What is Ground Rent?

By
Real Estate Agent with TBD - In transition...

I have had several of my clients ask me about this. Especially those that are relocating from out of the area.

Below I have provided some information that I have gathered over the past few years and pass on to my clients. Hopefully, this will help you as well.

Maryland General Assembly ended its annual 90-day legislative session Monday, April 9.

The Ground Rent bill passed both the House and Senate, but have not yet been signed by Gov. Martin O'Malley. However, his signature is expected on it.

Ground Rent - No new ground rents are to be created; a ground rent registry is established; homeowner notification requirements are increased; and ground-rent holders are required to issue regular bills.

What Is A Ground Rent?
Ground Rents originated in Colonial America, to allow the colonists to own homes without paying for the land on which they lived. Ground Rents still exist in Maryland and various other areas around the nation.

In Maryland, the typical Ground Rent is a 99-year lease with an automatic renewal provision. With a Ground Rent, you pay the Ground Rent owner an annual amount (typically in semi-annual payments) to remain on the property. So long as the annual payments are made, the owner of the Ground Rent cannot remove you from the property. Hence, an individual may own the home in which he/she lives, but lease the property on which the home sits.

Redeeming a Ground Rent
A ground rent owner is required by law to sell or redeem the ground rent to the real property owner when requested. The purchase price for the Ground Rent is determined by taking the annual ground rent fee and multiplying it by the redemption rate (typically .04 - .12 depending on the year the lease was created)

Ground Rents created after April 8, 1884 may be redeemed or purchased from the Ground Rent owner (some Ground Rents created prior to April 9, 1884 may not be redeemable), by paying an amount equal to the annual Ground Rent multiplied by:

  • 25 (which is a capitalization at 4%), if the ground lease was executed from April 8, 1884 to April 5, 1888, inclusive;
  • 8.33 (which is a capitalization at 12%), if the ground lease was or is created after July 1, 1982; or
  • 16.66 (which is a capitalization at 6%), if the ground lease was created at any other time.

Thus, to redeem a $120.00 annual Ground Rent which was established in 1960, you would pay the Ground Rent owner $2,000.00 ($120.00 x 16.66).

The State of Maryland passed the Residential Ground Rent Redemption law, effective January 1, 2004, enabling the owner of a single family residential property who is the tenant under a ground lease on that property to redeem the lease where there has been no communication from the landlord for three years.

More Information on this stature visit - http://www.dat.state.md.us/sdatweb/ground_rent.html.

How can I tell if my property is fee simple or ground rent?
Sellers of real property are required to disclose the existence of a ground rent and the actual amount of the ground rent. Properties that do not carry a ground rent are classified as fee simple.

Researching the Ground Rent Owner or Amount
Ground rents are typically discovered during a detailed title search by a title company. Individuals can research a property's ground rent at the Clarence Mitchell court house in Baltimore City by checking with the recorder of deeds. Ground rents date back to the 1800's and the city has very poor record keeping, so locating ground rent information can sometimes be difficult.

How Much is My Ground Rent?
The ground rent amount is stated in the original property lease. The payment is typically made biannually.

Can the Ground Rent Amount Be Raised?
The ground rent owner may not raise the ground rent or change the redemption rate.

What if I cannot find the Ground Rent Owner?
If you purchase a property that is noted as having a ground rent, but are unable to locate any details regarding the ground rent amount or owner. The limit for back ground rent that can be collected is 3 years. If a buyer has lived in a property for 10 years and the ground rent owner demands payment of ground rent, the ground rent owner can only collect 3 years of past due ground rent and then may ask for future payments.

What happens if I do not pay the ground rent?
The ground rent owner after proper notice may attempt to claim the real property through legal action if ground rent is not paid for an extended period of time. Even if it’s not paid, the ground rent owner has to go through a court proceeding and give ample notice to the homeowner before any action can be taken that jeopardizes the homeowner’s rights to the property. The homeowner is liable only for three years’ back ground rent.

Thank you and best regards,  

Phillip Cross, e-PRO, REALTOR®

Helping people achieve their dreams, one home sale at a time.  

RE/MAX 1st Advantage
Office: (410) 882-6000
Mobile: (443) 677-7114
http://www.md-re.com/

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Phillip Cross

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