An Anne Arundel County judge has certified ground lease holders as a class of plaintiffs in the legal challenge to the 2007 ground rent reform laws, opening up the possibility that thousands of ground lease owners could seek several hundred million dollars from the state if they win their case.
The lawsuit claims the legislation made ground rent leases worthless, amounting to an unconstitutional seizure of private property for public use without compensation to the lease holders. In addition to seeking payment from the state, the lawsuit argues that the laws are unconstitutional.
Anne Arundel County Circuit Judge Paul F. Harris Jr. issued his ruling creating a class on May 24.
"The significance of it is that now we speak on behalf of all of the lease holders," said Edward J. Meehan, lawyer for the plaintiffs who filed suit two and one-half years ago.
"We now speak for everybody, not just a few plaintiffs," he said.
Exactly how many people that might be is unclear. The number of ground leases is unknown, but is estimated to be between 116,000 and 212,000. Their value could exceed $400 million. In these leases, thousands of homeowners in Baltimore City and Baltimore and Anne Arundel counties pay rent on the land beneath their homes, unless they buy out the leases from the land owner.
Raquel Guillory, spokeswoman for the Attorney General's Office, which is representing the state, said the office would not comment on the pending case.
The ground rent system dates to Colonial times. Under the old laws, a ground lease holder could eject a tenant, seize the house, sell it and keep the proceeds if ground rent was not paid. The General Assembly adopted new laws in the spring of 2007 in the wake of a series of articles in The Baltimore Sun that showed that a small group of investors had used the old laws to seize hundreds of houses in Baltimore when pittances in rent went unpaid.
The reform bills abolished the legal process used to seize homes, banned the creation of new ground rents and mandated that ground lease holders register their leases with the state by September or lose them.
But the lawsuit maintains that the new laws created a process that makes collecting unpaid ground rents uneconomical, turns what was once a fairly safe investment worthless, and has the state meddling in the contract between a lease holder and tenant.
The registry is the subject of a separate legal challenge.
In the spring, lawyers for the state, arguing that lease situations vary, had told Harris they wanted to investigate further to find out whether a class should be certified.
But in his five-page ruling, Harris sided with the plaintiffs. He wrote that their general claims rely on arguing that the new laws have "drastically lowered the value of a particular type of real property interest."
The "case boils down to the contention that, by making it much harder, and in fact uneconomical, for owners of ground leaseholds to enforce, if need be, their right to collect ground rent, the State, in enacting the statutory scheme in question, has effectively gutted the value of ground leaseholds throughout Maryland," Harris wrote.
All lease holders will have the opportunity to opt out of the class. No trial date has been set. However, in November, three years after the lawsuit was filed, Harris is scheduled to hear more pretrial motions.
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