[Chat] [I-NEIGHBORS] ground rent - another reference

[Schlegel, William B CW4 RES USAR USARC]

http://www.peoples-law.org/housing/ltenant/legal%20info/ground%20rent%20leases.htm

Ground Rent Leases

Definition

Ground rent leases are long-term leases, often for 99 years, renewable 
forever at the option of the tenant.  With a ground rent lease, the tenant 
is in a practical sense the owner of the property, and his interest is 
usually the more valuable by far.  The tenant pays the real property taxes 
and other real property assessments, and has control over the property.  The 
landlord may enter and terminate the lease only if tenant is in default in 
payment of the rent.  The rights of landlord and tenant may be inherited or 
assigned.



----- Original Message ----- 
From: "Brad Schlegel" <william.schlegel at us.army.mil>
To: "I-Neighbors BetterWaverly" <BETTERWAVERLY21218 at I-NEIGHBORS.ORG>
Cc: "Clarke - work, Mary Pat" <mclarke at baltimorecitycouncil.com>; "Clarke - 
home, Mary Pat" <mpclarke at bcpl.net>; "brwork" <brad.schlegel at irs.gov>; 
"Brmeade" <Schlegelw at mi.army.mil>; "Katie Villegas" <Katie.Joy at MAC.COM>; 
<leonarose at YAHOO.COM>
Sent: Wednesday, January 30, 2008 10:42 AM
Subject: Re: [I-NEIGHBORS] ground rent


>I used Google to find the following links on ground rents.  The practice of 
>ground rents goes back centuries and was simply a way of a landowner 
>gaining income from the use of their land by the tenants.  In cases of land 
>subject to a ground rent there are two "real estate interests" - the 
>freehold interest and the leasehold interest.  Both have economic value and 
>can be bought and sold as separate real estate entities.  You as the owner 
>of your house, Leona, are also the owner of the leasehold interest.  The 
>value of that interest is what you get when you sell your house (which 
>includes the value of the land) and you are subject to property tax on that 
>value.  The person to whom you pay ground rent holds the freehold interest, 
>but this is subject to the lease that was created - which you currently 
>own.  Thus the freehold owner, having rented his interest to you, is only 
>entitled to the annual rent and will only be able to sell that interest for 
>the capitalized value of the annual rent.
>
> Actually the following link to Senate Bill 869 provides a more precise 
> explanation:
>
> "Under a typical ground rent contract, the tenant agreed to pay all fees, 
> taxes, and other costs associated with ownership of the property"
>
> http://mgadls.state.md.us/2007RS/fnotes/bil_0009/sb0869.pdf
>
> SB 869
>
> Department of Legislative Services
>
> Maryland General Assembly
>
> 2007 Session
>
> FISCAL AND POLICY NOTE
>
> Senate Bill 869 (Senator Gladden)
>
> Budget and Taxation
>
> State Income Tax - Credit for Release of Ground Rent
>
> This bill creates a tax credit against the State income tax for a landlord 
> of property
>
> subject to a ground lease who provides, without requiring the payment of 
> consideration,
>
> the tenant with a deed of redemption and the original deed for the 
> property. The amount
>
> of the credit is equal to the lesser of $100 or 33% of the average ground 
> rent for the
>
> property for three years.
>
> The bill takes effect July 1, 2007 and applies to tax year 2007 and 
> beyond.
>
> Current Law: No similar State tax credit exists.
>
> SB 869 / Page 2
>
> Ground rents executed prior to April 9, 1884 could be redeemable or 
> irredeemable,
>
> depending on the terms of the lease. A ground rent established on or after 
> that date may
>
> be redeemed by the tenant. The tenant must give the ground rent holder one 
> month's
>
> notice and pay:
>
> . an amount equal to the annual rent multiplied by:
>
> . 25, which is capitalization at 4%, if the lease was executed from
>
> April 8, 1884 to April 5, 1888;
>
> . 8.33, which is capitalization at 12%, if the lease was executed after
>
> July 1, 1982; or
>
> . 16.66, which is capitalization at 6%, if the lease was executed at any 
> other
>
> time;
>
> . a lesser sum, if specified in the lease; or
>
> . a sum to which the parties may agree at the time of redemption.
>
> If the lease was executed after July 1, 1982, the reversion is redeemable 
> five years after
>
> the date of the lease. If the lease was entered before that time, it may 
> be redeemed at any
>
> time.
>
> Background: While ground rents are recognized in other states, Maryland's 
> system is
>
> unique. In Maryland, a ground rent creates a leasehold estate in the 
> grantee. The
>
> leasehold estate is personal - not real - property. The grantor retains a 
> reversion in the
>
> ground rent property and the fee simple title to the land. Ground rents 
> generally have a
>
> 99-year term and renew perpetually. Ground rent is paid to the grantor 
> (the ground rent
>
> holder) for the use of the property for the term of the lease in annual or 
> semi-annual
>
> installments. Under a typical ground rent contract, the tenant agreed to 
> pay all fees,
>
> taxes, and other costs associated with ownership of the property.
>
> Ground rents have been a form of property holding in Maryland since 
> colonial times,
>
> with some of the earliest known leases dating to 1750. The purpose of 
> these ground rents
>
> was to produce income for their grantors. Most ground rents in colonial 
> times required
>
> the tenant to erect improvements on the property. Maryland's unique system 
> of ground
>
> rents can be traced to wording in its colonial charter from Charles I that 
> prohibited certain
>
> feudal tenures, specifically those that would reserve a rent in a grantor 
> who has
>
> transferred fee simple title. The 99-year lease was devised to reserve a 
> ground rent
>
> without violating Maryland's colonial charter.
>
> Prior to 1884, a ground rent could be redeemable or irredeemable by the 
> terms of the
>
> lease. A redeemable ground rent would state the terms under which the 
> tenant could
>
> redeem the lease and take fee simple ownership of the property. Generally, 
> a tenant
>
> cannot take fee simple ownership of an irredeemable ground rent. When the 
> General
>
> SB 869 / Page 3
>
> Assembly prohibited the creation of irredeemable ground rents beginning 
> April 9, 1884,
>
> the General Assembly also established a method of calculating the 
> redemption value.
>
> Chapter 464 of 2003 established an alternative method for redeeming a 
> ground rent if the
>
> tenant is unable to locate the ground rent holder, which had become a 
> problem with some
>
> of the older ground rents. Under this method, the tenant must submit 
> specified
>
> documentation and pay associated fees to the State Department of 
> Assessments and
>
> Taxation (SDAT).
>
> In the twentieth century, developers used ground rents as part of their 
> overall business
>
> strategy. Properties subject to ground rent could reduce the purchase 
> price to a
>
> homebuyer, who might then be better able to afford a mortgage. In the 
> earlier part of the
>
> century, a developer would sell houses in a development and retain the 
> ground rent as a
>
> steady long-term income source. Later in the century, developers began 
> securitizing and
>
> selling the ground rents to finance further developments. Many of these 
> ground rents
>
> were held by institutional investors who saw them as long-term, low-risk 
> investments.
>
> When a tenant fails to pay rent, the ground rent holder may bring an 
> action for the past
>
> due rent or for possession of the premises. In either case, the ground 
> rent holder is
>
> limited by statute to three years' past due rent. Because the tenant has a 
> leasehold estate,
>
> a tenant whose property is seized in an ejectment action (an action to 
> retake the premises)
>
> receives no other compensation. The ground rent holder is then free to 
> release the
>
> property under the ground rent or sell the property in fee simple.
>
> Chapter 80 of 2003 established limits on the amounts that ground rent 
> holders could
>
> receive as reimbursement for expenses received for actions to collect past 
> due rent and
>
> for an ejectment action. A holder of a ground rent that is at least six 
> months past due is
>
> entitled to reimbursement for actual expenses of up to $500 to collect the 
> past due
>
> amount. In an ejectment action, the ground rent holder is entitled to 
> filing fees and court
>
> costs, costs related to process service or other notice, title searches up 
> to $300, attorney's
>
> fees up to $700, and taxes paid.
>
> Recent newspaper accounts noted a sharp increase in the number of 
> ejectment actions
>
> filed in the Circuit Court for Baltimore City during the last five years.
>
> http://www.livebaltimore.com/hb/info/GroundRent/
>
>
> http://www.baltimorecityrealestate.com/groundrent.asp
>
> http://www.benfrederick.com/Info/GroundRent.htm
>
> http://www.baltimoresun.com/news/local/bal-groundrent,0,2450236.storygallery?coll=bal-home-utility
>
> http://en.wikipedia.org/wiki/Ground_rent
>
> http://everything2.com/index.pl?node_id=1289227
>
> A little bit of the Middle Ages left living with us today.
>
> Although 'ground rent' is also a term of Economic Geography, meaning the 
> total amount of money obtained by all economic activities for a given plot 
> of land, or region, this more commonly means money paid by a homeowner who 
> doesn't own the land on which his or her home stands. Farm rents and 
> condominium fees are similar to this.
>
>
> ----- Original Message ----- 
> From: "Karen Griffin" <kgriffin2121 at COMCAST.NET>
> To: <BETTERWAVERLY21218 at I-NEIGHBORS.ORG>
> Sent: Wednesday, January 30, 2008 7:25 AM
> Subject: [I-NEIGHBORS] ground rent
>
>
>> Good Morning:
>>
>> You all bring up some interesting points about ground rent and tax
>> assessments.  I am not sure Mary Pat Clarke monitors I-Neighbors
>> emails so I have included her email address for you here. "Mary Pat
>> Clarke" <mpclarke at bcpl.net>  You might want to communicate your
>> questions directly to her office.  If you would share her response to
>> you on I-Neighbors, I could include it in the hard copy newsletter to
>> share with the rest of the community.
>>
>>
>
> Let me explain this for you the way it looks...
>
> I SHOULDN'T PAY GROUND TAX IF I'M PAYING GROUND RENT.
>
> are  the owners being taxed and am i being taxed again? two taxes on the 
> same ground?
>
> why would i have to pay tax on ground i don't own?  why doesn't the owner 
> pay it?  does the owner  pay it too?
>
> It just can't be me that thinks this is wrong.  the city can't get tax 
> twice on something and still why would i pay tax on ground i do   not own?
>
> the owner just gets off  without a tax?
>
> Is it just me? or is this moronic?
>
> I'm very sorry but this sounds like some double tax or some wrong tax.
>
> Leona
>
>
>
> Katie Villegas <Katie.Joy at MAC.COM> wrote:
>  Mary Pat,
>
>
>  Can you answer this?
>
>
>  Katie
>
>
>
>  Begin forwarded message:
>
>
>  From: Leona MacDonald <leonarose at YAHOO.COM>
>  Date: January 29, 2008 10:26:44 PM EST
>  To: BETTERWAVERLY21218 at I-NEIGHBORS.ORG
>  Subject: Re: [I-NEIGHBORS] ground rents
>  Reply-To: I-Neighbors BetterWaverly <BETTERWAVERLY21218 at I-NEIGHBORS.ORG>
>
>
>  Lets make the question more exact...
>
>  if i own a home on land i don't own ....on land someone else owns..why am 
> i paying land tax?
>
>  Is the owner getting off scott free?
>
>  Am i paying the owners tax? Are they gaining by not having to pay land 
> tax and my paying it for them?
>
>  Is the deal that i pay the tax like i own it and they make me pay them as 
> well?  Do they pay nothing?
>
>  If the land owner owns the land ...why am i paying tax on their land?
>
>  How many other ways can one ask this?
>
>  Are they making money and me losing money all over cause i have to pay 
> them and pay tax for their land ownership?
>
>  I know i can buy the land but if i've been paying their taxes isn't it 
> mine?
>
>  Lets dig into this..why should i buy their land now if i've been paying 
> taxes on it and they haven't?
>
>  Is it just me or does this all sound really stupid?
>
>  I welcome a real explination.
>
>  The first question was a really good one and now it's got my mind 
> thinking there should be a backlash.
>
>
>  Leona
>
>  Leona MacDonald <leonarose at yahoo.com> wrote:
>    The question hasn't been answered that i've seen.  Why must we pay 
> property tax on land we don't own.  I understand the house ..the building 
> but why is ...
>
>    BUT
>
>    why is it
>
>    we are paying taxes on land that we rent?
>
>    Is this a flaw in the tax system?
>
>    It's a great question.  If the land owners own the land and we pay tax 
> on the house and such as owners why are not the land owners paying tax on 
> their land?
>
>    It is a simple question that obviously nobody can explain.  Are the 
> land owners not paying tax on their own land?
>
>
>    Leona
>