27/07/2020

With many baby-boomers dreading the prospect of going into an old-folks home, house-sharing may look like the answer. 

Doug is almost 80 but in quite reasonable health.  He can do a lot of things but his deceased wife used to run their home and he’s having issues handling everything. Hazel is in her early 60’s. She’s a widow and although she owns her home she’s got little savings. Both of them could move into a retirement village or aged care facility but the thought fills both of them with dread.

Enter Doug’s son who knows them both fairly well.  How about, he says, Hazel moves in with Dad and helps to look after him in return for free accommodation?  She can then rent-out her home and make some useful income that might improve her standard of living.

What a great idea, they say. Well, maybe; but unfortunately as lawyers it’s our job to pour the cold water of reality onto people’s great ideas and this is a good example.

There is a long list of things that should be considered (and documented) before deciding that this is going to work.

Let’s deal firstly with the personal issues.  Will they get on? Are they both clear on what is expected of each of them? If Doug thinks he’s got a 24/7 live-in maid then he’s going to be disappointed as Hazel is thinking maybe four hours per day. What precisely will she do for Doug – cleaning? cooking? laundry? shopping? chauffeuring? gardening? – let’s be clear.

Presumably she has her own bedroom (which Doug is absolutely forbidden to enter) but is there any other part of the house set aside for Hazel eg separate bathroom and or sitting room? Will they fight over the TV (and the TV remote) or are there two TV’s? Exactly what is Doug paying for?  Does it include food and drink as well as electricity, gas and water and if so what if Hazel is used to lobster on a regular basis? Can she park her car in the garage?

So far as behaviour is concerned, can either of them smoke in the house? Can they drink alcohol and if so, does that include “to excess”? Is Hazel allowed to have visitors and can Doug be present? Can her visitors stay over if they are men? What if the behaviour of either to the other is inappropriate?

There’s also the need to be specific about what each of them can’t do.  Such contracts are as much about setting expectations by being clear on what is not permitted as they are about agreeing the parties’ positive obligations.

How will the arrangement be brought to an end? How much notice can either give to the other? What if the other has acted really badly – can termination be immediate?

And then there’s a few technical issues.

Will the non-cash benefit Hazel receives be counted for social security purposes?  Will she be taxed on that non-cash benefit as effectively ‘income’? How might Hazel’s occupation of the premises affect Doug’s capital gains exemption for his principal place of residence?

Also is Hazel an employee of Doug’s in which event is he bound by all the employment laws including remitting any PAYG tax in respect of the value of her services and of course covering her with workers compensation insurance and ensuring his house meets the necessary occupational health and safety rules.  The agreement might happily say that Hazel is not an employee but whether she is or not is a matter of law not of agreement between the parties.

Then there’s the question of whether either of them is a financial dependant of the other for the purposes of tax law or superannuation law or to entitle them to make a claim on the other’s estate.  Again a question of law not amenable to change by agreement.

It is possible that all of these matters can be satisfactorily negotiated in order to make the arrangement work, but let’s be clear enough to get advice on them all before going into an arrangement that might cause more trouble and pain than you think, particularly at a time when the parties would be least able to handle that pain.

For further information, please contact Townsends Business & Corporate Lawyers on (02) 8296 6222 or email info@townsendslaw.com.au to see how we can assist.