IF you intend to leave property to someone or if you think you are entitled to a nice piece of pie once a family member dies, you better make sure it is in writing.
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The NSW Court of Appeal recently considered the complex and at times, messy nature of inheritance and dashed expectations.
Dad owned a farm on which a homestead was situated.
Shortly before the birth of his grandchild, dad invited his daughter and her husband to live in the dilapidated homestead.
Daughter and her husband moved into the homestead in about 1991. Dad said nothing about a transfer of property.
He simply told the kids that if they could “make a home out of it”, they should move in. The kids then set about restoring the building through a contracted builder with dad paying for the restoration works.
Son-in-law acted as a caretaker of the homestead and conducted his transport business from the property.
He sought permission to farm on the homestead, but dad wanted to farm the land exclusively, and did so. The kids did not pay any rent to dad, nor did they pay for rates or taxes.
According to son-in-law, he obtained dad’s permission to build a shed in 1994. Dad’s approval was conditional on it not costing him any money.
Son-in-law alleged that around the same time, he had a conversation with dad regarding his dissatisfaction with the homestead arrangement.
Dad told son-in-law that he could continue to improve the property so long as it did not cost dad anything.
Dad said, “I am only here for another five years then I am out of here”. Dad denied this conversation took place.
Following this conversation son-in-law believed that Dad planned to transfer the property on which the homestead was situated to he and his wife in five years and that dad would no longer have any interest, farming or otherwise, in the property.
On this assumption the kids continued to improve the property, always seeking permission from dad, which was always granted on the proviso that it did not cost him anything.
The kids constructed four more bedrooms, a bathroom, laundry, sunk an additional bore, erected a shed and installed a swimming pool.
Son-in-law told the court that once five years elapsed, he asked Dad about the “five-year plan”.
Dad allegedly replied that it had been extended, saying, “I still need the property for a little longer…you can build your shed, though”.
Son-in-law asked if the kids had a future at the farm to which dad replied, “Yeah”. Dad denied this conversation occurred.
During 2003 to 2006, the kids made various further improvements to the property and constructed a tennis court and a cricket pitch on the same conditions. In total the improvements effected by the kids were valued at $175,000.
Daughter claimed that another conversation took place in 1999 between her and dad where she asked what was going on with “the plan”, stating that her family would re-start in town or elsewhere if there was no future at the farm.
Dad simply replied that the kids could not afford to do that. This conversation was relied upon to support a belief of the kids that the property would be theirs in due course. Dad also denied this conversation took place.
In 2010 dad told the kids that there had been “a big misunderstanding”. Dad gave evidence that he told the kids they had a future at the farm insofar as they could live in the homestead.
The court was told that Mr Hardie’s current will gives the farm to his son, not the Hardies. And this is what created the problem.
The trial judge ruled in favour of the kids, finding that dad encouraged the kids to make improvements and that those improvements gave a legal interest to the kids, allowing them to reside at the farm until dad died, after which the property would be the daughter’s.
The NSW Court of Appeal disagreed, stating that dad’s conduct only gave the Hardies a reasonable expectation of occupancy of the homestead for a long period, not ownership.
Reference was made to the right of dad to farm the property to the exclusion of the kids and therefore dispose of the property in his will as he saw fit.
The Court of Appeal ruled that the kids had benefited from living in the homestead for over 20 years without paying rent and that although they had paid for improvements this was offset by the fact they had lived in the homestead for free. Their equity in the property would prevent dad from kicking them out during his lifetime but nothing more.
Although this decision relates to a farm its theme is universal. Two reasonable people can look at the one set of facts in a very different light and it never hurts to have a written agreement to ensure everyone is on the same page.