Understanding Ground Rent in Maryland
Topics on this page:
- What is Ground Rent?
- How do I know if a property is subject to ground rent?
- What if I cannot contact the ground lease holder?
- What happens if I fail to pay ground rent?
- What does it mean to redeem ground rent?
- How much does it cost to redeem ground rent?
What is Ground Rent?
In certain situations, a homeowner owns the house they live in but not the land the house sits on. Someone else (the ground lease holder) owns the land and leases the land to the homeowner. Under Maryland law, a ground lease holder is entitled to rent payments from the owner of the home that is located on their land. These payments are known as ground rent.
Ground rent is most common in the Greater-Baltimore real estate market but exists throughout Maryland. Ground rent payments usually range from $50 to $150 per year and are typically paid semi-annually (twice a year). The language of the ground lease will set out the terms and conditions of payment. A ground rent lease is usually for 99 years and renews indefinitely.
Ground rent deals are different from normal landlord and tenant relationships. This is because the ground lease owner has no right to take back any property unless the tenant does not pay rent. That is, the ground lease holder doesn't have a reversionary right to the property or any structures built on it unless the homeowner fails to make the required payments. If the leaseholder is current with their ground rent payments, the property remains under their control.
The homeowner is responsible for maintenance of the land and any improvements on the land, including improvements made to the home itself (Kolker v. Biggs, 203 Md. 137, 141 (1953)). The homeowner has the authority to alter, remodel, and reconstruct the property as they wish, but they must ensure that their actions preserve the value of the land (Crowe v. Wilson, 65 Md. 479, 484 (1886)). Additionally, it is the sole responsibility of the homeowner to procure and make payment on any utilities that service the property.
How do I know if a property is subject to ground rent?
When a property is listed for sale, the property description should list whether the property has any applicable ground rent. If the property is listed as “Fee Simple,” the listing includes both the house and the property (ground) in the purchase price - there is no ground rent. If there is an indication of “Ground Rent” in a listing, it indicates that a fee must be paid to the owner of the ground on which the property sits.
If you own a home, or are looking to purchase a home, you can determine if a property is subject to payment of a ground rent by looking at the deed. Ground rent deeds are filed in the land records of the Circuit Court in the county where the property is located. In many cases, a deed for multiple ground rents owned by one owner will be written. Land records can be found on the website mdlandrec.net.
Maryland law requires that ground lease holders register ground rent leases on the Maryland State Department of Assessments and Taxation’s (SDAT) Ground Rent Registry. If you are unsure that your property has a ground rent, you can view the registration status through SDAT’s Real Property Search. (When viewing the property record, click on “View Ground Rent Redemption”)
If a ground lease is registered for your property, you are obligated to pay the ground rent to the ground lease holder. You should contact the owner listed on the registration form regarding payment of the ground rent or to inform the owner that you would like to redeem your ground rent. It is also your responsibility to notify the ground lease holder if you change your address or transfer ownership of the property. If you are a ground rent tenant (homeowner) or leaseholder and you have a question, it is a good idea to contact an attorney.
What if the property does not appear in the Ground Rent Registry?
Under Maryland law, a ground lease is not registered until it is posted in the online registry of ground leases. Amendments must also be registered. If a ground lease is not registered, the ground lease holder may not:
- Collect or attempt to collect any ground rent payments, late fees, interest, collection costs, or other expense related to the ground lease;
- Bring a civil action against the leasehold tenant to enforce any rights the ground lease holder may have under the ground lease; or
- Bring an action against the leasehold tenant under the ground rent laws.
If a ground lease is not registered, and the holder of the lease collects, or attempts to collect, ground rent payments, late fees, interest, collection costs or other expenses, the leasehold tenant may submit an affidavit to the State Department of Assessments and Taxation indicating that the lease holder is in violation of the law.
Once an affidavit has been received, the Department will notify the leaseholder of the alleged violation, and the leaseholder must submit evidence to show that their collection was not in violation of the law. If the leaseholder fails to submit evidence within 45 days of being notified, the Department may void the ground lease registration.
Either party may appeal the final decision of the Department to the Circuit Court. Appeals must be filed within 45 days of notice of the final decision.
NOTE: If you find that there is no ground rent registered on your property, there is nothing you must do. If you are contacted by a business claiming that you owe them ground rent payments, it could be a scam, or the ground lease holder is attempting to illegally collect payments that they are not entitled to.
Read the law: Md. Code, Real Property § 8-707.
What if I cannot get ahold of the ground lease holder?
If you purchase a property that is subject to ground rent and are unable to contact the ground lease holder, your mortgage company may want to set aside ground rent fees in escrow in case a ground lease holder appears and demands payment of rent. The maximum amount of back ground rent that can be collected is limited to three years. This means, if you have lived in house for ten years, and suddenly a ground lease holder appears and demands payment, they can only collect three years of back ground rent and then ask you to pay the annual fee moving forward.
Read the law: Md. Code, Real Property § 8-806.
What happens if I fail to pay ground rent?
If you fail to pay ground rent on time, the ground lease holder can file a lien against the home on their land for the ground rent owed. The ground lease holder may foreclose on the lien, just like a bank can when you fail to pay your mortgage. If the ground lease holder files an action in court to collect the past due ground rent, you may be required to pay the ground lease holder for fees and costs associated with the collection of the past due ground rent.
If you fail to pay any back ground rent, the ground lease holder may also file an action in court to take possession of the property. If they do so, you may be responsible for additional fees and costs and ultimately in your loss of the property. Prior to filing an action for possession, the ground lease holder must send two notices to you via first-class and certified mail.
NOTE: Under Maryland law, a ground lease holder may not demand more than 3 years of past due ground rent, and there are limits on how much a ground lease holder may be reimbursed for fees and costs. Additionally, you would keep any equity you have in the home rather than forfeiting it to the ground lease holder.
What does it mean to redeem ground rent?
If you don’t own the ground your home is on, you may be able to purchase it. To redeem ground rent is to purchase the land (or ground) your home sits on from the ground lease holder. Whether ground rent is redeemable or irredeemable depends on when the ground rent deed was created. A ground rent created after April 8, 1884 is redeemable and the owner must sell you the ground rent if you want to buy it. If you redeem the ground rent you would have absolute ownership of the property in fee simple.
The owner of a ground rent created after April 8, 1884 must sell you the ground rent at an amount fixed by Maryland law if you want to buy it. If the ground lease was established as irredeemable in the terms of the lease, the lease holder must have filed a notice of intention to preserve irredeemability in the land records by December 31, 2010. If a notice was filed, irredeemability continues through the current calendar year unless another 10 year notice is filed. If the lease holder did not file notice prior to December 31, 2010, or if they fail to file additional 10 year notices, the ground rent becomes redeemable.
Ground rent owners must provide homeowners with all the information necessary for the homeowner to purchase the ground rent. The ground lease holder must include a notice of your right to purchase the ground lease with each, and every, ground rent bill. Additionally, homebuyers must be notified that they can redeem their ground rent as part of the initial financing or refinancing of their property.
If you wish to redeem the ground lease, contact the ground lease holder. If the identity of the ground lease holder is unknown, the State Department of Assessments and Taxation provides a process to redeem the ground lease when there has been no communication from the landlord for three years.
Read the law: Md. Code, Real Property § 8-805.
How much does it cost to redeem ground rent?
The State of Maryland currently regulates the purchase prices for ground rents. The law accounts for both the leasehold value of the property as well as the lessee’s yearly earnings to prevent the leaseholder from creating excessive monetary barriers to redeeming one’s ground lease.
A purchase price is determined by taking the annual ground rent fee and dividing it by a capitalization rate. The capitalization rate is based on the year the lease was created:
- July 2, 1982 – Present – 12%
- April 6, 1888 – July 1, 1982 – 6%
- April 8, 1884 – April 5, 1988 – 4%
- Prior to April 9, 1884 – Negotiable and possibly non-redeemable.
For example, if the ground rent is $100 and the lease started in 1945, the calculation is $100 divided by .06. Thus, the cost to purchase your ground rent would be $1,666.67. There will also be legal fees and taxes involved in purchasing ground rent. The purchase of ground rent is a private financial transaction, and it is recommended that an attorney or title company be involved to assist with the research, paperwork, and required filings.
If you cannot afford to buy your ground rent the Maryland Department of Housing and Community Development’s Ground Rent Redemption Loan Program provides special loan financing available for income-eligible homeowners.
Read the Law: Md. Code, Real Property § 8-804
What if I inherit a ground lease property?
Ground rents may be bought, sold, and passed to next of kin through wills, like a home or a family heirloom. The leasehold interest in the property is considered personalty, and is governed by the law that directs the administration of personal estate (Myers v. Silljacks, 58 Md. 319, 330 (1882)). Each time the ground leasehold interest is passed to someone else, the administrative tasks increase in the form of paperwork, and sometimes through consultations with lawyers or through court appearances. For this reason, ground rent leases sometimes become more burdensome than beneficial for the new leaseholders.
When the leasehold interests change hands, the new leaseholders occasionally may not seek out the lessees for payment, and when no demands for payment arrive in the mail the homeowners are happy to oblige. However, Maryland law prior to 2007 put the legal burden on the lessees to find their ground leaseholders and make payments.