When granny flat arrangements go wrong – Part 1

 
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The main question for determination in Spink v Flourentzou [2019] NSWSC 256 was whether, by reason of payments totalling $147,000 made by Rickie Spink to her daughter, Dianne, and son-in-law, Mario, at around the time of the completion of the contract by which they acquired a house to live, Mrs Spink had an interest in the house, some other right to compensation or nothing.

Like many granny flat arrangements of this type, the house was registered in the sole names of the younger generation, Dianne and Mario Flourentzou. The intention was for Rickie Spink to live with them in the house but she had no registered interest in the house. Gradually, the relationship soured. They stopped communicating. Within three years Spink was asked to leave. At the time of the hearing she was dependent upon the pension and the goodwill of friends and acquaintances for accommodation. She was on a waiting list for public housing.

Like many granny flat arrangements of this type, the ‘granny flat’ arrangement was not documented. The Court found that Spink was to have an indefinite right to live in a separate part of the house that would be created for her benefit. The Flourentzous would not have any right to require Spink to leave the property, without undoing the effect of Spink contributing to the purchase and renovation of the house.

Like many granny flat arrangements of this type, when things go wrong the younger generation, here the Flourentzous, argued that the payments were gifts. At first instance this argument was rejected. A key reason the Court came to that conclusion was that Dianne was to have a personal obligation, on Spink’s death, to pay half of Spink’s contribution to the purchase of the house to Spink’s other daughter. The Court considered that the case was ‘on all fours with a significant number of cases in which a parent has made a contribution to the acquisition of a residential property by children on the basis that the parent would have an indefinite right to live in the property’.

In other words, this is not a one-off instance of family disharmony and undocumented arrangements!

The Court concluded that Spink was entitled to the return of her contribution to the acquisition and renovation of the house, plus interest, secured by an equitable charge over the house property. The Flourentzous appealed. They partly succeeded on a legal argument but failed in the outcome.

In the course of the appeal decision, the Court of Appeal (Flourentzou v Spink [2019] NSWCA 315) stated that a ‘transfer is a gift if it is made voluntarily and without receipt by the transferor of any material advantage in return’. It is an ‘absolute’ or ‘unqualified’ gift if ‘the donor intends that the donee should have enjoyment of the subject matter to the entire exclusion of the donor’. Where the donor reserves a right to a refund ‘or otherwise qualifies enjoyment of the subject matter by the donee, the case is sometimes described as one of “conditional gift”’. ‘Where money or property is transferred by way of conditional gift, a consequence may be that the transferee holds the money or property as a trustee’. The question is whether it is ‘the intention of the transferor (or putative donor) to create a trust which is binding upon the conscience of the donee’.

All of that is legal speak, of course. It meant that the Court of Appeal considered that the circumstances pointed decisively to a conclusion that ‘Spink did not outlay the $147,000 as an absolute gift intended purely as an exercise in altruism engendered by love and affection (or gratitude)… Spink made the outlay with an intention of thereby obtaining the right of residence that the arrangement envisaged for her’.

So the Florentzous succeeded in establishing that the payment was a gift. However, it was not an absolute gift but a conditional gift. Therefore, Spink retained her judgment for return of the funds plus interest (and most of her costs).

The moral is that the foreseeable circumstance of Spink leaving the house – whether voluntarily or involuntarily – should have been considered in advance, and the outcome of that occurrence agreed upon, and then carefully documented.

When things went pair-shaped, Spink needed to resort to legal remedies. But these weren’t clear cut. Even though Spink contributed money used for the purchase, renovation and refurbishment of the house, she had no registered interest in the house. And whatever interest she had was undocumented; it was unclear and subject to much debate and argument.

What a debacle!

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