When people hear about granny flats, they often think of small out-buildings constructed to house grandparents.

However, the humble granny flat has come a long way and their popularity has grown, with homeowners now seeing granny flats as a source of income or an affordable way to accommodate family.

This has largely resulted from recent changes in law in some states, which permit homeowners to construct a second dwelling on their property and rent them out to third parties.

What is a granny flat?

The definition of what constitutes a granny flat varies from state to state and local councils also have specific requirements. However, typically a granny flat:

  • is a secondary dwelling on a property, with the same title and owner as the principal dwelling;
  • is self-contained, having its own separate access, bathroom, kitchen, bedroom and living area;
  • is located on a residential property and not a property used for commercial purposes;
  • must be limited to one flat per property; and
  • can be a separate, free-standing structure or attached to the primary dwelling.

The various state laws for granny flats

In the past, it used to be the case that only dependent relatives could reside in a granny flat. Unfortunately for homeowners, that continues to remain the case in Victoria, South Australia and Queensland.

However, recent changes to legislation means that property owners in the ACT, Northern Territory, New South Wales and Tasmania can build a second dwelling where their principal place of residence stands and receive rental income from an unrelated third party. The lowering of restrictions on second dwellings arose in response to the rental market crisis and in a bid to boost affordable housing.

The laws governing granny flats are a national patchwork, but the basic requirements for each state set out permissible minimum lot size and maximum dwelling size. For example, in NSW in order to construct a granny flat, the minimum lot size must be 450m² and the maximum size the granny flat can be is 60m².

The relevant local council should be contacted to gain a better understand of their planning schemes and specific regulations regarding such things as setback, floor to ceiling heights and zoning.

Approval process for granny flats

A development approval from the local council is generally required before a granny flat can be constructed and rented out.

In NSW there is a streamlined approval process whereby granny flats can be deemed as a complying development if certain criteria are met. That means that approval to build a granny flat can be passed through a private certifier instead of the standard council processes.  The timeframe for council approval averages 6-8 weeks in NSW and as fast as 10 days through private certification.

Renting out a granny flat without approval

In a bid to capitalise on the recent legislative changes, a number of opportunists have put second dwellings on the rental market without first going through the relevant local council approval process. We understand that local councils have targeted granny flats which have been illegally rented to tenants.

If you are renting out a granny flat it is important to ensure that the granny flat is approved.  All it takes is for a disgruntled tenant or neighbour to notify the local council about an illegal granny flat. The council can then order that the dwelling be demolished or impose a fine.


Building a granny flat on your property can be an economical way of creating a rental return as well as adding value to the existing dwelling. However, care needs to be taken to ensure that the investment stacks up and that the construction of a granny flat meets all planning requirements.

If you or someone you know wants more information or needs help or advice, please contact us on 02 90020520 or email [email protected].