For more information, visit the maryland Department of Assessments & Taxation ground rent page..
Maryland’s attempt to solve the sometimes perceived inequities in ground rent investments with the creation of The Registry of Ground Leases (“Registry”) provisions of the Maryland Real Property Code has created some new conundrums.
The provisions found at Maryland Code, Real Property Article 8-701 et seq., became effective on October 1, 2007 and required ground lease holders to register ground rent leases with the state by September 30, 2010. If a property subject to a ground rent was not timely registered, the reversionary interest of the ground lease holder under the ground lease was deemed to be extinguished and ground rent was no longer payable to the ground lease holder.
When the ground lease was extinguished, the ground lease tenant was able to apply for an “Extinguishment Certificate”. Extinguishment of the ground lease was purported to be effective to vest a fee simple title in the tenant when the tenant records the certificate in the land records.
Where a property that was once subject to ground rent that was not timely registered, the Real Property database of the Maryland Department of Assessments and Taxation (SDAT) in April 2012 stated, “There is currently no ground rent registered with this Department for this property.” In May 2012 for the same property, the SDAT website stated, “There is no ground rent on this property. If there was a ground rent in the past, that ground rent was extinguished by operation of law on September 30, 2010 because the owner of the ground rent failed to register their interest as required by law.”
Charles Muskin, a trustee who oversees trust assets with significant ground rent investments, challenged the Constitutionality of the Registry claiming that it was an unconstitutional taking since the vested property rights of the ground rent owner are given to the leasehold owner for no compensation.
On October 25, 2011, the Maryland Court of Appealslargely agreed with Muskin in Muskin v. the State Department of Assessments and Taxation, and the portion of Chapter 290 that extinguishes ground rents on non-registered properties was ruled unconstitutional under the Maryland Declaration of Rights and the Constitution.
Robert Young, director of the SDAT, said the department was going to send a letter to all of the homeowners who believed they had appropriately extinguished their ground rents to inform them that the ground rents had revived.
During the pendency of Muskin, real property transactions that occurred as fee simple may actually legally remain subject to ground rent if there is a recorded ground rent lease for the property.
The present SDAT informational bulletin states, “On October 25, 2011, The Maryland Court of Appeals ruled that the extinguishment of ground rents for failure to register them with the State is unconstitutional. All ground rents that would have been extinguished for failure to register them are as valid as they were before the registration deadline. Any Certificate of Extinguishment issued by this Department is void and has no effect.”
Aimee Bader is a practicing attorney and previously worked as a staff attorney in the Legal Affairs division of the Maryland Association of Realtors.