More answers to ground-rent puzzle

MAILBAG

Owner can't raise it, but shouldn't sell it too cheaply, either

September 16, 2001

Many readers found my recent Mailbag on the "Mystery of Ground Rents" to be helpful. But questions still abound. Here's a sample:

Question. My sister and I co-own a ground rent on a house located in the Highlandtown section of Baltimore City. The ground rent pays $90 per year, and is redeemable for $1,500. The house is being renovated. My sister tells me I can raise the ground rent. Can I do this?

Answer. No way. The ground rent must remain at $90 per year even though the house is totally renovated and increases in value. The annual rent and redemption price are fixed at the date the ground rent was created.

Q. I own a $90 annual ground rent. The redemption price is $1,500. I want to sell it, but the most I have been offered is $750. I feel this is not enough. Do you agree?

A. At a price of $750, the $90 annual ground rent payment equals a return of 12 percent per year. This is a good return, compared to today's low interest rates. If the ground rent is being paid regularly and you don't mind sending bills twice a year, I'd agree that $750 is a low price.

However, don't expect to sell the ground rent for $1,500, as investors normally purchase ground rents at a discount from the redemption price. Perhaps, the owner of the leasehold property would be interested in buying the ground rent at or near the $1,500 redemption price. I suggest you contact the leasehold owner and see if they will redeem the ground rent at a slightly discounted price.

Q. How does one find the lease-creation date used for calculating the redemption value of a ground rent? I moved into my house after July 1, 1982, but my house existed well before that date.

A. Since the house was built before July 1, 1982, it's safe to assume that the ground rent was created before that date. The redemption price of the ground rent is 16.66 times the annual ground rent. The date of the lease that created the ground rent is found as part of the title search of your property. Check your title insurance policy. Schedule B should refer specifically to the lease and give the date and recording references of this instrument.

Q. I own a home that carries a ground rent of $120 per year. I will sell the house within the next five years. Is there any advantage to redeeming the ground rent at a $2,000 redemption price?

A. Probably not. A purchaser of your home is not likely to pay $2,000 more because you own the property in fee, rather than subject to a $120 annual ground rent.

Q. Why is it that when a property changes hands, the ground rent owner does not sign a new lease with the property owner, but the terms of the lease just get passed down?

A. Because the law says so. And, because it makes sense. If a new ground lease had to be negotiated and signed every time a property changed hands, it would be very difficult to sell leasehold properties. A ground rent is like a perpetual annuity, payable in a fixed amount forever.

Q. For the past 16 years, I paid the $87 annual ground rent on my home without fail. I missed my annual payment in November 2000. A lawyer for the ground rent owner sent me ejectment papers to be filed in 30 days if I did not pay $417, which included the delinquent payment. I was so afraid of losing my home that I sent the payment to the lawyer. Can I legally be charged $417?

A. Once an ejectment suit is actually filed in court against you, the ground rent owner can recover the past due payment plus all costs and damages.

An attorney's fee of $330 may not be unreasonable. However, if an ejectment action was only threatened - but not filed - I don't believe you had an obligation to pay an attorney's fee. I suggest you write to the attorney and insist that he or she provide the legal authority that makes you obligated for any attorney's fee.

If you're not satisfied, demand that the fee be returned. Although ground rent owners are trying to recover legal expenses for collecting delinquent ground rents, I believe it is doubtful whether recovery of such fees is legally justified, unless an ejectment suit is filed in court.

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