Due to recurring questions on the issue of Ground Rents, I wanted to discuss some of the common questions clients ask us when we appraise properties in areas where ground rents are prevalent, such as Baltimore City.
Q. Can you Provide Information on Ground rents and How to Capitalize them?
A. When appraising in areas where ground rents are prevalent, thus creating a leasehold, it is incumbent upon the appraiser to research deeds to verify their presence and capitalize their impact accordingly based on the rate that was in affect when they were created.
Q. What is a Ground Lease and Ground Rent?
A “ground lease” is a lease for a term of years (usually 99 years) that is renewable forever and is subject to the periodic payment of “ground rent” by the leasehold tenant to the ground lease holder. Ground rents are most prevalent in Baltimore City, but are held in some other counties as well.
Q. What is the Ground Rent Redemption Loan Program?
A. The Ground Rent Redemption Loan Program was created by the Maryland General Assembly in 2007 to provide loans to homeowners to buy out (redeem) the ground leases. The program cannot provide grants for this purpose.
Q. Who is eligible for the program?
A. An applicant must own the subject property, occupy it as their principal residence and meet the household income limits established for the Program.
Q. What are the income limits?
A. The income limits are based on household size and cannot exceed 80 percent of the Statewide median. Examples of current 2012 limits: 1 person – $46,032; 2 persons – $52,608; 3 persons – $59,184; 4 persons – $65,760
Q. How is the redemption amount calculated?
The redemption amount (purchase price) of the ground lease is calculated by dividing the annual ground rent fee by the capitalization rate, which is based on the year the ground rent was established.
Q. Date of Original Lease Capitalization Rate
April 8, 1884 to April 5, 1888 .04
April 6, 1888 to July 1, 1982 .06
July 2, 1982 or later .12
Prior to April 9, 1884 May have been established as “Irredeemable”
Q. I have heard that the extinguishment of ground rents for failure to register them with the State has been overturned. Is this true?
A. Please be aware that on October 25, 2011, the Maryland Court of Appeals has ruled that the extinguishment of ground rents for failure to register them with the State is unconstitutional.
All ground rents that would have been extinguished for failure to register them are as valid as they were before the registration deadline and remain in effect.
Any Certificates of Extinguishment that were previously issued are now void and have no effect.
When appraising in areas where ground rents are prevalant, thus creating a leasehold, it is incumbant upon the appraiser to research deeds to verify their presence and capitalize their impact accordingly based on the rate in affect when they were created.
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- MD Association of Appraisers