It has been said that the road to hell is paved with good intentions.  The same could be said for the road to the courts, when families come into dispute over property arrangements.  Recently, the Queensland Supreme Court considered an appropriate outcome for the failure of a “granny flat” arrangement – where Bonnie C came to an agreement with her daughter Shannon A and son in law, Brett, for Bonnie C to contribute toward the price of a property and for its improvement to create a granny flat, in return for having the right to reside in that property for the remainder of her life. 

This sort of arrangement is not uncommon because it has – at first blush – advantages for all of the parties.  For the parent, it provides the security of being close to family, potentially a better place to live, and access to care.  For the children, it provides proximity to the parent, and the introduction of more money to buy a better property, with an increased capital value in the property.  There are also other benefits, particularly if the parties have a strong relationship or if the parent is able to help with looking after grandchildren or the property itself.

However despite the best of intentions and rosiest of expectations, tensions arise when people live in close proximity.  The most innocent of activities can become extremely annoying.  For some the “5 second rule” applies to visitors as much as food dropped on the floor.  The relationship can deteriorate, and continued living in close proximity become impossible.

As lawyers, we often become involved in these matters when there is a problem.  In many cases, that problem arises very early on, sometimes within a matter of days.  The issue however is that once the money has been spent and the parties are living in this new arrangement, how will a court deal with one of them wanting to leave, and what is their interest in the property?

In the dispute between Bonnie C, her daughter and son in law, the court considered this situation.  The judgment records the following:

  1. Shannon A invited Bonnie C to come to live with her and her husband and their family.  The proposal was that they would find an acreage property with a house for Shannon’s family and a separate granny flat for Bonnie.  Bonnie would contribute an amount to the purchase price of the property, and then an amount for the renovation of the granny flat.  Bonnie was to have a house space of her own for life, a garden that she could attend to, and a swimming pool. 
  1. The parties found a property at Ormeau and it was bought by Shannon and her husband.  Bonnie was not recorded as a part owner of the property, had she been recorded as a part owner, then it would have triggered certain rights under the Property Law Act, see our page https://www.qbmlawyers.com.au/can-of-co-owner-force-the-sale-of-property-in-queensland/
  1. The agreement between the parties was not in writing, and the parties had not agreed on what would happen if Bonnie left the property.
  1. The property was bought in late 2015 and by April 2017, Bonnie had completed the renovations to the granny flat and moved into it.  The parties were living in harmony, with Bonnie helping the Defendants to some extent with her grandchildren.
  1. Bonnie and Shannon came into disagreement in late 2017 .  While the parties continued on living in the same arrangement for several years, by April 2023, Shannon and her husband asked Bonnie to consider selling her share of the property to them and to move from the property.  Bonnie moved from the property shortly after that was put to her.
  1. In September 2023, Shannon and her husband offered to pay $250,000 to Bonnie, essentially returning to Bonnie the lion’s share of the $271,000 paid by Bonnie toward the acquisition and improvement of the property.
  1. Bonnie (who represented herself) considered that offer to be insufficient as she had sold her own home in 2015 which she had given up to live with her daughter, and wanted to be put into a position where she could buy again.
  1. Her Honour Justice Treston considered that a joint endeavour constructive trust had arisen, and had failed and that on the facts, Bonnie’s consideration (in other words “payment”) for the life interest in the property was her agreement that she would not have an interest in the capital improvement of the property.  She would lose the benefit of that agreement if she was and no longer able to live in the property, and the loss of it should be compensated.
  1. As such, Her Honour considered that the return of the initial contributions alone was not a just and equitable outcome.  Her Honour went on to say that, having regard to the circumstances including Bonnie’s sale of her own home in 2015, her contribution to the price, the cost of a replacement property, the unlikelihood of her being able to secure a mortgage or to return to work, and the absence of any return on her contributions would make it unconscionable and inequitable if Bonnie received only the return of her contributions.
  1. 10.Ultimately, Her Honour considered that the appropriate remedy was:
  • The return of Bonnie’s contributions in the amount of $270,092.83;
  • Compensation for the value of the life interest assessed at $120,000;
  • Interest on the amount of the contributions since 18 April 2023 fixed at $29,710;
  • That these amounts were secured by an equitable charge (ie similar to a mortgage) over the subject property.

There was also a question of costs.

  1. While Bonnie did not have legal representation, Shannon and her husband did.  It is difficult to speculate on the amount of costs that they paid in respect of the proceedings, it is safe to say that it is likely they exceeded $50,000 and possibly significantly so because – even though the trial of the matter occupied only 1 day – there were a number of court events and some 50 documents filed.  While they applied for an order for costs, it was refused, meaning that in addition to the payment to Bonnie, they paid their own costs. 

This matter demonstrates the risks associated with “granny flat right” agreements, and for that matter, any long term agreements in relation to property.  Those agreements should not be entered into without the parties giving thought to how they might fail and what to do if they do fail. 

For advice in respect of the co-ownership of property or for agreements and rights in respect of property, please contact our property lawyers Peter Muller at peterm@qbmlaw.com.au or Jessica Murray at jessicam@qbmlaw.com