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Ground Rent

DEFINITION

Rental agreement that grants the tenant the right to use land. In such an agreement the physical structure on the land is owned by the tenant, but not the land itself.

EXPLANATION

The whole concept of a ground rent was engineered here in the United States tracing back to the 1700s. Although it originated on an international stage years prior in England.

Such a rental agreement was designed to make it more beneficial and affordable for homeowners.

Initially individuals classified in the low income bracket normally found it somewhat suitable for their budget to enter into this specific type of leasing agreement.

Pros & Cons

Entering into a ground rent agreement would seem to be a rational choice for a good chunk of homeowners seeking to reduce primary expenses when it comes to purchasing a home. In a ground rent agreement, one only has to cover the expense of the property and not the land in which the structure or building is located.

There are some critics who will point out that although a ground rent tends to be more favorable for those on a strict budget, these same homeowners must be aware of the fact that by granting full authority and rights to another party which has control over the land in which the property sits on, the managing and virtually any other use of the land can be conducted without any approval or consent from the tenant who only uses the building.

Ground Rent History

Other countries that have used the ground rent method throughout history include both England and Ireland. Here in the United States, the two states where a ground rent is most commonly used are in Pennsylvania and Maryland. Although this method is now prohibited in the state of Maryland since 2007. Only existing ground rent agreements may continue to operate with proper registration requirements.

Ground Rent + Downside

If a party fails to pay ground rent, a lawsuit may be filed, and a lien may be placed on the property in such a scenario. Eviction is also another possibility depending on the judgment.

Moreover, the landowners are usually the ones seen as the victors when signing a ground rent agreement with the other party only interested in the physical building structure located on the land itself. Many of these landowners view such a contract as giving them the upper hand. They have both control and authority and they view the other party (tenants) as potentially being of financial benefit to their long term investments if a tenant develops the land and as a result increase the property value in the future.

Present Day Ground Rent

In todays real estate world, it appears this system or method is in fact losing ground and popularity. This system tends to be looked upon as outdated, unpractical in many instances, as well as frowned upon by many. Due to the fact this rental concept comes with both risk and in many cases disregarded as a steady form of real estate related investment for the future. Opponents of such a contract will argue  that this method gives the tenant/owner of the physical structure located on the property very little control, as the landowner has the final command. Without the land there is no physical property structure or building, yet even if a plot of land is vacant and left undeveloped, there is still a possibility for future potential as demand for land will typically remain a top priority in the eyes of real estate developers for years to come.

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