Granny Flat Agreements & Life Interests: Ensuring Security and Legal Protection

A Granny Flat Agreement is a contractual arrangement that allows a person, often a parent, to occupy a property for a specified period, which can extend for their lifetime. This type of agreement is commonly used to provide security of residence and address pension-related concerns. Below, we explore the key aspects of Granny Flat Agreements and the option to register a life interest on the property title.

What is a Granny Flat Agreement?

A Granny Flat Agreement is a legal contract that governs the terms under which a person, such as a parent, can continue to live in a property. Typically, the property is transferred to another party, such as a family member, while the agreement ensures the parent retains the right to occupy the property.

It is important to note that this arrangement does not require registration on the property title. However, registering a life interest on the title can provide additional security and benefits, as outlined below.

Granny Flat Agreement vs. Life Interest Registration

Granny Flat Agreement (Contractual Rights)

Under this arrangement, the property is transferred to the new owner, and the agreement provides the parent with a contractual right to occupy the property. While this option ensures the parent has a secure place to live, their rights are enforceable only through the terms of the contract.

Granny Flat Agreement with Life Interest Registration (Proprietary Rights)

A life interest is a recognised estate in land that grants the parent a proprietary right to occupy the property for their lifetime. This interest is registered on the property title, offering stronger protection. Upon the parent’s passing, the property is transferred back to the new owner absolutely.

Stamp Duty Considerations

The transfer of property under a Granny Flat Agreement likely requires the new owner to pay Stamp Duty on the full market value of the property. However, if a life interest is registered, Stamp Duty is calculated on the value of the remainder estate, which may result in a concession. The State Revenue Office uses a formula based on the person's age and the property value to determine the applicable Stamp Duty.

Benefits of Registering a Life Interest

Registering a life interest provides greater security for the parent, as their right to occupy the property is clearly noted on the title. This ensures that third parties, such as creditors, are aware of the parent’s interest in the property. For example, in the event of bankruptcy proceedings involving the new owner, the property cannot be sold until the life interest has expired.

Additionally, registering a life interest can help protect against potential claims from other family members, such as Part IV claims, as it demonstrates the parent’s clear and protected interest in the property.

Pension Considerations

A person’s entitlement to a pension is means-tested, but their principal place of residence (PPR) is typically exempt from this test. If the PPR is transferred to another party, its value may be included in the means test unless the person retains a right to occupy the property. A Granny Flat Agreement, combined with a registered life interest, is often accepted as a way to ensure the PPR remains exempt from the means test (however, we urge the parties to obtain comprehensive financial advice before proceeding - see below).

Seeking Financial Advice

While Granny Flat Agreements and life interests can provide legal protection and address pension concerns, it is essential to seek personalised financial advice. We recommend consulting:

• An accountant;

• A financial planner; or

• Services Australia/Centrelink.

These professionals can provide tailored advice based on individual circumstances.

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Granny Flat Agreements and life interest registrations are valuable tools for ensuring security and legal protection for loved ones. By understanding the options and seeking appropriate advice, families can make informed decisions that best suit their needs. If you would like to discuss matters further, please contact our office on 03 9450 9400 to speak with one of our lawyers.