A colonial era peculiarity of Baltimore area real estate law causes
uncertainty for modern real estate transactions: The existence of
ground rents in Baltimore and surrounding counties dates back to
colonial times: colonists settling in the area paid taxes to Lord
Baltimore for the right to do so. As this system wound down, a system
of ground leases evolved, with a lease term of up to 99 years
with provisions for indefinite renewals becoming prevalent. As these
99-year leases expired in the late 1800’s, only some of them were
actually renewed. However, the concept of ground leases revived after
WWII as a way for returning soldiers to rent land upon which to build
a house for much less than it would cost to purchase.

This vestigial practice is bedeviling both lessees and lessors. The
Baltimore Sun published a series of articles in 2006 and 2007, noting
that real estate firms and others purchased inactive ground rents and
pursued lessees for payment. More than a few homeowners were stunned
to learn that long-dormant ground leases are again active and they may
be considered delinquent without being notified by their ground
leaseholder of the revived debt.

The Maryland General Assembly has attempted to clarify the tangled legislation.

On October 1, 2007, Maryland Code, Real Property Article 8-701 et
seq., required the holders of ground leases to register ground lease rents
with the state of Maryland by September 30, 2010. Should such a
property not be registered by this date, the the ground rent would not
be payable to the ground lease holder, as the reversionary interest of
the ground else holder was deemed extinguished.

Should the ground lease be extinguished, the ground lease tenant could
apply for an Extinguishment Certificate, with the supposition that the
extinguishment of the ground lease was sufficient to vest fee simple
title in the tenant upon the tenant recording the Extinguishment
Certificate with the land records office.

Lawyer and ground rent trustee Charles Muskin filed a suit challenging
the constitutionality of the new state law prohibiting new ground
rents and requiring ground leaseholders to be in compliance with
Maryland’s registry requirements.

Muskin’s suit contends the new legislation infringes on the rights of
property owners to seek remedy for delinquent renters. Mushkin
contends the State’s mandates to register ground lease and pay the
required administrative fees violate his rights under Maryland’s
constitution.

On October 25, 2011, the Maryland Court of Appeals issued its
decision. In the case, Charles Muskin v. State Department of
Assessments and Taxation (No. 140 of September Term), the Court of
Appeals largely ruled in favor of Mr. Muskin, ruling that allowing
tenants to extinguish unregistered ground rents is an unconstitional
taking. SDAT has issued a statement on the ruling, below.

On October 25, 2011, The Maryland Court of Appeals 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. Any Certificate of Extinguishment
issued by this Department is void and has no effect. View PDF of
opinion here: MD Court of Appeals;
http://mdcourts.gov/opinions/coa/2011/140a10.pdf
http://mdcourts.gov/opinions/coa/2011/140a10.pdf

This is an information article only and should not be considered legal
advice. Please contact the law firm of Bayer&Kaufman if you have any
questions about its content, or would like to schedule an appointment
to discuss any legal matter, including ground leases.

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