How to buy and value ground rent


October 31, 2004

Several readers are interested in purchasing their ground rents from the owner. They want to know how the price is determined and what are the steps for purchase.

Most ground rents in Maryland may be purchased by the owner of the leasehold property. The legal term is a "redemption" of the ground rent.

The price is set by law. For most ground rents, the price is determined by dividing the annual ground rent by 6 percent. For example, the price for a $120 annual ground is $120 divided by .06, or $2,000. The price for a $90 annual ground rent is $1,500. The buyer and seller are free to negotiate a lower price, but the seller may not demand a higher price.

The leasehold owner may redeem the ground rent by giving written notice to the ground rent owner. Often, the buyer will want a lawyer or title company to conduct a title search to make sure the person who claims to own the ground rent has a good, marketable title, and that there are no liens or judgments affecting the ground rent. The buyer must pay the cost of a title examination.

Typically, the buyer's attorney or title company prepares a deed. There is a closing, either in person or by mail.

The seller signs and delivers a deed to the ground and the buyer pays the purchase price, plus a pro rata share of past due ground rent. The buyer pays the cost of recording the deed. Recordation and transfer taxes are customarily divided equally between the seller and buyer.

Once the deed is recorded, the ground rent is extinguished, and the buyer then owns the property in fee simple.

What happens if the ground rent owner cannot be located?

A law effective in October 2003 set up a procedure by which a leasehold owner can obtain title to the ground by paying the redemption price, plus three years in ground rent and a $50 fee to the state Department of Assessments and Taxation.

For information and forms contact the Maryland State Department of Assessments and Taxation at its Web site

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