Ground Rent

Perpetual consideration paid for the use and occupation of real property to the individual who has transferred such property, and subsequently to his or her descendants or someone to whom the interest is conveyed.

Ground rent agreements have sometimes required the payment of rent for a term of ninety-nine years, with renewal at the option of the party who pays it. In this type of agreement, the lessor retains title to the property. Large structures, such as hotels and office buildings, are ordinarily built on land under ground rent leases.

The concept of a ground rent arrangement is English in origin. Its original purpose was an attempt by feudal tenants to put themselves in the role of lords over lower tenants. This was proscribed by a law passed in 1290 that made every tenant a subject only to the overlord.

In the United States, the only states where the ground rent system has been used to any great extent are Maryland and Pennsylvania. These agreements were initially popular as a method of encouraging renters to improve the property, since they could own the buildings while paying rent on the land. The courts enforced the ground rent agreements, and they gained popularity with investors who purchased and sold shares in ground rent agreements.

Although the ground rent system was not used in New York, the state courts did recognize comparable manorial or perpetual leases. A deed setting up a ground rent arrangement might indicate that it is to last for ninety-nine years, but since most agreements are automatically renewable, ground rents can last forever.

An obligation to pay the rent can terminate if (1) the individual entitled to receive rent forfeits such a right in a deed or other instrument; (2) the land is taken by EMINENT DOMAIN and the individual entitled to receive rent is compensated for the loss; (3) the agreement setting up the rent is breached and is thereafter unenforceable; or (4) the landowner also becomes the individual entitled to receive the rent or buys back the right to receive rents.

Under the COMMON LAW, rents that were not demanded for a number of years could not be collected, since the law assumed that they had been paid.

The term ground rent is currently applied to a lease for land upon which the tenant constructs a building. While the landlord continues to own the land, the tenant owns all of the structures and pays rent for the ground only.