3.2 Maryland Ground Rent System

What Ground Rent Is

Ground rent is a Maryland leasehold arrangement, heavily concentrated in Baltimore City and parts of Baltimore and Anne Arundel Counties. The homeowner owns the improvements (the house) and holds a long-term ground lease — historically 99 years, renewable forever — on the underlying land. The homeowner pays a small annual ground rent to the ground lease holder (sometimes called the ground rent owner or reversioner).

Ground rent originated in colonial Maryland to let buyers acquire homes without purchasing the land outright, keeping housing affordable.

Redemption: Buying Out the Ground Rent

Most residential ground rents are redeemable — the homeowner may purchase the ground lease holder's interest and convert the property to fee simple. The redemption price is the annual ground rent divided by a statutory capitalization rate, and that rate depends on when the original ground lease was created:

Worked example: A ground rent of $120/year on a lease created in 1955 falls in the 6% bracket. Redemption price = $120 / 0.06 = $2,000. The same $120 rent on a 1990 lease (12%) redeems for only $120 / 0.12 = $1,000.

SDAT Registration (2007 Reform)

Following reforms enacted in 2007, every residential ground lease must be registered with the Maryland State Department of Assessments and Taxation (SDAT). A holder who fails to register loses the right to collect the ground rent and may have the reversion extinguished. This shifted the burden onto ground rent holders to identify themselves through the public registry.

The registry serves to:

• Track every active residential ground rent in the state.
• Let homeowners locate the holder so they can pay or redeem.
• Bar collection by unregistered holders.

End of Ejectment

Older study materials say a homeowner who misses ground rent can lose the entire house through ejectment. That is outdated. The 2007 legislation abolished ejectment as a remedy for residential ground rent arrears. The modern remedy is a regulated process: the holder may file to obtain a lien for unpaid rent (plus limited late charges and expenses) and pursue collection, but the harsh historical outcome of seizing the home is no longer available for residential ground rents.

Licensee Duties

Under Real Property Article 8-811, a contract for the sale of a property subject to ground rent must contain a specific ground rent notice. Maryland licensees must:

1. Disclose that the property carries ground rent.
2. Include the 8-811 notice in the contract.
3. Identify the registered holder and the annual amount.
4. Explain the buyer's right to redeem and the redemption price.
5. Recommend a title search confirming ground rent status and registration.

Trap: Ground rent is not the same as an HOA fee or property tax. It is rent for land under a lease, with its own statutory redemption formula.

Ground Rent vs. Fee Simple

Understanding how a leasehold differs from outright ownership is a common state-portion question.

Note that the homeowner — not the ground lease holder — still pays the property taxes, because the homeowner holds and occupies the improvements. That catches many candidates who assume the landowner is taxed.

Why Ground Rent Matters at Settlement

When a ground-rent property sells, the buyer either continues the lease and assumes the rent obligation or redeems before or at closing. The ground rent is prorated to the settlement date so the seller pays for the days they owned the home and the buyer pays from settlement forward. The settlement agent must confirm the holder is registered with SDAT, because an unregistered holder cannot collect.

Common Ground Rent Traps

• It is not an HOA fee. Ground rent is rent for leased land under a ground lease, with a statutory redemption formula; HOA dues fund a community association and are not redeemable.
• It is not a property tax. Ground rent goes to a private holder, not the county.
• The redemption rate is date-driven. Always check the lease creation date before computing redemption — using 6% on a post-1982 lease doubles the price.
• Ejectment is gone. Citing ejectment as the modern penalty for non-payment is the classic outdated-answer trap.

Capitalization Math Refresher

The redemption formula is simply annual rent / capitalization rate. Lower cap rate means higher redemption price. A $60 rent redeems for $1,000 at 6% but only $500 at 12%. Memorize the rate brackets and you can solve any ground-rent computation the PSI exam offers.

Licensee duty recap: disclose ground rent, insert the Real Property Article 8-811 notice, name the registered holder and amount, and explain the buyer's redemption right and price.