Relating to Real Estate

In, 2012, we circulated reports on the judicial decisions that had profoundly affected the General Assembly’s 2007 heavy-handed attempt to redress the grievances it perceived regarding Maryland ground rents and their collection. Please see Relating to Real Estate March 2012.

To briefly review, in response to reported abuses by certain holders of Maryland ground rents, the General Assembly established a registration system, extinguished ground rents that were not registered by a deadline it set, and otherwise restricted the ability of ground rent owners to collect unpaid rents.

In October of 2011, the Maryland Court of Appeals ruled in Muskin, Trustee v. State Department of Assessments and Taxation, 422 Md. 544, 30 A.3d 962 (2011), that the part of the 2007 legislation that extinguished unregistered ground rents is unconstitutional as a violation of the Maryland Declaration of Rights and Constitution.

In December of 2011, the Circuit Court for Anne Arundel County, in Braverman, et al. v. State of Maryland, 02-C-07-126810, invalidated another of the 2007 laws which sought to eliminate a ground lease holder’s right to re-enter the property and eject a delinquent residential ground lease tenant. Under the theory of ground leases, the lessor owns the reversionary interest and becomes entitled to possession of the property when the ground lease tenant defaults.

In the 2012 session, the General Assembly responded to these court decisions.

The law that was enacted as Senate Bill 135/House Bill 177 (Chapters 464 and 465) deleted the extinguishment provisions of the 2007 legislation, but it maintained the registration requirements for ground leases. The new law also prohibited holders of ground leases from collecting their ground rent payments, establishing a lien for delinquent payments or seeking a monetary judgment during the period that a ground lease is not registered. Under this legislation the ground rent holder must also send the ground lessee a bill at least 60 days before a payment is due, which must include a statutorily prescribed notice.

The State Department of Assessments and Taxation was directed to, in effect, rescind any extinguishment certificates that it had filed against unregistered properties, as provided in the 2007 laws but invalidated in Muskin.

We predicted that given the language in Muskin, the provisions in the 2012 law that require registration before a ground rent holder may resort to the courts for enforcement or collection would be upheld if challenged. To our knowledge, no one has initiated litigation attacking those changes.
However, we noted that unanswered questions from the 2007 legislative attack remained open; most importantly, the failure of the General Assembly to restore the right of ejectment for residential ground rents, the elimination of which in the 2007 legislation was declared unconstitutional in Braverman.

The last shoe dropped on February 26, 2014 when the Court of Appeals decided the case of State of Maryland v. Stanley Goldberg, et al. (Goldberg is the same case as Braverman). Judge Glenn Harrell, writing for a majority of a divided court, affirmed the decision of the Circuit Court for Anne Arundel County in Braverman, declaring the legislative elimination of the right of reentry and ejectment of the fee owner of the ground rent property to be an unconstitutional abrogation of vested property rights. He rejected the argument that these rights simply constituted remedies for breach of a ground lease that could be changed and even eliminated by legislation. He expressly found that the remedy of foreclosure in the 2007 law did not cure the constitutional infirmity. Foreclosure is a collection remedy. But the reversionary interest of the fee owner is “the essence of the ground lease system” which may not be eliminated by the General Assembly.

Judges Adkins and Watts filed separate dissents. Judge Adkins said that the right of reentry is not a vested right but an “inchoate cause of action subject to a condition precedent” i.e., an event of default by the lessee. She argued that because an event of default is a contingent event, the right of reentry cannot be considered vested.

Judge Watts’ dissent argues that when the General Assembly mandated foreclosure instead of ejectment, it was merely substituting one remedy for another, thus acting fully within its constitutional powers.

All three opinions are carefully reasoned and worth reading.

Attempts to reform the system within the confines of Goldberg were introduced in the 2014 session of the General Assembly, but they did not pass. However, our crystal ball is telling us that the last chapter of this story has not been written. We will keep our readers up to date regarding future developments.

For questions about this, please contact Searle Mitnick at 410-576-4107.