Buying a Property With a Granny Flat or DPU in Melbourne

It looks useful, maybe even rentable, then the Section 32 vendor statement arrives and the paperwork looks thin.

The short answer: In Victoria, a backyard dwelling may be an older dependent person's unit, a newer small second home, or an unapproved structure. A vendor statement must disclose building permits issued in the previous seven years where there is a residence on the land, and it must also disclose public authority notices or orders that directly affect the property. If a material disclosure is missing or false before settlement, section 32K of the Sale of Land Act 1962 may give a buyer a right to rescind.

Is the granny flat legal, or just sitting there?

The legal status depends on how the structure was approved, not what the agent calls it. 'Granny flat', 'studio', 'bungalow', 'DPU' and 'second dwelling' can mean very different things in Victorian property law.

For a Melbourne buyer, the first job is to work out which bucket the structure falls into:

an older dependent person's unit, often called a DPU
a small second home under the newer Victorian rules
an unauthorised building with little or no permit trail

That distinction affects who can live there, whether it can be rented, what permits should exist, and what the vendor should have told you.

What is a dependent person's unit in Victoria?

A dependent person's unit is a movable building used to house someone dependent on a person living in the main home. It was not designed as a general rental dwelling.

Victorian planning rules have changed since December 2023. The older DPU pathway has transitional provisions, now extended to 28 March 2027, but an existing lawful DPU does not automatically become a free-standing rental unit. If you buy a house where the rear building is described as a DPU, don't assume you can lease it to a stranger after settlement.

We've seen this come up when a listing says 'perfect rental studio', but the permit history points to a dependent person's unit. That mismatch is a genuine risk because the use advertised at inspection may not match the use approved by council.

What is a small second home in Victoria?

A small second home is a self-contained dwelling of 60 square metres or less on the same lot as an existing home. Since the December 2023 Victorian changes, small second homes in Victoria can often be built without a planning permit, but a building permit is still required.

The small second home rules are more flexible than the old DPU rules because anyone can live there or rent it, subject to tenancy laws and the rest of the property approvals. That is why buyers are interested in them, especially where a backyard unit could help family or bring in rental income.

The limits still matter. A small second home must be 60 square metres or less, include basic self-contained facilities, sit on the same lot as the existing dwelling, and not be separately subdivided or sold away from the main home. It also must not be connected to reticulated natural gas.

For lots under 300 square metres in a residential zone, a planning permit can still be needed and the clause 54 assessment may apply. Compact villa blocks need care here because the backyard may look workable at inspection, while the planning controls say otherwise.

What if the granny flat has no permit history?

An unapproved granny flat is a settlement risk, not just a paperwork annoyance. If council records show no building permit, no final approval and no planning pathway, the buyer may inherit the problem after settlement.

This is where Section 32 illegal building works become more than a technical issue. A vendor cannot make the structure lawful by giving it a softer name in the listing. If the building work was recent enough to trigger disclosure, or if council has already issued a notice or order, those details should be dealt with in the vendor statement.

Council could later require engineering reports, rectification, removal, or a fresh compliance process. Your lender or insurer may also ask questions if the valuation mentions a second dwelling but the permit trail is thin.

What must the Section 32 say about a granny flat?

A Victorian vendor statement should disclose the legal matters that affect the land before the buyer signs. For a granny flat, DPU or small second home, the main checks are building permits, public authority notices, and owner-builder documents.

Building permits from the last seven years

If there is a residence on the land, section 32E requires details of building permits issued under the Building Act 1993 in the seven years before sale. A recent backyard dwelling, conversion or major fit-out should make you ask, 'Where is the permit?'

A permit is only part of the trail. You also want to know whether there is an occupancy permit or certificate of final inspection. A permit to start work is not the same as proof the work was finished and signed off.

Council notices and orders

Section 32D deals with notices, orders, declarations, reports and recommendations from public authorities that directly affect the land. If council has already queried the structure, the buyer should know before signing.

A notice might ask for documents. An order might require rectification, safety work, or removal. Either way, it should be raised before you commit.

Owner-builder documents

If the vendor acted as owner-builder and is selling within six years and six months of completion, extra documents may be required under section 137B of the Building Act 1993. That usually means a defects inspection report less than six months old, plus domestic building insurance where required.

We usually look closely at section 137B owner-builder reports when the permit names the vendor as builder or the works look like a recent DIY project. A self-managed backyard unit can be lawful, but the sale documents need to line up.

What red flags should buyers look for?

Compare the paperwork with what you saw on site. If the photos, floorplan and inspection tell one story, while the vendor statement tells another, slow down.

These are the red flags we would not brush aside:

The listing shows a second dwelling, but no permit is disclosed. It may be old, or it may never have been approved.
There is a permit, but no final approval. The structure may not have reached final sign-off.
The agent says it is rented, but the paperwork calls it a DPU. A DPU is not a general rental dwelling.
The unit is over 60 square metres. It may not fit the small second home pathway.
The lot is under 300 square metres. Planning permit requirements can still apply in residential zones.
The vendor was the owner-builder. Check the defects report and insurance position before you rely on the contract.
Council has issued a notice or order. That issue can follow the land, not the person who sold it.

For broader pre-signing traps, our guide to section 32 red flags that could cost you is a useful companion to this granny flat checklist.

Can you cancel the contract if disclosure is wrong?

You may be able to rescind before settlement if the vendor statement fails to comply or contains a materially false statement. Section 32K is the key buyer remedy, but timing and the facts matter.

Do not treat rescission as an automatic escape hatch. A small clerical slip is different from a missing building order, a recent undisclosed building permit, or a backyard unit described as rentable when the approval says DPU. The stronger the link between the missing disclosure and your decision to buy, the more serious the issue becomes.

The practical step is to raise the defect with the vendor's conveyancer straight away. Often the answer is a supplementary vendor statement with the missing permit, certificate, report or notice attached. If the missing document changes the risk of the deal, get advice before settlement, not after the keys are handed over.

How does a conveyancer check a granny flat before settlement?

A good review matches the legal documents against the physical property. The conveyancer is not replacing a builder, but they can spot when the vendor statement does not match the backyard.

A sensible pre-purchase check often includes:

reading the vendor statement against the listing, floorplan and inspection photos
checking whether a recent building permit is disclosed
asking for council building information where the permit trail is unclear
checking whether any planning permit, occupancy permit or final inspection certificate exists
reviewing owner-builder documents if the vendor carried out or managed the work
asking whether the proposed use, such as long-term rental or family accommodation, matches the approval

This is especially helpful in Melbourne auction campaigns, where buyers can feel pushed to decide quickly. A neat back studio in Thornbury or Moorabbin may be a bonus, but only if the documents support the way you plan to use it.

Frequently Asked Questions

Do I need to disclose a granny flat in a Victoria Section 32 vendor statement?

If a building permit was issued for the granny flat in the seven years before sale, the vendor statement must disclose it under section 32E of the Sale of Land Act 1962. Any council notice or building order that directly affects the land should also be disclosed under section 32D. Older structures may sit outside the seven-year permit disclosure rule, but the vendor still must avoid false or misleading statements about the property's condition or lawful use.

What is the difference between a DPU and a small second home in Victoria?

A DPU is a dependent person's unit: a movable building used to house someone dependent on a resident of the main home. A small second home is a newer Victorian category for a self-contained dwelling of 60 square metres or less on the same lot as an existing home. A small second home can be rented to unrelated people if the property otherwise complies, while a DPU is not a general rental dwelling.

Can I rent out a DPU on the property I'm buying?

No, not as an ordinary rental to anyone you choose. A DPU relies on use by a person dependent on a resident of the main dwelling, so renting it to an unrelated tenant can breach the approval basis. If rental income is part of your plan, check whether the structure is actually a small second home or another approved dwelling before signing.

What happens if I find an unpermitted granny flat after settlement?

After settlement, the section 32K rescission right is usually gone, so your options become harder and slower. You may need to deal with council, seek building advice, or consider claims about misleading conduct if the vendor or agent said something false. Council can issue notices or orders to the current owner, which means rectification costs can land with you.

Can I get a retrospective building permit for an unapproved granny flat?

You generally cannot get a clean, backdated building permit for work that has already been completed. The usual pathway is to have the structure assessed and work out whether it can be approved, certified, rectified or removed. The answer depends on the structure, the planning controls and the building standards that apply.

Does the seven-year Section 32 rule mean older structures do not have to be disclosed?

The seven-year rule applies to building permit details under section 32E. Other obligations can still matter, including council notices and orders, owner-builder requirements within six years and six months, and the general need to avoid misleading statements. An older backyard unit can still create risk if it was never approved or is being used in a way council has not accepted.

Is a granny flat a separate title from the main house?

No, a DPU or small second home is usually on the same title as the main residence. It cannot be subdivided or separately sold away from the main home. If a property is advertised as having a second dwelling with its own title, that is a different purchase and needs a separate title and contract review.

About the Pearson Chambers Conveyancing team

Pearson Chambers Conveyancing is a Melbourne-focused conveyancing firm helping buyers review contracts, vendor statements and settlement documents across the metro area. The team works with first-home buyers daily, including buyers weighing up auction pressure, building records and practical use of backyard dwellings. Granny flats, DPUs and small second homes are exactly the sort of detail the PC team checks before clients sign.

Sources we consulted

Talk to us before you sign

If you've spotted a granny flat, DPU, backyard studio or small second home on a Melbourne property, talk to Pearson Chambers Conveyancing before you sign or bid at auction. We'll review the contract and vendor statement, explain what has been disclosed, flag what appears to be missing, and help you decide what to ask for next.

Pearson Chambers Conveyancing offers a complimentary Section 32 contract review for first home buyers.

Email: contact@pearsonchambers.com.au

General information only, current as at the date of publication. Victorian conveyancing rules and legislation change frequently. Please contact the Pearson Chambers Conveyancing team for advice on your specific contract.