A History of Ground Rent in Maryland

Ground rent is a distinctive characteristic of Maryland real estate law, especially common in Baltimore City and surrounding counties. It involves a homeowner owning the physical structure of a property but not the land beneath it. Instead, the homeowner leases the land from a ground lease holder and pays a recurring ground rent, typically a small, fixed fee paid twice a year, ranging from $50 to $150 annually . This practice, with origins in feudal England, has a long and intricate history in Maryland, dating back to colonial times . This report explores the historical development, evolution, and current status of ground rent in Maryland, including its impact on homeowners and communities.  

Origin and Historical Context of Ground Rent in Maryland

The roots of ground rent in Maryland trace back to 1632 when King Charles I of England granted Cecilius Calvert, the second Lord Baltimore, ownership of all the land in present-day Maryland . Calvert collected rents from colonists who settled and built on his land, establishing a system of land leasing that laid the foundation for the modern ground rent system. Following the American Revolution, the Maryland legislature broadened this system, granting any landowner the right to demand rent . In the early days, some landowners accepted alternative forms of payment, such as tobacco or even a single red rose, reflecting the historical significance of these tributes .  

Ground rent played a crucial role in Baltimore’s growth as an industrial powerhouse in the early 20th century. It facilitated the development of affordable housing, particularly rows of red-brick rowhouses with their iconic white marble steps. Developers recognized that working-class families could achieve homeownership more easily if they weren’t burdened with the cost of the land. By leasing the land at a minimal cost, developers could use the ground rent payments to generate profits and fuel further construction, expanding affordable housing options in the city .  

It’s important to understand the homeowner’s responsibilities in a ground rent arrangement. While they own the house itself, they are also responsible for maintaining the land and any improvements made to it, including the house . This means that homeowners are not only required to pay ground rent but also bear the costs of property upkeep and renovations.  

However, the ground rent system has always been a subject of debate. While intended to promote homeownership, concerns arose about developers potentially exploiting the system for profit and the possibility of substandard housing conditions emerging due to the separation of land and structure ownership . This tension between affordability and potential exploitation, particularly its contribution to racial disparities in housing, has been a recurring theme in the history of ground rent in Maryland .  

When considering a property purchase in Maryland, it’s essential to understand the distinction between “Fee Simple” and “Ground Rent” listings. “Fee Simple” indicates that the purchase price includes both the house and the land, while “Ground Rent” signifies that the buyer will be required to pay a fee to the landowner .  

Evolution of Ground Rent Laws and Regulations in Maryland

Maryland’s ground rent laws have evolved significantly over time, with notable changes occurring in recent decades. The Maryland legislature has taken steps to address concerns about homeowner protection and transparency in ground rent arrangements. Here’s a timeline of key legislative changes:

• Post-American Revolution: The Maryland legislature empowered any landowner to demand ground rent, expanding the system beyond the original grants by Lord Baltimore .  
• 1959: Delegate Joseph A. Acker introduced a bill to phase out ground rents by requiring that they be sold along with the homes, although this bill did not become law .  
• 2007: The Maryland General Assembly passed comprehensive legislation aimed at reforming the ground rent system . This legislation introduced several key changes:
  • Mandatory registration of ground leases: Ground lease holders were required to register their ground rent properties with the State Department of Assessments and Taxation (SDAT) . Initially, failure to register could result in the extinguishment of the ground rent, but this provision was later ruled unconstitutional .  
  • Elimination of ejectment: The law initially sought to eliminate the ground lease holder’s right to eject a homeowner for non-payment of ground rent . However, this provision was later overturned by the Maryland Court of Appeals .  
  • Notice and cure period: Ground lease holders were required to provide homeowners with a 60-day notice and an opportunity to cure any default before taking legal action .  
  • Redemption of irredeemable ground rents: Previously irredeemable ground rents were required to file a notice of intent to preserve irredeemability, or they would become redeemable .  

   
• 2023: Further legislation was enacted to enhance homeowner protections and simplify the process of redeeming ground rent . These changes included:
  • Expanded notice requirements: Ground lease holders are now required to use specific forms developed by SDAT when billing for ground rent, demanding payment, or taking legal action . This ensures that homeowners receive clear and consistent information about their rights and obligations.  
  • Clarification of registration: A ground lease is not considered registered until it is posted on the SDAT online registry . This promotes transparency and ensures that homeowners can easily verify the registration status of their ground lease.  
  • Repeal of waiting periods: Certain waiting period requirements for homeowners seeking to redeem their ground rent were repealed . This streamlines the redemption process and makes it easier for homeowners to gain full ownership of their property.  
  • Public interest declaration: The Maryland General Assembly declared that it is in the public interest for ground rents to be redeemed . This statement underscores the legislative intent to phase out ground rent arrangements and promote full homeownership.  

   

These legislative changes reflect a growing trend towards empowering homeowners and phasing out the ground rent system in Maryland.

Potential Impact of Ground Rent on Homeowners and Communities in Maryland

Ground rent can have both advantages and disadvantages for homeowners and communities in Maryland.

Positive Impacts:

• Increased affordability: Ground rent can make homeownership more attainable by lowering the upfront purchase price . This can be particularly helpful for first-time homebuyers and those with limited financial means.  

Negative Impacts:

• Financial burden: Ground rent constitutes an ongoing financial obligation for homeowners, which can pose challenges for those with fixed incomes or facing financial difficulties .  
• Risk of foreclosure: Failure to pay ground rent can result in legal action, including liens and foreclosure, potentially leading to the loss of the home . To illustrate this risk, consider the case of Deloris McNeil, a Baltimore resident who lost her home of 20 years due to falling behind on ground rent payments .  
• Complexity and confusion: The ground rent system can be intricate and difficult to navigate, especially for those unfamiliar with its specific rules and regulations . This complexity can lead to misunderstandings and disputes between homeowners and ground lease holders. The opaque nature of ground rent can further disadvantage homeowners and contribute to racialized dispossession .  
• Racial disparities: Studies indicate that ground rent disproportionately affects Black communities and low-income households in Baltimore, exacerbating racial disparities in wealth and housing security .  

Redeeming Ground Rent in Maryland

Homeowners in Maryland generally have the right to redeem their ground rent, which means purchasing the land from the ground lease holder . This allows homeowners to gain full ownership of their property and eliminate the ongoing obligation of ground rent payments.  

The process for redeeming ground rent involves notifying the ground lease holder and submitting an application to the State Department of Assessments and Taxation (SDAT), along with the required fee . The redemption amount is calculated based on a formula that considers the annual ground rent and the year the lease was created .  

Here’s a table summarizing the capitalization rates used to determine the redemption amount:

For example, if the annual ground rent is $100 and the lease was established in 1945, the redemption amount would be calculated as $100 divided by 0.06, resulting in $1,666.67. It’s important to note that legal fees and taxes may also apply during the redemption process .  

To further assist homeowners, the Maryland General Assembly has created a program that provides loans to eligible homeowners to help them redeem their ground leases . This program aims to make it financially feasible for more homeowners to achieve full ownership of their property.  

Significant Legal Cases and Disputes Related to Ground Rent in Maryland

Ground rent in Maryland has been the subject of numerous legal challenges and disputes, often revolving around the respective rights and responsibilities of ground lease holders and homeowners. These legal battles reflect the conflicting interests at play and the ongoing efforts to balance those interests within the framework of Maryland law .  

Here are some notable legal cases related to ground rent in Maryland:

• Muskin v. State Department of Assessments and Taxation (2011): This case challenged the constitutionality of the 2007 law that sought to extinguish unregistered ground rents. The Maryland Court of Appeals ruled that this provision was unconstitutional because it infringed upon the property rights of ground lease holders without due process or just compensation .  
• State of Maryland v. Stanley Goldberg, et al. (2014): This case examined the validity of the 2007 law that aimed to eliminate ejectment as a remedy for non-payment of ground rent. The Court of Appeals held that this provision was invalid because it interfered with the ground lease holder’s reversionary interest in the property, which includes the right to reclaim possession if the ground rent is not paid .  
• Westminster Management v. Smith (2024): This case provided clarity on the definition of “rent” in residential leases, including ground leases. The Supreme Court of Maryland ruled that “rent” refers only to the fixed, periodic payments made for the use and occupancy of the property. Landlords cannot allocate rent payments to cover other obligations, and penalties for late rent payments are limited to 5% of the monthly rent due .  
• Class action lawsuit in Anne Arundel County: This lawsuit challenges the constitutionality of ground rent reforms, arguing that they have rendered ground rent leases worthless and constitute an unconstitutional taking of private property without just compensation .  

These cases illustrate the complexities of ground rent law in Maryland and the ongoing efforts to ensure fairness and balance for both ground lease holders and homeowners.

Current Status of Ground Rent in Maryland

Ground rent remains a legal and relevant aspect of Maryland real estate, primarily concentrated in Baltimore City and some surrounding counties. The state continues to regulate ground rent arrangements, with a strong emphasis on protecting homeowners and ensuring transparency. Recent legislation reflects a clear policy direction towards promoting the redemption of ground rents as a means of phasing out the system .  

Here are some key aspects of the current status of ground rent in Maryland:

• Registration requirement: Ground lease holders must register their ground rents with SDAT to legally collect payments . This requirement helps ensure that homeowners are aware of their ground rent obligations and can identify the rightful owner of the ground lease.  
• Redemption rights: Homeowners generally have the right to redeem their ground rent, purchasing the land from the ground lease holder . This allows homeowners to gain full ownership of their property and eliminate the ongoing ground rent payments.  
• Limited ejectment: While ejectment is still a legal option for non-payment of ground rent, ground lease holders must adhere to strict notice requirements and provide homeowners with an opportunity to cure the default . This protects homeowners from losing their homes without proper notification and a chance to rectify the situation.  
• Financial assistance: The Maryland General Assembly has established a program to provide loans to eligible homeowners to help them redeem their ground leases . This program aims to make it financially feasible for more homeowners to achieve full ownership of their property.  
• Irredeemable Ground Rents Registry: All previously irredeemable ground rents became redeemable after April 1, 2023 . This significant change provides homeowners with the opportunity to gain full ownership of their property, even if their ground rent was previously considered irredeemable.  

Despite the reforms and legal challenges, ground rent continues to have a significant impact on homeowners and communities in Maryland.

Conclusion

Ground rent in Maryland has a long and intricate history, influenced by legal precedents, legislative reforms, and social and economic factors. While initially intended to promote affordable housing, the system has faced criticism and undergone significant changes over time. The current legal framework strives to balance the interests of ground lease holders and homeowners, with a focus on protecting homeowners from exploitation and promoting transparency. However, ground rent continues to present challenges and raise concerns about its impact on homeowners and communities, particularly in Baltimore City.

Recent legislation in Maryland demonstrates a clear shift towards encouraging the redemption of ground rents and ultimately phasing out the system. This reflects a growing recognition of the potential burdens and complexities associated with ground rent, as well as a commitment to promoting full homeownership and greater equity in housing.

The future of ground rent in Maryland is likely to involve continued debate and potential further reforms. As Maryland addresses issues of housing affordability, equity, and community development, the ground rent system will undoubtedly be a key consideration in shaping housing policy and ensuring fair and sustainable homeownership opportunities for all residents.

Richard Iarossi, REALTOR®
Coldwell Banker Realty
1300 Main Chapel Way, Gambrills, MD 21054
443.995.9595 Cell
410.721.0103 Office
richard.iarossi@cbmove.com
richsellshomes.com