Monday, July 25, 2011

Proceed With Extreme Caution...Ground Rent Registry Law in Maryland!

A few states still have  Ground Rents (Maryland, Pennsylvania and Hawaii) as a way of conveying property.

On the first page of our Maryland Residential Contract Of Sale, paragraph #5, we need to put an 'X' in one of the blanks.

The property is is being conveyed________in fee simple or _______subject to an annual ground rent...


What's a listing agent to do? Proceed with caution...Take a look at this notice.

 Legal Affairs News Maryland SDAT Provides Guidance on Ground Rent Registry Law

The Maryland Department of Assessments and Taxation (“SDAT”) has posted guidance on its website to help interpret The Registry of Ground Leases provisions of Maryland Code, Real Property Article 8-701 et seq. (hereinafter “Registry”).  Unfortunately, much uncertainty still exists.

The Registry, which became effective on October 1, 2007, 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 is extinguished and ground rent is no longer payable to the ground lease holder.  

When the ground lease is extinguished, the ground lease tenant may apply for an “Extinguishment Certificate.”  Here’s where it gets tricky.  Extinguishment of the ground lease is effective to vest a fee simple title in the tenant when the tenant records the certificate in the land records.  However, in many cases, even though the ground lease was extinguished because it wasn’t registered, the Certificate was not recorded.  In that case, while there is no ground rent payable, it’s not accurate to say that the tenant owns the fee simple interest. 


And it gets worse!  This my favorite part:

Listing Agents - Proceed With Extreme Caution With Respect to Property Title

Suppose such a property is listed for sale.  What’s the listing agent to do?  On one hand, it’s not accurate to state the property is subject to ground rent, because it isn’t.  On the other hand, it’s not accurate to list the property as fee simple, because it’s not that either. 

At this point, we think the best policy is to state in the listing that the property is subject to ground rent, then in the remarks disclose that no ground rent is due because the ground lease was extinguished, but the property cannot be conveyed in fee simple until a Certificate of Extinguishment is recorded.

If you conduct a ground rent property search today on the SDAT website for a property on which no ground rent exists, you would see this statement:
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 (sic) interest as required by law.

The newly posted SDAT website guidance states that for fee simple title to vest after a ground rent holder’s failure to timely register the ground rent, a leasehold tenant needs to obtain and record the Certificate of Extinguishment in the land records office where the property is located.

To obtain a Certificate of Extinguishment, one must mail a written request to:  State Department of Assessments and Taxation; Attention:  Ground Rent; 301 W. Preston Street; Room 801; Baltimore, MD 21201. 

Court Case Challenging Constitutionality of Law Creates Further Uncertainty

To top it all off, a Constitutional challenge to the Registry laws injects additional uncertainty in the Registry law.  On June 6, 2011, Maryland Court of Appeals Judges heard oral arguments in Muskin v. the State Department of Assessments and Taxation, Case Number 543, September 2010 term.  

The Petitioner in the matter, a Trustee who oversees assets of a Trust consisting solely of 300 ground rents, challenged the Constitutionality of The Registry of Ground Leases provisions.  He claims the Registry is an unconstitutional taking since the vested property rights of the ground rent owner are given to the leasehold owner for no compensation.

The Court has yet to render a decision in the matter so the final outcome remains uncertain.  We will post an overview of the case on our website when an opinion is rendered.

For more information go to: http://www.dat.state.md.us/sdatweb/extinguishgroundrent.html.  Send inquiries to SDAT at groundrent@date.state.md.us or call (410) 767-4805.  You may also call MAR Staff Attorney Aimee Bader at 800-638-6425.

By:  Aimee Bader, Esq., Legal Affairs Staff Attorney and Chuck Kasky, Esq., Legal Affairs Vice President 
posted @ Monday, July 25, 2011 2:46 PM

 This is the part that is clear as mud....
''At this point, we think the best policy is to state in the listing that the property is subject to ground rent, then in the remarks disclose that no ground rent is due because the ground lease was extinguished, but the property cannot be conveyed in fee simple until a Certificate of Extinguishment is recorded.''

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