Opinion ID: 2681037
Heading Depth: 2
Heading Rank: 1

Heading: History of Ground Rents in Maryland

Text: Leases for ground rents have been present in Maryland since Colonial times. Banks, 45 Md. at 218. Like any lease, they are intended to benefit mutually the lessor and lessee. Id. at 217. The lessee enters into the agreement to “acquire a perpetual interest in the leased premises, which would justify his making permanent improvements -6- thereon, and enable him to avail himself of the value of the property thus enhanced . . . .” Id. The lessor enters into the agreement, among other reasons, “to secure the prompt payment in perpetuity of the interest on a sum of money, equivalent to the value of the property . . . .” Id. Ground leases have also been traded commodities since at least the Nineteenth Century. Id. People seeking safe investments would purchase them from ground lease holders as an income stream. Id. Additionally, because often the property increased in value with the development of the surrounding area, lessees would sell their rights to possess the land. Id. The language of ground rent leases has changed little since 1750. Frank A. Kaufman, The Maryland Ground Rent–Mysterious but Beneficial, 5 Md. L. Rev. 1, 15 (1940). In a ground lease, “the lessor grants to the lessee, his executors, administrators, and assigns a specifically described lot along with the improvements on that lot and all rights and appurtenances connected with it for a term of ninety-nine years.” Id. “The lessee covenants in return for himself, his executors, administrators, and assigns to pay a specified yearly rental during the running of the lease in equal semi-annual installments and also agrees to pay all the taxes and assessments on the leased property.” Id. The lessee and his assigns are given the valuable option to renew the lease at any point during the ninety-nine year term. Id. at 16. Ground leases are either redeemable or irredeemable. A redeemable ground lease grants the tenant the absolute right to tender an amount of cash to the ground lease holder that extinguishes the ground lease and vests a fee simple absolute in the tenant. Mayer, supra, at 120. Sections 8-110 and 8-110.1 of the Real Property Article govern the -7- process by which a ground lease tenant may redeem the ground lease. 9 If the ground lease was created after 8 April 1884, a ground lease tenant has an absolute right to redeem the ground lease that the ground lease holder cannot abrogate or resist. Kaufman, supra, at 20 (citing Md. Code (1939) Art 21, Secs. 110, 111); see Brager v. Bigham, 127 Md. 148, 160, 96 A. 277, 280-81 (1915) (holding that the right of redemption is read into a ground lease, and no covenant in the lease can estop the lessee from exercising the right to redeem the ground lease). An irredeemable ground lease, on the other hand, is a ground lease that does not contain a provision allowing the leaseholder tenant to redeem the ground lease. RP § 8-110.1(a)(5). As indicated above, all such ground leases must have been created prior to 9 April 1884. Id. The lease specifies typically what action the lessor may pursue in court if the lessee is late paying rent. Traditionally this relief included: (1) to make distress on the 9 The Code specifies how much the tenant must pay to redeem the ground lease and convert their interest into a fee simple absolute: (2) The reversion is redeemable: (i) For a sum equal to the annual rent reserved multiplied by:
lease was executed from April 8, 1884 to April 5, 1888, both inclusive;
the lease was or is created after July 1, 1982; or
the lease was created at any other time; (ii) For a lesser sum if specified in the lease; or (iii) For a sum to which the parties may agree at the time of redemption. RP § 8-110(b)(2) (1974, 2010 Repl. Vol.). -8- arrearage; (2) after 60 days of nonpayment, to take over the premises by re-entry and hold them until the arrearage is paid up; and (3) after six months of nonpayment, re-enter the premises and possess them as if the lease had never been made. See Kaufman, supra, at 15–16; see also Mayer, supra, at 51–53. The right of re-entry is inserted into the ground lease principally as security for the payment of rents. Before the Legislature passed Chapter 286, RP § 8-402.2(a) afforded the leaseholder the opportunity to pursue ejectment, which allowed it to re-enter and take possession of the property. Md. Code (1974, 2003 Repl. Vol.), § 8-402.2(a) of the Real Property Article. The pre-2007 Code provided: Whenever, in a case that involves a 99-year ground lease renewable forever, at least 6 months ground rent is in arrears and the landlord has the lawful right to reenter for the nonpayment of the rent, the landlord, no less than 30 days after sending to the tenant by certified mail, return receipt requested, at the tenant’s last known address a bill for the ground rent due, may bring an action for possession of the property under § 14-108.1 of this article[.] Md. Code (1974, 2003 Repl. Vol.) § 8-402.2(a) of the Real Property Article. Thus, under a ground lease, the landlord could gain possession of the property rather directly: by giving notice, waiting 30 days, and bringing an action for possession under RP § 14108.1. 10 If the landlord complies then with the provisions of § 8-402.3, it could hold the property free and clear of the tenant’s interest after six months. As § 8-402.2(b)(2) of the Real Property Article provided before 2007, the property would be: 10 Notice was required not only to the tenant, but also to each mortgagee of the lease who recorded in the land records a request for notice of judgment. RP § 8-402.2(b). -9- discharged from the lease and the rights of all persons claiming under the lease are foreclosed unless, within 6 calendar months after execution of the judgment for possession, the tenant or any other person claiming under the lease: (i) Pays the ground rent, arrears, and all costs awarded against that person; and (ii) Commences a proceeding to obtain relief from the judgment. Md. Code (1974, 2003 Repl. Vol.) § 8-402.2(b)(2) of the Real Property Article. 11 Expiration of six months without payment and legal action by the tenant or his assignee completed the ejectment process. Under the challenged 2007 law (Chapter 286), the ejectment provision set forth immediately above “does not apply to residential property that is . . . used . . . for four or fewer dwelling units.” So, in 2007 these residential ground lease holders lost the right to re-enter on default and obtain discharge of tenants’ and mortgagees’ rights. Rather, under the new law set forth in RP § 8-402.3(d), the landlord was given a right to a lien against the real property on default, if the ground rent is unpaid six months after its due date. This lien “has priority from the date the ground lease was created.” RP § 8- 402.3(l)(2). If the ground rent remains unpaid, the ground lease holder may foreclose on the lien, and have their debt paid from the proceeds of the sale. RP § 8-402.3(n). 12 If the ground lease is redeemable, the ground lease holder receives also the redemption amount 11 If at any point during the action, the tenant paid the back rent, the action terminated. Md. Code (1974, 2003 Repl. Vol.) § 8-402.2(d) of the Real Property Article. 12 The foreclosure occurs “in the same manner and subject to the same requirements as the foreclosure of a mortgage or deed of trust containing neither a power of sale nor an assent to decree.” RP § 8-402.4(n). - 10 - from the proceeds of the foreclosure sale, and the foreclosure sale buyer takes title free of the ground lease. RP § 8-402.3(n)(3)(i). If the ground lease is irredeemable, however, the foreclosure buyer takes subject to the ground lease. RP § 8-402.3(n)(3)(ii).