Understanding Ground Rent In Maryland
- Real Estate and Other Housing
- Homeownership
- Understanding Ground Rent in Maryland
Understanding Ground Rent in Maryland
Topics on this page:
What is Ground Rent? How do I understand if a residential or commercial property is subject to ground lease? What if I can not get in touch with the ground lease holder? What happens if I fail to pay ground lease? What does it mean to redeem ground lease? How much does it cost to redeem ground rent?
What is Ground Rent?
In certain situations, a homeowner owns your house they live in but not the land your home 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 lies on their land. These payments are referred to as ground rent.
Ground lease is most typical in the Greater-Baltimore genuine estate market but exists throughout Maryland. Ground lease payments normally vary from $50 to $150 each year and are generally paid semi-annually (twice a year). The language of the ground lease will set out the conditions of payment. A ground rent lease is usually for 99 years and restores indefinitely.
Ground lease offers are different from typical property manager and occupant relationships. This is since the ground lease owner has no right to take back any residential or commercial property unless the tenant does not pay rent. That is, the ground lease holder doesn't have a reversionary right to the residential or commercial property or any structures built on it unless the house owner fails to make the needed payments. If the leaseholder is present with their ground lease payments, the residential or commercial property stays under their control.
The property owner is responsible for upkeep of the land and any improvements on the land, consisting of enhancements made to the home itself (Kolker v. Biggs, 203 Md. 137, 141 (1953 )). The homeowner has the authority to change, renovate, and reconstruct the residential or commercial property as they want, but they need to guarantee that their actions protect the value of the land (Crowe v. Wilson, 65 Md. 479, 484 (1886 )). Additionally, it is the sole duty of the property owner to procure and pay on any energies that service the residential or commercial property.
How do I know if a residential or commercial property goes through ground lease?
When a residential or commercial property is listed for sale, the residential or commercial property description should note whether the residential or commercial property has any appropriate ground lease. If the residential or commercial property is noted as "Fee Simple," the listing includes both the home and the residential or commercial property (ground) in the purchase rate - there is no ground rent. If there is a sign of "Ground Rent" in a listing, it indicates that a cost should be paid to the owner of the ground on which the residential or commercial property sits.
If you own a home, or are aiming to purchase a home, you can determine if a residential or commercial property goes through payment of a ground rent by looking at the deed. Ground rent deeds are submitted in the land records of the Circuit Court in the county where the residential or commercial property is located. In most cases, a deed for multiple ground leas owned by one owner will be written. Land records can be found on the website mdlandrec.net.
Maryland law requires that ground lease holders sign up ground rent leases on the Maryland State Department of Assessments and Taxation's (SDAT) Ground Rent Registry. If you are unsure that your residential or commercial property has a ground rent, you can see the registration status through SDAT's Real Residential or commercial property Search. (When viewing the residential or commercial property record, click "View Ground Rent Redemption")
If a ground lease is registered for your residential or commercial property, you are bound to pay the ground rent to the ground lease holder. You need to contact the owner listed on the registration type regarding payment of the ground rent or to notify the owner that you want to redeem your ground rent. It is likewise your responsibility to alert the ground lease holder if you change your address or transfer ownership of the residential or commercial property. If you are a ground lease renter (property owner) or leaseholder and you have a question, it is an excellent idea to get in touch with a lawyer.
Read the law: Md. Code, Real Residential Or Commercial Property § 8-703; § 8-704; § 8-705.
What if the residential or commercial property does not appear in the Ground Rent Registry?
Under Maryland law, a ground lease is not signed up up until it is posted in the online registry of ground leases. Amendments need to likewise be registered. If a ground lease is not signed up, the ground lease holder may not:
1. Collect or attempt to collect any ground lease payments, late fees, interest, collection costs, or other cost associated to the ground lease; - Bring a civil action versus the leasehold tenant to enforce any rights the ground lease holder might have under the ground lease; or
- Bring an action against the leasehold occupant under the ground rent laws.
If a ground lease is not registered, and the holder of the lease gathers, or efforts to collect, ground lease payments, late charges, interest, collection costs or other expenses, the leasehold occupant might send an affidavit to the State Department of Assessments and Taxation showing that the lease holder is in infraction of the law.
Once an affidavit has been received, the Department will inform the leaseholder of the supposed infraction, and the leaseholder must send proof to show that their collection was not in offense of the law. If the leaseholder fails to send proof within 45 days of being informed, the Department may void the ground lease registration.
Either party may appeal the decision of the Department to the Circuit Court. Appeals must be submitted within 45 days of notification of the decision.
NOTE: If you discover that there is no ground rent signed up on your residential or commercial property, there is nothing you must do. If you are called by a business claiming that you owe them ground rent payments, it could be a rip-off, or the ground lease holder is trying to illegally collect payments that they are not entitled to.
Read the law: Md. Code, Real Residential Or Commercial Property § 8-707.
What if I can not get ahold of the ground lease holder?
If you buy a residential or commercial property that undergoes ground rent and are not able to get in touch with the ground lease holder, your mortgage business may wish to set aside ground lease costs in escrow in case a ground lease holder appears and demands payment of lease. The maximum amount of back ground rent that can be gathered is restricted to 3 years. This suggests, if you have lived in home for 10 years, and all of a sudden a ground lease holder appears and demands payment, they can just collect 3 years of back ground lease and after that ask you to pay the yearly cost moving on.
Read the law: Md. Code, Real Residential Or Commercial Property § 8-806.
What happens if I fail to pay ground lease?
If you fail to pay ground rent on time, the ground lease holder can submit a lien versus the home on their land for the ground lease owed. The ground lease holder might foreclose on the lien, much like a bank can when you stop working to pay your mortgage. If the ground lease holder submits an action in court to collect the past due ground lease, you might be needed to pay the ground lease holder for costs and costs associated with the collection of the past due ground lease.
If you stop working to pay any back ground rent, the ground lease holder might likewise submit an action in court to take belongings of the residential or commercial property. If they do so, you may be accountable for extra costs and costs and eventually in your loss of the residential or commercial property. Prior to filing an action for belongings, the ground lease holder need to send two notifications to you by means of first-class and licensed mail.
NOTE: Under Maryland law, a ground lease holder may not demand more than 3 years of past due ground lease, and there are limits on just how much a ground lease holder might be repaid for charges and expenses. Additionally, you would keep any equity you have in the home rather than forfeiting it to the ground lease holder.
Read the Law: Md. Code, Real Residential Or Commercial Property § 8-402.2; § 8-806; § 8-807.
What does it indicate 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 lease is to acquire the land (or ground) your home rests on from the ground lease holder. Whether ground lease is redeemable or irredeemable depends on when the ground lease deed was produced. A ground lease created after April 8, 1884 is redeemable and the owner needs to sell you the ground rent if you wish to purchase it. If you redeem the ground lease you would have outright ownership of the residential or commercial property in fee simple. The owner of a ground rent produced after April 8, 1884 need to sell you the ground rent at an amount fixed by Maryland law if you desire to buy it. If the ground lease was developed as irredeemable in the regards to the lease, the lease holder should have filed a notification of intention to preserve irredeemability in the land records by December 31, 2010. If a notification was filed, irredeemability continues through the current calendar year unless another 10 year notification is filed. If the lease holder did not submit notice prior to December 31, 2010, or if they fail to file extra ten years notices, the ground rent ends up being redeemable. Ground rent owners need to provide homeowners with all the details needed for the homeowner to purchase the ground rent. The ground lease holder need to consist of a notification of your right to buy the ground lease with each, and every, ground rent expense. Additionally, homebuyers should be notified that they can redeem their ground lease as part of the preliminary financing or refinancing of their residential or . If you want to redeem the ground lease, call the ground lease holder. If the identity of the ground lease holder is unknown, the State Department of Assessments and Taxation offers a procedure to redeem the ground lease when there has been no communication from the property manager for three years.
Read the law: Md . Code, Real Residential Or Commercial Property § 8-805.
Just how much does it cost to redeem ground lease?
The State of Maryland presently manages the purchase prices for ground leas. The law represent both the leasehold value of the residential or commercial property along with the lessee's annual incomes to prevent the leaseholder from creating extreme financial barriers to redeeming one's ground lease.
A purchase rate is figured out by taking the yearly ground rent fee and dividing it by a capitalization rate. The capitalization rate is based upon the year the lease was developed:
- 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 instance, if the ground rent is $100 and the lease started in 1945, the calculation is $100 divided by.06. Thus, the expense to acquire your ground lease would be $1,666.67. There will likewise be legal charges and taxes included in purchasing ground lease. The purchase of ground lease is a private financial deal, and it is recommended that an attorney or title company be involved to help with the research study, documents, and required filings.
If you can not afford to buy your ground rent the Maryland Department of Housing and Community Development's Ground Rent Redemption Loan Program offers special loan funding offered for income-eligible property owners.
Read the Law: Md. Code, Real Residential Or Commercial Property § 8-804
What if I inherit a ground lease residential or commercial property?
Ground rents might be purchased, sold, and passed to next of kin through wills, like a home or a family treasure. The leasehold interest in the residential or commercial 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 somebody else, the administrative jobs increase in the type of documents, and sometimes through assessments with legal representatives or through court looks. For this factor, ground lease leases sometimes end up being more burdensome than useful for the new leaseholders.
When the leasehold interests change hands, the new leaseholders periodically might not look for out the lessees for payment, and when no demands for payment get here in the mail the property owners more than happy to require. However, Maryland law prior to 2007 put the legal problem on the lessees to find their ground leaseholders and make payments.