What Are Ground Rents?

Written by michael e carpenter
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Ground rents date back to the 18th century in the United States as a way to keep ownership costs low. The owner of a ground rent property was only responsible for paying on the building and not the land the building sat upon. The building owner paid a small amount for ground rent.

How it Works

A ground rent is an ownership situation in which one party owns the land and another party owns the structures built on the property. The owner of the structure has to pay a small sum, in either annual or biannual instalments, to the owner of the ground. Ground rents are found on the deed to the property and do not expire; they are passed down from generation to generation.

States that Have Ground Rents

The use of ground rents as an ownership type is very rare. Only two states use them -- Pennsylvania and Maryland. The use of ground rent as a type of ownership is still common in Baltimore. The seller of a property must disclose that the property is a ground rent property and let any prospective buyers know the rental cost. The title work completed on the property will disclose if the ground rent is still in effect and who the owner of the ground rent property is.

Rent Fees

Ground rent fees will be listed in the original property lease. The typical costs range from £32 to 150, according to the Live Baltimore website. The cost of the rent cannot be increased at any time. Failure to pay the ground rent can result in a lien being placed on the home that will require it to be paid in full prior to selling or refinancing the mortgage on the home. If the ground rent owner is absent, an escrow account is established to cover back rents if the owner later tries to collect on rents. The ground rent owner can only collect the last three years' worth of rents.

Purchasing Ground Rents

The buyer of a home may purchase the ground rent at any time. The cost to purchase the ground rent is not a negotiated price; it is based on the year the ground rent was established, a dividing factor and small legal fees to transfer ground rent ownership. The dividing factor is between .04 and .12. For example, if the annual rent is £97 and the dividing factor is .12, the purchase price will be £812 plus legal fees.

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