Maryland Ground Rent: What the Exam Actually Tests

Ground rent is the single Maryland topic most likely to trip up your exam. National prep barely covers it. State-specific prep often glosses over the details. But the exam will hit this topic 2-4 times in the state portion, and the questions are precise.

Here's what you actually need to know.

What is ground rent?

Ground rent is a Maryland-specific property arrangement where one entity owns the underlying land while another entity owns the building (and improvements) on top of it. The owner of the building pays an annual ground rent to the owner of the land.

It's a colonial holdover. Most US states abandoned ground rent in the 1800s. Maryland kept it. Today, ground rent still applies to roughly 90,000 residential properties in Maryland, mostly in Baltimore.

A typical Baltimore rowhouse may have a ground rent of $60-$240 per year, paid to whoever holds the underlying ground lease.

The two parties

Lessee (homeowner): Owns the building, pays ground rent annually.

Lessor (ground rent holder): Owns the underlying land. Receives the annual ground rent payment.

When a homeowner sells the house, they sell their leasehold interest. The new buyer takes over the obligation to pay ground rent to the existing lessor.

Redemption: how a buyer can extinguish ground rent

This is the most-tested aspect.

A homeowner can "redeem" the ground rent by paying the lessor a lump-sum amount calculated by formula. After redemption, the homeowner owns the land outright and stops paying annual ground rent.

The redemption formula:

Redemption price = Annual ground rent × Capitalization factor

The capitalization factor depends on the original ground rent creation date:

• Created before April 8, 1884: factor of 6%
• Created between April 8, 1884 and April 5, 1888: factor of 4%
• Created on or after April 5, 1888: factor of 6%

For most modern ground rents created in the 1900s, the factor is 6%. So an annual ground rent of $120 would have a redemption price of approximately $2,000 ($120 ÷ 0.06).

The exam may show a scenario like:

"A Baltimore homeowner pays $90 per year in ground rent on a property created in 1925. What is the redemption price?"

The answer: $90 ÷ 0.06 = $1,500.

What gets disclosed at closing

Sellers must disclose existing ground rent on the Maryland Residential Property Disclosure form. The disclosure must include:

• Whether ground rent applies to the property
• The annual ground rent amount
• The contact information for the ground rent holder (if known)
• The redemption status (redeemed or not)

Failure to disclose existing ground rent is a violation of MREC rules and can void the sale.

What happens at sale

When a property with active ground rent sells:

1. The buyer takes the property subject to the existing ground rent obligation
2. The seller pays any prorated ground rent due at closing
3. The buyer becomes responsible for future annual payments
4. The buyer has the option to redeem at any time after closing using the formula above

The buyer's options are typically:

• Continue paying: Annual ground rent is usually small ($60-$300). Many buyers pay annually rather than redeeming.
• Redeem at closing: Some buyers prefer to extinguish the ground rent and own the land outright. The redemption price gets added to closing costs.
• Redeem later: A buyer can redeem at any future point using the same formula.

The 2007 Ground Rent Registration Act

Maryland passed legislation in 2007 requiring ground rent holders to register their interests with the state. Holders who failed to register lost their ability to collect.

The exam may test:

• Registration deadline (was 2010 originally, extended)
• What happens to unregistered ground rents (extinguished by operation of law)
• The lessee's right to verify registration before paying

If you see a question about a homeowner being asked to pay ground rent and the holder cannot prove registration, the right answer is usually "the lessee may demand proof of registration before payment."

Sample exam questions

Practice these:

Q: A Baltimore homeowner pays $150 per year in ground rent on a property created in 1920. What is the approximate redemption price under Maryland law?

A: $2,500 ($150 ÷ 0.06)

Q: A buyer purchases a Baltimore rowhouse subject to ground rent. Which party is responsible for paying ground rent after closing?

A: The buyer (as the new lessee).

Q: A licensee learns that the seller's property has unregistered ground rent. What is the licensee's obligation?

A: Disclose to the buyer that ground rent applies to the property; advise the buyer to verify registration status before settlement.

Why this matters for your career

If you pass the exam and become a Maryland licensee, ground rent will come up regularly in your transactions. Baltimore rowhouses often have ground rent. Older neighborhoods in Howard County and Anne Arundel County may have it too.

You'll need to:

• Recognize ground rent on the property records search
• Disclose it to your clients
• Help buyers understand redemption options
• Navigate the closing math when ground rent is part of the deal

The exam questions on ground rent aren't just academic. They test whether you'll be competent the day you start representing buyers.