ANNAPOLIS — With key parts of its prior effort at ground-rent reform declared unconstitutional last fall, a Maryland Senate committee on Tuesday considered legislation that would penalize those who fail to register their property in ways that might pass muster with the state’s highest court.
Under Senate Bill 135, holders of ground rents could not obtain a lien on the property, collect any ground rent payments due, or sue the leasehold tenant for the money owed unless the ground rent is registered with the State Department of Assessments and Taxation.
The legislation, however, would not permit the state to strip lease holders of their property interest and give it to the tenant if they fail to register with the state, as the 2007 reform law had allowed the state to do.
The Court of Appeals struck down that remedy last October, finding the legislature could create a registry but could not extinguish unregistered ground leases without compensation.
Sen. Lisa A. Gladden, a co-sponsor of SB 135, said the latest reform measure complies with the high court’s decision by assuring ground rent lease holders that “we won’t take your land” for failing to register.
Leaseholders, however, would lose an economic benefit, she told the Senate Judicial Proceedings Committee.
“You can’t collect rent,” said Gladden, a Baltimore Democrat and the committee’s vice chair. “Please just register.”
The Court of Appeals, in Muskin v. SDAT, said the 2007 law amounted to an unconstitutional taking of property without just compensation. Under the law, ground leases had to be registered by Sept. 30, 2010, or the interest would be transferred from the ground-lease owner to the building’s owner.
Judge Glenn T. Harrell Jr., writing for the court’s 5-2 majority, suggested constitutional alternatives — such as restrictions on collecting rent or denying unregistered lease holders access to the courts to get rent — which are now in the proposed legislation.
But Katherine Kelly Howard, testifying on behalf of ground lease holders, told the Senate committee that the legislation must provide that a tenant’s rent continues to accrue to the lease holder even though the money is not owed until registration has been made.
For the state to deny the lease holder the accrued rent during a period of non-registration would amount to the same taking of property without just compensation that the Court of Appeals found unconstitutional in Muskin, said Howard.
“The ability to collect the rent is a vested constitutional right that cannot be just, poof, curtailed,” said Howard, who testified on behalf of the Maryland Multi-Housing Association Inc. and Regional Management Inc., a Baltimore-based property management company for which she serves as general counsel.
“You may be back in a situation where there is going to be a constitutional contest” if the bill does not state that rent continues to accrue, she told the committee.
‘Undo what shouldn’t have been done in the first place’
But Sen. Brian E. Frosh, the committee chair and a bill co-sponsor, interjected that the legislation’s provision absolving the tenant of rent due to the lease holders failure to register would be constitutional and in keeping with the measure’s goal of promoting registration.
Howard, however, held fast to her position that another legal challenge could result without clear language.
“I’m just giving you a heads-up,” she told Frosh, a Montgomery County Democrat.
Carolyn Cook, of the Greater Baltimore Board of Realtors, cited state data in telling the committee that 1,160 ground rents were unconstitutionally extinguished under the 2007 reform provision before the high court struck it down.
She urged the panel to add language to the bill requiring the SDAT to place in the land records of those properties a document stating that the ground rents had not been constitutionally extinguished and are still in effect.
That document would essentially “undo what shouldn’t have been done in the first place” and prevent any confusion regarding title to the property at closing if and when it is sold at some future date, Cook said.
In other provisions, SB 135 would prohibit registered ground lease holders from collecting an installment payment if they failed to mail a bill not only to the last known address of the tenant, as required under current law, but to the address of the ground lease property at least 60 days before the rent’s due date.
The rent bill would also have to contain a written notice informing the tenants that they are not obligated to pay the ground rent if the lease holder has not registered with the state. The notice would have to inform the tenants that they may check the State Department of Assessments and Taxation’s website to determine if the ground lease holder is registered.
The law would go into effect July 1.
An identical bill has been introduced in the House of Delegates. Del. Maggie McIntosh, D-Baltimore, is the chief sponsor of House Bill 177.
Maryland’s ground rent laws were changed after a 2006 series of articles published by The Baltimore Sun, which reported on people who lost their homes for delinquencies that were as low as $24 in one instance.
Most prevalent in Baltimore City and Anne Arundel County, ground leases require homeowners to pay fees of around $50 to $100 on the land beneath their homes once or twice a year.