What is Ground Rent, and should I worry about it?

Ground rent is not the big deal it once was. Ground Rent is a peculiar creation that exists in Maryland, Pennsylvania, and Hawaii. As it sounds, ground rent is a rent owed to the lease holder and owner of the ground. It originated in Colonial times as a method to facilitate home ownership when the land was too expensive for the tenant to buy. Most of the original ground rents expired after 99 years without being renewed. A new batch of ground rents were created following World War Two, to facilitate home ownership for returning GI’s. These ground rents also tend to have an expiration time of 99 years. Ground rents, after some controversy and sad evictions in recent years, have been reduced to a nuisance. Legislation has reduced the powers of the lease holders to collection of back rents, putting a lien on a property, and possible eviction only for amount owed. Any equity in the property stays with the homeowner. The old rule actually allowed the ground rent owner to keep all the property equity. Even the new laws may sound worrisome, but the dollar amounts involved tend to be very low. I have seen rents as low as $14 a year, and as high as $270 a year. Most ground rents can be redeemed for 8 to 25 times the annual ground rent depending on the year the rent was created. For the $270 ground rent that amounts to $6750 at the high end. Once redeemed, the land is owned in fee simple with no rents due. Ground rent exists on some pretty fancy and expensive homes as well as modest homes. In the current buyers market climate, it may be a quickly accepted condition of sale that the seller will redeem the ground rent and sell the property in fee simple.

Maryland’s Peoples Law Library has an excellent explanation of Ground Rent. Governor O’Malley signed a bill in 2007 prohibiting the creation of new ground rent.