Here is an article that appeared in the CITY PAPER on April 4, 2000

"Ground Control"

By Brennen Jensen

Or am I? You see, my one-bathroom Xanadu is subject to a ground rent. To wit, I have to pay $180 a year for the right call this castle my home. Thanks to a real-estate gambit that essentially dates back to the Middle Ages, I still have to lay down cash to a landlord, no matter what it says on my 30-year mortgage.

Of all the quirky anomalies of life in this Northern-Southern city by the bay, perhaps none is as confusing as the concept that you can own a house and not own the land it sits on. Though ground rents exist in a few other cities (St. Louis and Philadelphia, for example), Baltimore has made the most use of them. It's estimated that as much as half of the city's land may be subject to a ground rent.

Neophyte Baltimoreans often find the very idea a little scary: You mean if I don't pay my ground rent someone can rip down my house to make a tomato patch? Technically, yes -- but it's a highly unlikely scenario. Ground rents might be bizarre, but they're generally quite benign. Indeed, through the years they've been a beneficial financial tool for developers and home-buyers alike.

In a sense, Maryland itself began life as one big ground rent. Back in 1632, King Charles I granted Cecil Calvert (aka the second Lord Baltimore) and his heirs the lands that eventually became the Free State -- provided the Calvert clan give the monarch two arrowheads each year as a "rent service." (The king wasn't a total dunderhead; he also demanded one-fifth of any gold and silver found under Maryland soil.) Baltimore didn't enter the picture until nearly a century later, in 1729, when colonial legislation deemed it an incorporated town. The city fathers, chief among them Charles Carroll, began offering tracts of land for sale in the newly minted burg, but finding merchants and tradespeople with enough cash to buy into Baltimore wasn't easy.

Enter a shipping merchant named Thomas Harrison. By 1750, he controlled a large chunk of territory just east of Baltimore Town. Instead of selling his land, he offered his lots for 99-year ground-rent leases. The scheme was a hit, as it required less up-front money from the buyer. Other property owners soon got into the act, including the Fell family, whose ground rents helped establish their eponymous point.

The big rowhouse developers of the 19th and early 20th century made extensive use of ground rents to fuel their trade. They would raise capital by creating ground rents on tracts of land they planned to develop, then sell the leases to investors, who would collect the rent payments from whomever bought a home on the site. Most ground rents earn their owners 6 percent a year. (For example, the cash value of my ground rent is $3,000; my annual $180 payment represents 6 percent of this total.) Ground rents created before 1884 are irredeemable: If you're subject to one of these, you're stuck with it. The person owning the improvements on the property (i.e. the house) can purchase post-1884 ground rents, after a certain waiting period. In other words, if I was so inclined -- and, more importantly, if I was willing to spend the three grand -- I could force my landlord to sell me my ground.

Banks, estates, and investors own most ground rents. Obviously, one has to own a lot of them to earn any serious cash -- but then they do, in essence, provide money for nothing. (It's not as if the guy who owns my land comes over and cuts my lawn or anything.) Pikesville-based Scherr Real Estate is one of the few firms that deals exclusively in ground rents. It is largely a management firm, collecting the payments on some 4,000 ground rents owned by others. "We have some rents as high as $400 a year and some that are only $6 a year," company head Donald Scherr says.

And if someone doesn't pay? Scherr can threaten scofflaws with "ejectment," a legal process whereby the ground-rent owner takes possession of the buildings and property on the leased land. (This rarely occurs -- who wants to lose a house over a couple hundred bucks a year?) Scherr says ground rents are still being created; developers in Prince George's County still employ them, for example. And in the early 1980s, the concept was introduced in Hawaii, by way of Baltimore -- "Honolulu" Harry Weinberg, the late Mobtown real-estate maven, brought them to the Aloha State when he moved there in 1968. Weinberg didn't get his mandate straight from the king, as did fellow tycoon Cecil Calvert -- but, according to Scherr, "he owned so much land [in Hawaii] and had so much power he was able to get them established."

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Copyright © 2006 Ben Frederick Realty, Inc
Last modified: 08/04/06