A short review of some ‘granny flat’ cases
In each of the real examples that follow it is interesting to consider whether any or all of them or any part of the conflict which they illustrate, might have been avoided had the parties considered entering into a clear agreement which attempted to contemplate some of the risks and the vagaries of life which eventually brought them into litigation.
These cases emphasise the recurring theme underlying arrangements which, for the most part, fail to take account of the risks, hazards and unforeseen outcomes of personal relationships and personal challenges which ill health, financial difficulty and ultimately death, present to the best of intentions.
There are many such cases and they will continue to occur between elders and their family and friends while ever communications are poor about the mutual intentions of the people concerned and how they intend to deal with the issues which life produces.
The case of M
The elder plaintiff then aged 72, engaged his only son as one of the defendants in litigation over funds which had been contributed to the extension of a house in which the family had lived.
In 1978, the plaintiff who was then aged 69 discussed with his son the possibility of selling his unit, having recently being widowed, and moving into the home owned by his son and daughter-in-law, and in which they were living with their two sons. The proposal was that the proceeds of sale of the home unit would be used to pay for the construction of a second storey extension to the house which would be occupied by the father. It was intended he would become a part of the family household, eat with them, do some household chores and help them with their business activities. It was not proposed that he would have any responsibility for rates or taxes or other household outgoings.
There was no discussion about the living arrangements or what would happen if the relationship broke down or if the son and daughter-in-law wanted to sell the house. There was no discussion about whether the proceeds of the sale of the unit were meant to be a gift or were characterized in any other way.
From the sale of the unit, an amount of $28,000.00 was put into an account which was eventually paid to the builder who completed the new second storey extension. Regrettably, soon after the extensions were completed, a breakdown occurred in the marriage between the son and daughter-in-law resulting in the departure of the son from the house. That was followed by a serious deterioration in the relationship between the father and daughter-in-law as a result of which he also left the house. A divorce followed and the son remarried and went to live in Melbourne.
The Supreme Court stated:
“… wide(r) equitable principles operate in the present case. The plaintiff spent money on the defendants’ property in the expectation, induced or encouraged by the defendants that he would be able to live their indefinitely as a member of their family. This expectation has been defeated by the occurrence of events which were not in contemplation when the money was spent and as a result of which any subsisting right of residence by the plaintiff in the property is now of no practical consequence. In my opinion, on the facts of this case, it would be unconscionable and inequitable that the defendants should now retain the benefit of the expenditure by the plaintiff of his money on their property free of any obligation of recoupment to him.”
In the event, the court ordered that the plaintiff father have an equitable charge over the house property in the amount which he had invested with interest and in that way, the demands of justice and good conscience were satisfied.
The case of Mrs G
A few years after the case of M, the Supreme Court dealt with a similar case involving mother and daughter. The plaintiff, Mrs G, had only one child who was the first defendant, Mrs C. Mrs C’s father was Mrs G’s first husband and shortly after separating from him, Mrs G purchased jointly with Mrs C a house in suburban Sydney. They lived together in the house for about three years until Mrs C was married.
His Honour found that both parties made contributions to mortgage repayments and other outgoings for the house and that they were in fact joint beneficial owners of the property. Mrs G remarried in 1968 and lived in the house with her husband for many years thereafter. However, her health began to deteriorate and she had a number of psychiatric illnesses during the 1980’s.
In 1987 Mr and Mrs C purchased a 25 acre property in a rural area south of Sydney where they lived with their four children. Mrs G’s mental condition however deteriorated in 1991 and Mrs C contemplated the possibility that both her mother and Mr G should move into a nursing home and sell the house. However, she had a conversation with her mother shortly afterwards to the following effect:
Mrs G: “Please, do not put me in a home.”
Mrs C: “Mum, I do not have any room for you.”
Mrs G: “Well, we should sell the property and build something on your property if you will take care of me.”
In the event, the house was sold and not long afterwards an order was placed for the supply and construction of a demountable home on Mrs C’s rural property.
In all, Mrs C received approximately $150,000.00 of which $38,000.00 was spent on purchasing the demountable home and $36,000.00 on the supporting services and environment including a new sewerage system, water tanks, fences, gates, water and electricity connections, landscaping, furnishings, furniture and removal expenses.
Mrs and Mrs G lived in the demountable home for about 18 months during which Mr and Mrs G suffered ill health. Mrs C incurred expenses in the purchase of a new lawnmower to maintain the grounds of the property including the demountable home together with the construction of additional toilet and shower facilities.
At the end of 1992, Mr and Mrs G moved from the demountable home to another house which they rented and gave as the reason for leaving:
“We had to leave because the relationship between my daughter and myself had deteriorated.”
By then Mrs G was 78 years of age. The demountable home remained unoccupied thereafter and up to the time of the claim brought by Mrs G against her only child.
After reviewing a number of issues including a claim of undue influence and finding that Mrs G was in fact the sole beneficial owner of the Rozelle property, His Honour then dealt with the claim. The Judge found that the agreement under the Contracts Review Act 1980 between mother and daughter in relation to the use of the mother’s share of the proceeds of sale of the house property was unjust in the circumstances at the time it was made. In making the finding, His Honour did not intend to be critical of Mrs C.
This is what the Court judgement said:
“In the circumstances existing in May 1991, could there have been a feasible alternative to the course which was taken, if Mrs G had then been represented by some notional independent and informed adviser?
I consider that one such alternative might have been for the costs associated with the demountable home to be funded out of the proceeds of sale of the house property before the division of those proceeds between Mrs G and Mrs C: in other words, for them to have equally borne those costs, on the basis that Mrs C was obtaining the advantage of improvements being erected on the … property and Mrs G was obtaining the advantage by right of residence for herself and Mr G there with ready access to Mrs C’s assistance.”
The case of Mr M2
This case illustrates the problems involved in the gift of property by a father to his son resulting in alterations and rebuilding to accommodate the father. The father had a number of children one of whom was the defendant and he invited his son together with his wife and four children to come and live with him. They lived in a house in Sydney for three years until 1996 when there were discussions about rebuilding the property as a result of which, for reasons partly involving the borrowing of money, the title to the house was put into the son’s name as the sole owner.
The main house on the property was demolished and a new house was constructed after the son raised a substantial amount of funds by way of mortgage. The father meanwhile declined an offer to live in the house and remained living in quarters attached to the garage. The residential arrangements continued for a few years when the relationship broke down and the father was ejected from the property and did not return.
In an affidavit sworn by the solicitor who acted on the property transfer and mortgage transactions, reference was made to a conversation which dealt with the intentions of the father and son and why they did not want to put the arrangements in writing:
“The father told me this was a family arrangement and he wanted to transfer the property to his son for free. The defendant son then told me that the house was very old and in a very poor condition. He had put in much labour and work to put the house in a livable condition since he moved in to live with his father. The house still required lots of maintenance and work and he wanted to pull it down, build a new house on the land to get a new car for his father. The way to carry out this plan was to have the property transferred to his name so that he could apply to the bank for finance with the property as a security. He also mentioned that he would carry out this arrangement as his father so wished only if the property would be under his sole name.
Both father and son expressed that they did not want to put the family arrangement in writing as they wanted to save costs and being one family living under one room, a Deed of Family Arrangement will not be required.”
The Court found that the elements of the relationship and the arrangement in this case were as follows:
- The father would give his property to the son as a gift;
- The son would demolish the house with funds he borrowed to erect a new house on the property;
- A new house would include a bedroom and ensuite bathroom for the father;
- The father would on completion of reconstruction have the use of bedroom and ensuite and would reside with the son’s family in the house.
The judgment stated that :
“If one adopts a somewhat conservative view of what was said (there is) a need to find some appropriate triggering situation in order to attach a constructive trust.”
In Muschinski (a 1985 High Court case) Justice Deane found the triggering situation was the analogy between the failed personal relationship and a joint venture which failed without attributable blame …
(and in another case in 1994) Bryson, J had the following to say about the expression “attributable blame”:
“A breakdown in personal relationships among the persons who were to share occupancy of a dwelling is the kind of event which can remove the substratum of the whole arrangement. There were such circumstances in Morris v Morris ((1982) NSWLR 61).”
In the circumstances the Court found that this was an appropriate case where there should be the imposition of a constructive trust in making an order which involved the requirement of a payment of $20,000.00 by the son to the father. This is what the Court said:
“… it should usually be understood … that where personal relationships deteriorate and the sharing of a dwelling becomes intolerable to some or all of those concerned, there is, …, no attributable blame and the case is one for an equitable adjustment. It is a sadly occurring judicial experience to see that family relationships do deteriorate and become intolerable, and that the persons involved did not foresee that this might happen.”
The best way to take precautions to avoid such outcomes is to carefully consider the risks and the options and then to commit the agreement to writing, preferably with the assistance of a lawyer.