years with the father being accepted by his daughter’s family, frequently eating meals with them and spending time with them as a family unit.  Unfortunately though after several years the relationship broke down, due principally to the conduct of the daughter, and the father was forced to move out and borrow money so that he could move into a retirement village.

A claim for equitable interest in the property was mounted on behalf of the father, which meant that, although he had no legal title to the property as it was not in his name, he had the right to be given an interest, due to the intentions between the parties and the money he’d contributed.

In the Supreme Court Justice Mullins held that the father’s interest was limited to an equitable compensation, represented by the cost of his residing in similar accommodation for the rest of his life.  Consequently the daughter was ordered to pay $45,000.00 equitable compensation.

In a subsequent Appeal to the Court of Appeal, Hunter Solicitors on behalf of the father, argued that the Court should impose a constructive trust reflecting the breakdown of the joint endeavour pursuant to which legal title in the property had been transferred to the daughter.  The Court found in favour of the father, declaring that the daughter held legal ownership in the property, and ordered her to pay the father $213,760.00, as well as the father’s costs of the original Supreme Court trial, and his costs of the subsequent Appeal.

This was a wonderful result for the father in a legal sense, however he was put through the stress of litigation, as well as the trauma and inconvenience of being thrown out of his own home.

The very important message is that with granny flats, even though family is involved, a well written agreement should be drawn up by a solicitor and signed by all of the parties, setting out clearly and exactly what the facts and intentions of the venture are, as well as what will happen in the event of a relationship breakdown, or the death of one of the parties for example.

Speak with us before you take any steps, financial or otherwise, to enter into a granny flat venture.

© Hunter Solicitors, 2010