Ground rent is a relatively antiquated practice dating back to colonial times, and today it is very much a Baltimore-centric phenomenon. The term describes the practice where a homeowner pays only for the physical building and then “rents” the land that it sits on. If you’re new to Baltimore and unfamiliar with the essentials of ground rent, here’s a guide to help you understand the stipulations behind it and where you stand.
The history of ground rent
The concept of ground rent originated in the 1600s when King Charles I gave the second Lord Baltimore the land that was to become Maryland. According to the charter, Lord Baltimore was owner of the soil of Maryland and could charge rent to the colonists who wanted to build on that soil. Shortly before the American Revolution, the concept evolved into a system of annual rents reserved on leases for 99 years, and renewable forever.
Today, some people consider it a feudal practice, while others are even unaware that it exists, which can pose problems for homeowners who unknowingly fail to pay their ground rents and potentially face eviction.
How does ground rent work?
As defined by the People’s Law Library of Maryland, ground rent is “a periodic monetary payment to a ground leaseholder who holds a reversionary interest in the property or ‘ground’ underneath a home.” Essentially, the homeowner pays the leaseholder of the land for the right to live on the property.
So while you may own your home, someone else could own the ground it stands on. The Baltimore Multiple Listing Service lists properties for sale and indicates whether ground rent is applicable. Here’s what to look for:
Fee simple: you’ll own the house and ground when paying purchase price (no ground rent applies – you are, in essence, purchasing the ground rent).
Ground rent: you’ll pay a fee to the owner of the ground.
Check your individual ground lease for specific conditions. Most will require payment ranging from $50 to $150 per year, usually paid in semi-annual installments. Additionally, although the homeowner does not own the land, it is still his or her responsibility to maintain and take care of it.
Penalties for not paying
Failure to pay ground rents, which are typically nominal annual amounts, can result in huge consequences: Homeowners could potentially lose their homes through a process called “ejectment.” Be sure to double-check the terms of your lease and those listed in the MLS so you don’t find yourself in a similar situation.
In 2006, a Baltimore Sun investigation found that some ground rent holders were using the system to sue homeowners over delinquent ground rents. In many cases from 2000 to 2006, Baltimore judges sided with ground rent holders who had brought lawsuits, awarding them the homes that sat on the land, according to the Sun. The series of reports prompted legislative reform.
Court ruling about ground rents
A regulation that went into effect in 2007 required ground rent owners to register their ground rents into a database maintained by the Maryland Department of Assessment and Taxation. According to the regulation, owners had until September 30, 2010, to register their ground rents with the State.
On October 25, 2011, The Maryland Court of Appeals overturned that ruling, stating that the extinguishment of ground rents for failure to register them with the State was unconstitutional.
In 2012, a new bill was signed into law that requires ground rent holders to register ground rents with the State in order to collect payment. That law went into effect July 1, 2012.
Purchasing your ground rent
You may purchase and thereby extinguish your ground rent if you choose to do so. By law, the owner of the ground rent must sell or redeem the ground rent to the real property owner if requested. This price is determined by multiplying the redemption rate (which depends on the year the lease was created) by the annual ground rent fee. For more information on redeeming a ground rent, visit the Department of Assessments and Taxation’s website.