What Is Ground Rent in Real Estate: Buyouts and Maryland Rules

Ground rent in real estate is a recurring payment a homeowner makes to a separate landowner for the right to use the land under their house. You own the building; someone else owns the dirt. The arrangement is overwhelmingly a Maryland phenomenon, concentrated in the Baltimore area, where annual payments typically run $50 to $150 and the state has banned the creation of new residential ground rents since January 22, 2007. Every ground rent you’ll encounter today is a legacy obligation, and Maryland law gives you a statutory path to buy it out and end the payment for good.

How the Split Ownership Works

A ground rent splits a single property into two legal interests. The freeholder, sometimes called the ground lease holder, owns the land. The leaseholder owns the building and any permanent structures and has the right to occupy and use the property, in exchange for the recurring rent.

The arrangement is created by a lease or a deed that reserves the ground rent, and it spells out the amount, the payment schedule, and the consequences of falling behind. Most residential ground leases call for semi-annual payments and run for 99 years with automatic renewal, which makes them effectively permanent as long as you keep paying.

The obligation travels with the property. When a home subject to ground rent is sold, the buyer inherits the payment duty automatically, without signing anything new with the freeholder. Buyers who skim their title report sometimes don’t realize this until after closing.

Where You’ll Actually Encounter Ground Rent

Ground rent is a Baltimore-area tradition that dates to colonial Maryland, when landowners subdivided holdings and leased plots to settlers who built on them. Tens of thousands of properties in Baltimore City and surrounding counties still carry the obligation. Since the 2007 ban on new residential ground rents, the pool has only shrunk.¹

A related concept exists in Hawaii, where many homes sit on leasehold land held by large estates or trusts, but those leases work differently: terms are finite, the land reverts when the lease ends, and the rent can jump sharply at renegotiation. Historical ground rents also existed in parts of Pennsylvania, especially Philadelphia, though most have been bought out or extinguished. If you’re outside those areas, you’re unlikely to run into a true ground rent.

What You Owe and What You Can Do With the Property

Your main duty is paying the rent on time. Amounts are usually fixed at the lease’s creation and don’t rise, which is why some very old leases still charge $24 or $36 a year. Payments are typically due twice a year. The dollar figures look small next to a mortgage, but missing them triggers consequences far out of proportion to the amount owed.

You’re also responsible for maintaining the property, insuring it, and paying property taxes. Some leases restrict renovations or commercial use without the freeholder’s written approval. Most residential freeholders are passive investors who cash checks and never visit, but the restrictions sit in the lease and could be enforced.

In return, you hold substantial property rights. You have exclusive possession and can live in the home, rent it out, or leave it vacant. You can sell freely, with the leasehold interest and ground rent obligation passing to the buyer. You can mortgage the property, though the lender’s security covers the building and your lease rights rather than the land. And you have the right to redeem, which is the most valuable right of all.

What Happens If You Miss Payments

This is where ground rent becomes dangerous. A leaseholder who falls behind can lose the home entirely, wiping out the equity in the building, even when the back rent is only a few hundred dollars.

In Maryland, a freeholder cannot file for possession until you’re at least six months behind. The freeholder must then send a bill by certified mail to your last known address and to the title agent or attorney listed on the deed, and wait 45 days before filing a court action for possession. Any mortgage lender that has recorded a request for notice must also be told before judgment, giving the lender a chance to pay off the delinquency to protect its collateral. Even after a judgment is executed, you or your mortgage holder have a final six-month window to cure by paying the back rent, arrears, and court costs and asking the court to set the judgment aside.²

Maryland also caps the freeholder’s reach. In a suit to recover past-due ground rent, the freeholder can demand no more than three years of arrears, measured from the date the collection notice was sent.³ Reasonable late fees, interest, and collection costs are allowed if the lease provides for them, subject to statutory limits.⁴

Short of ejectment, unpaid ground rent will also freeze any sale or refinance. Title companies flag it as an encumbrance, and lenders won’t approve financing until the debt is cleared.

How to Buy Out Ground Rent

Redemption is the process of purchasing the freeholder’s interest, merging the two ownerships into one, and ending the ground rent forever. For most leaseholders, it costs surprisingly little. The right to redeem is guaranteed by statute for nearly all residential ground leases longer than 15 years.⁵

Calculating the Price

Maryland sets the redemption price with a formula tied to when the ground lease was created. You multiply the annual rent by a factor based on a statutory capitalization rate:⁵

Leases created after July 1, 1982: annual rent × 8.33 (12% cap rate)
Leases created April 6, 1888 through July 1, 1982: annual rent × 16.66 (6% cap rate)
Leases created April 8, 1884 through April 5, 1888: annual rent × 25 (4% cap rate)
Leases created before April 8, 1884: the price is negotiable, and some of these may have been classified as irredeemable

In real numbers, $96 a year on a 1950 lease comes to $96 × 16.66, or $1,599.36 to redeem. The same $96 on a 1990 lease costs $96 × 8.33, or $799.68. The lease itself may set a lower price, and the parties can negotiate a different amount at the time of redemption.⁵

The Process

Send the freeholder written notice of your intent to redeem at least 30 days before you plan to complete the buyout. The notice must go by certified mail, return receipt requested, and also by first-class mail to the freeholder’s last known address.⁵

If you can’t locate the freeholder or get no response, apply to the Maryland Department of Assessments and Taxation (SDAT), which has procedures for depositing the funds and completing the redemption without the freeholder’s participation.⁶ A mortgage lender that has declared you in default may also apply to redeem and add the cost to your loan balance.

Once the money is paid or deposited, you file a redemption certificate or deed in the local land records. That filing merges the leasehold and freehold into a single fee-simple title, and the ground rent ends. Any accrued back rent and administrative fees are settled as part of the transaction.

The Maryland Ground Rent Registry

Maryland requires every ground lease holder to register with SDAT, and the registry is the most important protection a leaseholder has. An unregistered ground rent is essentially unenforceable: the freeholder cannot collect rent, charge late fees, or bring a civil action or ejectment proceeding.⁷ If you believe an unregistered freeholder is trying to collect, you can file an affidavit with SDAT, which will investigate and can void the registration. There is no filing fee to register a ground lease.¹

Check the registry in two situations. If you’re receiving a ground rent bill from someone you don’t recognize, confirm the registration before paying. And if you want to redeem but can’t identify the current freeholder, start with the registry.

Buying a Home With Ground Rent

Ground rent properties are common in Baltimore and not inherently bad deals. You just need to know what you’re agreeing to before closing.

Ask for the ground rent amount, the payment schedule, and the freeholder’s name and address. Confirm the ground rent is registered with SDAT. Check for any delinquent payments, because you’ll inherit them. Run the redemption math so you know what it would take to buy out the land. For many properties the number lands between a few hundred and a couple thousand dollars, which is often cheap enough to redeem at or soon after closing.

Your lender will underwrite the mortgage, but the property will be appraised at its leasehold value, which is lower than it would be in fee simple. Expect the lender to require the right to cure a ground rent default on your behalf, and to escrow the rent along with taxes and insurance. FHA-insured loans carry additional requirements on lease length and bar variable rents tied to a cost-of-living index or future appraisals, so ask your lender early if you’re going that route.⁸

1
Maryland Department of Assessments and Taxation. Ground Rent Registry
2
Maryland General Assembly. Maryland Code Real Property 8-402.2
3
New York Codes, Rules and Regulations. Maryland Code Real Property 8-806 – Actions for Recovery of Back Rent
4
Maryland General Assembly. Maryland Code Real Property 8-809 – Collection and Notice for the Payment of Ground Rent
5
Maryland General Assembly. Maryland Code Real Property 8-804 – Redemption of Certain Reversions
6
Legal Information Institute. COMAR 18.15.01.03 – Calculation of Redemption Amount
7
Maryland General Assembly. Maryland Code Real Property 8-707
8
U.S. Department of Housing and Urban Development. Chapter 3 – Ground Leases