Understanding Ground Rent in Maryland
Topics on this page:
- What is Ground Rent?
- Ground Rent Rights and Responsibilities
- Redeeming (Purchasing) Your Ground Rent
What is Ground Rent?
Nearly unique to the Greater-Baltimore area, ground rent is a periodic monetary payment by a tenant to a ground leaseholder who holds a reversionary interest in the property or “ground” underneath a home. Specific terms and conditions are contingent on the actual language of the ground lease, but such leases often require payment from the lessee (homeowner) of between $50-150 per year, commonly paid in semi-annual installments.
In practical effect, a homeowner who is subject to a ground rent must make payment to a ground leaseholder for the right to dwell on the property. Full and timely payment to the leaseholder ensures this right perpetually, or until the lease expires and is not renewed.
Ground rent arrangements differ legally from a normal landlord-tenant relationship because the ground leaseholder has no reversionary interest in anything resting on the property or in the dwelling space built upon the property unless the leasehold tenant is delinquent in payment.
The absolute management and control of the property remains with the leasehold tenant so long as the ground rent is paid (Beehler v. Ijams, 72 Md. 193 (1890)). Consequently, the leasehold tenant has the authority to alter, remodel and reconstruct the property as s/he wills, but the tenant must ensure that their actions leave the reversioner’s rent secure (Crowe v. Wilson, 65 Md. 479, 484 (1886)).
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)). It is the sole responsibility of the homeowner to procure and make payment on any utilities that service the property.
When a home is purchased, the homeowner may determine if he or she is subject to payment of a ground rent by looking at the deed or by checking the property listing on the Multiple Listing Service Nationwide Database. If you are a ground rent tenant or leaseholder and you have a question, it is a good idea to contact an attorney.
Ground Rent Rights and Responsibilities
Title 8 of the Real Property Article of the Maryland Code contains the laws regarding ground rents. Subtitle 7 governs registry of ground leases, and subtitle 8 governs residential ground leases.
The Department of Assessments and Taxation maintains an Online Registry of Properties that are subject to ground leases. Ground leaseholders have to officially register their ground leases with the Department or face forfeiture of future collections on the leases. This system ensures that leaseholders and lessees have each other’s contact information so that collection problems need not arise through failure to receive payment notices.
Read the Law: Md. Code, Real Property § 8-704
Registered ground leaseholders are entitled to a lien against the property for the amount owed, and the leaseholder may foreclose upon the lien if the rent goes unpaid after a reasonable time. These foreclosure rights are like that of a bank when it forecloses on a mortgage. The law is meant to ensure that when the lien is foreclosed upon, the homeowner retains the equity in his or her home despite the forfeiture of the property.
Read the Law: Md. Code, Real Property § 8-402.2
If a ground lease is not registered, the ground lease holder may not:
- Collect any ground rent payments due under 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.
Read the Law: Md. Code, Real Property § 8-707
Redeeming (Purchasing) Your Ground Rent
Some residential ground rent tenants retain the right to “redeem” (purchase) the ground rent. The State of Maryland currently regulates the purchase prices for ground rents using a special algorithm. It accounts for both the leasehold value of the property as well as the lessee’s yearly earnings so as to prevent the leaseholder from creating excessive monetary barriers to redeeming one’s ground lease.
Ground rent lessees may obtain information regarding the purchase of their ground lease through the Department of Assessments and Taxation’s Ground Rent Redemption Program. If the leaseholder’s address is unknown, the tenant must post in a conspicuous place legal notice (sample notice) of his or her intention to purchase. The lessee has 30 days to comply or else forfeit future collections pursuant to the lease.
Should you wish to purchase your ground rent but are unable to afford it, the Maryland Department of Housing and Community Development offers a Ground Rent Redemption Loan Program through which income-eligible homeowners may redeem their ground rent.
Read the Law: Md. Code, Real Property § 8-804
The Historical Origins of Ground Rent
The concept of ground rent in Baltimore and surrounding counties may be traced back to colonial times, when colonists who wished to settle in the area paid taxes to Lord Baltimore for the right to do so.
As the old English lordship system was phased out, enterprising investors bought tracts of land from the newly sovereign colonial governments and allowed tenants who otherwise could not purchase land for themselves to make small, incremental rent payments as a less-expensive alternative to land ownership.
The practice was especially popular in the years following the American Revolution as many who were previously landowners were forced to begin again from scratch. What little wealth had been built in America’s infancy was in many cases erased by the War. Ground leases offered a post-war solution that required little initial investment, but afforded people with all the substantive perks of ownership, including a degree of sovereignty over their home.
The specific terms of these early leases were as arbitrary as they were various, but the popular practice was to set the leases to a term of 99 years with provisions for indefinite renewals thereafter so as to avoid the rule against perpetuities.
As the 99-year leases expired in the late 1800’s, only a very small percentage of them were actually renewed. The practice of drafting ground leases soon gave way to a higher rate of land ownership and more traditional landlord-tenant leases in which the landlord also owned the dwelling space.
Ground rents then resurfaced in Baltimore following the Second World War as investors bought up much of the land left vacant by those fighting overseas and drafted ground leases for the properties. When the soldiers returned to settle down and raise families, there was an enormous demand for low-cost home ownership in the City and surrounding counties. Many who were unable initially to afford both the land and the home built upon it jumped at the opportunity for small annual payments on the land in exchange for a larger initial investment in the home. Many of these leases, too, were drafted to expire after a period of 99 years, hence the lingering prevalence in the area.
Modern Ground Rent Developments
In the present day, ground rent is commonly viewed as a dying, yet no less legally binding, vestige of Maryland’s colonial past. Almost all of the remaining national instances of ground rent are confined to the Greater Baltimore area, isolated areas of Pennsylvania, and most of Hawaii.
Despite the irregular nature of ground rent law, many of the same provisions apply as to normal landlord-tenant relationships. If one pays his or her ground rent, the ground leaseholder receives payment on land that they own, and in return the lessee (homeowner) continues to justify his or her dwelling on the property.
The legal treatment of ground leases has created a problem, however. 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.
In recent years, according to articles in The Baltimore Sun during 2006 and 2007, several real estate firms and private entities have purchased thousands of inactive ground rents and tracked down the lessees for payment. As a result, some homeowners have been surprised to learn that their long-inactive ground leases are once again active and that in some cases they are considered delinquent in payment even though they had not been notified by their ground leaseholder of the renewal of their debt.
Before Summer 2007, leasehold entities were entitled to sue the homeowners for all back ground rent, charge interest on the debt, and bill the lessees for the legal and procedural costs associated with finding what are often new names, new addresses, and other pertinent billing information. Sometimes, the homeowner is unable to pay such debts in the short time required, in which case the leaseholder in entitled to pursue a judicially-ordered ejectment from the home.
According to Maryland law at the time, a successful ejectment also meant that the leaseholder seized ownership of the home and all associated equity. Potentially, a lessee who defaulted in ground rent payment risked losing the home to the leaseholder, who could then sell the home at market value for a price significantly higher than the original ground rent fees.
Thousands of cases have flooded the Maryland civil court system during these past few decades, especially following a poignant and thorough investigative series in the Baltimore Sun in December of 2006 titled “On Shaky Ground.” The often-ignored ground rent system gained notoriety for the long-standing provisions in Maryland law that allowed enterprising investors to evict Baltimore homeowners, then seize and sell their homes over simple nonpayment of ground rent. Sun investigations had turned up a particular case in which a family was forced to settle with the ground leaseholder to the tune of $18,000 or risk losing their home. Their back rent debt had amounted to all of $24 (Ground Rent case settled – for $18,000 The Sun 12/21/06).
The public response that followed The Sun’s ground rent series forced the Maryland General Assembly to make ground rent a legislative priority.
Ground Rent Legislation Controversy
On behalf of a coalition of displeased ground rent owners, attorney and ground rent trustee Charles Muskin filed a suit challenging the constitutionality of Maryland’s new laws prohibiting new ground rents and forcing ground leaseholders to comply with the State’s registry requirements.
Muskin contended that the new legislation infringed on his rights as a property owner to seek appropriate remedy for delinquent renters. He also claimed that the State’s mandates that he register his ground lease and pay the required administrative fees to the Department of Assessments and Taxation violated his rights under Maryland’s constitution.
In the case, Charles Muskin v. State Department of Assessments and Taxation (422 Md. 544 (2011)), the Court of Appeals ruled in favor of Mr. Muskin, ruling that allowing tenants to extinguish unregistered ground rents is an unconstitional taking.
In addition to the Muskin case, another group of ground rent holders filed a lawsuit against the state in November 2007 over a different provision of the 2007 law, which prohibited ejectments for residential ground leases on properties of four units or less, and established a lien-and-foreclosure process when tenants owe at least six months’ rent. In the case of State of Maryland v. Stanley Goldberg (437 Md. 191 (2013)), the Court ruled in favor of the ground rent holders, holding that “the ground leaseholder’s right of reentry must be viewed as an inextricable part of the bundle of vested rights which the Legislature may not abolish retrospectively.” In effect ground rent holders cannot be forced to file foreclosure actions in order to enforce their rights against the people living on the property.
The following book may be found at many of the public law libraries in the state.
11 Maryland Law Encyclopedia, Ground Rents.