Update, December 2006: A recent series of articles in the Baltimore Sun has highlighted how unscrupulous developers have created ground rents to squeeze more money out of subdivisions. What's worse, predatory investors have exploited the ground rent system to buy ground rents with arrears as low as $24, then sue to eject homeowners and sell their houses, keeping all of the proceeds. There are thousands of such suits. If you own your house, check your deed now.
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.
The principal determiner of class before the Industrial Revolution
was the ownership of land: The ruling class and the landowning class
were one and the same. In Europe, a hierarchical feudal system developed
based upon a pyramid of land ownership.
Although the peasantry were not allowed to 'own' land per se, they worked
and lived on land someone else owned. In return for the right to
live and work on a certain giving a portion of their produce to local lord.
Tenants who didn't pay were evicted or put to death.
Within a particular lord's fief existed better and worse pieces of ground;
in villages and crofts, there existed better and worse places to build
houses to live in. Better locations were worth more, and so a second
pyramid of 'ownership' developed on top of the ground rent system.
People who purchased homes would still pay a rent for the freehold,
the land the house was on. Such leases were typically for very long
periods, renewable at the option of the freeholder.
In England, some leases require no actual exchange of money. Called
'peppercorn rents', they stem from leases that called for payment of
some token of obligation (such as a single peppercorn).
Sometimes, ground rents are more convenient for the tenant: Where it
would be impossible or unthinkable to purchase a piece of land, he (or,
eventually, she) can purchase the right to live in a certain place, at
an afforable price.
This happy situation, of course, depends on the good faith of the landlord.
Unscrupulous freeholders could threaten to evict tenants to extract extra
money; others could simpy evict tenants and use the land for something
more profitable. An ownership pyramid almost guarantees that someone
in a given parcel's chain of ownership will be unscrupulous.
As Europe spread its colonial influence through the world, the system was carried along. Sometimes colonizers replaced a system identical
to their own; more often, they replaced a system where land was held in
common or where no concept of ownership existed. In the Americas,
the ownership of land was claimed for the king of whatever country happened
to hold it at the time. Nobles or landed gentry would pay rent
to the king for tracts of land in America. Their expenses for living at
court were paid by the rents collected from the colonists who actually
lived there, and a new pyramid developed.
A particularly nasty use of the ground rent system for political control
were the Highland Clearances following the failed 1745 Jacobite uprising
in Scotland. Laws were passed that encouraged absentee ownership;
absentee owners are less prone to noblesse oblige and more prone
to maximizing profit. When sheep became more profitable than subsistence
agriculture in the Highlands, people were driven off the land and replaced
with woolly lawn mowers.
In the cities, developers saw it as a way to sell very cheaply built
houses quickly. Although the American Revolution swept away feudalism,
and the U.S. Public Land Survey gave away land to anyone who would settle
it, the ground rent system was too entrenched in certain places to go away.
Ground rent systems are scattered about America, but the nowhere in
America are they more extensive than in Maryland, which started out as
the personal plantation of the Calvert Family, the Lords
Baltimore. For the right to run their plantation, the Calverts paid
the English crown two arrowheads a year. Of course, the Calverts
wanted their new venture to be a success, having had the experience of
one failed colony (Avalon on Newfoundland). So they sublet land
to settlers from the British Isles. Ground rents were typically for
a 99-year term and perpetually renewable at the option of the owner.
Because of the great potential of abuse of grount rent leases, many places
have enacted land reform laws to constrain or eliminate ground rents.
Unconstrained ground rents existed in Maryland until 1884, when the
General Assembly passed a Land Reform Act. All new ground
rents had to be "reedemable", that is, contain an option to buy the land.
The Act also limited the options of landlords wishing to collect back ground
rent: Eviction of a homeowner was outlawed, and the most a landlord
could collect was three years' back rent. Even so, half the houses
in Baltimore were under some sort of ground rent in 2000. Theoretically,
if a ground rent is in arrears, the landowner can sue to have the homeowner
ejected, but the amounts are so small, it is less trouble for the homeowner
to pay them; a mortgage company would usually foreclose on a homeowner
in financial distress before the landowner could bring an ejectment suit.
Ground rents are usually collected by mortgage companies into escrow
and paid along with property taxes.
In 2001, Parliament passed a similar act for Northern Ireland, which
went onto effect July 29, 2002. This act attempts to eliminate residential
ground rents by requiring their redemption before sales of dwellings (with
many execptions) are registered. A slightly different law went into
effect for England on June 26, 2002.
Many ground rent leases are constrained by a 'right of first refusal'.
Before the freeholder can sell a ground rent, he or she must first offer
it to the tenant. If the tenant refuses, the holder may only sell
to someone else at precisely the same terms offered to the tenant.
If you own a home with a ground rent, it is almost always in your
best interest to purchase it, if it is offered to you.
used the term 'ground rent' to mean
something similar but more pernicious, the extension of industrial exploitation
into the countryside:
"...the emancipated slave, and, a few centuries later, the
enfranchised serf, without means of existence, was obliged to become a
tenant and pay tribute. The master grew still richer. I will furnish you,
he says, with land; you shall furnish the labor; and we will divide the
products. It was a reproduction on the farm of the ways and customs of
business. I will lend you ten talents, said the moneyed man to the workingman;
you shall use them; and then either we wiII divide the profits, or else,
as long as you keep my money, you shall pay me a twentieth; or, if you
prefer, at the expiration of the loan, you shall return double the amount
originally received. From this sprang ground-rent, unknown to the Russians
and the Arabs. The exploitation of man by man, thanks to this transformation,
passed into the form of law: Usury, condemned in the form of lending at
interest, tolerated in the contrat a la grosse, was extolled in the form
of farm-rent. From that moment commercial and industrial progress served
to make it only more and more customary. This was necessary in order to
exhibit all the varieties of slavery and robbery, and to establish the
true law of human liberty."1
Marx is describing a system known in America as sharecropping.
1"Interest and Principal", appearing in Voice of hte
People, 1849, rescued from Google cache, formerly at