Ground Rent

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What is Ground Rent?

Ground Rent, also called a leasehold, has its roots in the United Kingdom and dates back over three hundred (300) years, but operates somewhat differently in Baltimore. While the homeowner owns the house, they are essentially paying a fee to the ground rent owner for the use of the land. This fee may range from approximately $15-$240, as stated in the ground lease, and is typically paid twice a year. Castle Title will provide the amount due and the contact information for the ground rent owner, if known, to you in your title documents.

Can I cancel or dissolve the ground rent?

Usually, but not always. This processes is called redemption. By Maryland statute, the ground rent lease is for ninety nine (99) years, automatically renewable forever BUT, the homeowner usually has the right to redeem the ground rent. In exchange for a fixed amount (see next question), the ground rent owner will sign a merger deed, which cancels the leasehold and converts the property into fee simple ownership. Furthermore, the ground rent owner cannot refuse to sell you the ground rent, unless it was created prior to April 9, 1884 and was created in the ground lease as irredeemable.

What will it cost to redeem the ground rent?

There are two ways an amount can be determined. First, if the original lease states a redemption amount, quite simply, that is the amount required. If not, the Annotated Code of Maryland has set a capitalization rate. The capitalization rates are based on the date of the original ground rent lease, as shown below:

July 1, 1982 – Present – 12%
April 6, 1888 – June 30, 1982 – 6%
April 8, 1884 – April 5, 1888 – 4%
Prior to April 9, 1884 – Negotiable and possibly non-redeemable

To compute the redemption price, take the annual ground rent and divide by the capitalization rate. For example: If annual ground rent is $120.00 and created by a lease dated June 26th, 1949. Using the above capitalization rate, $120.00/.06 = $2,000.00.

Can I take out a mortgage on a leasehold property?

Yes, at the discretion of the lender. Some lenders, especially those based in or familiar with Baltimore, may not have an issue loaning money on a property with a ground rent. Other lenders, however, may require the ground rent be redeemed at or prior to settlement of their loan. If redemption is necessary, Castle Title will work with the ground rent owner on your behalf to obtain the needed information and merger deed.

Can the ground rent owner change these amounts?

No. The annual rent is fixed by the lease and can never change. The redemption price is fixed either by a stated amount in the lease or by Maryland law. (See above). You can, however, attempt to negotiate a redemption amount below the statutorily defined redemption amount with the ground rent holder.

Do I have to pay the ground rent?

Absolutely. This is a legal obligation that you accept when you take ownership of a leasehold property. The ground rent owner has a right to take legal action against the unpaid rents. If necessary, they can file suit to obtain ownership of your home to enforce the collection of the rent owed to them also known as an ejectment action. An ejectment action is similar to a foreclosure when you do not pay your mortgage.

How do I find my ground rent owner?

The State Department of Assessments and Taxation (SDAT) – will allow you to search for your property and then choose the “Ground Rent Registration” link in the upper right corner. If you are unable to find the results or you would like more information, such as copies of the lease and registration, Castle Title can obtain a ground rent search from our abstracter for a nominal fee.

What if the property is leasehold, but it is not registered or the owners are unresponsive? Can I still redeem it?

If the ground rent is unregistered or there has been no communication from the owner in three years, you can still purchase the ground rent directly from the State of Maryland through the Department of Assessment and Taxation. This can be a lengthy process that typically takes between twelve (12) and eighteen (18) months to complete.

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