The concept of ground rent emerged as an understanding between land owners and prospective homeowners who wanted to reduce their expenditure by renting land and not buying it. It is an arrangement where the actual owner of a certain piece of land would sublet his land to another person who wants to then build a house on that land. Under this arrangement, the tenant pays rent to the owner for the use of his land. If he then decides to build a property on such land, then he would retain the ownership of only that property, and not the land.
In simple terms, ground rent is a concept whereas a homeowner pays rent for the use of the land on which his home is located. The homeowner reserves ownership of the home but not the land on which it stands.
With ground rent, the real estate industry becomes more approachable for clients who may not be able to afford it otherwise. This is because with ground rent being an option, the expenses related to homeownership are substantially reduced. This makes it especially enticing for first-time home buyers. Ground rent is payable to the land owner on a monthly basis as a fixed commission.
Ground rent agreements found their origins in the British real estate industry. It was established in England before the 18th century and persists till today. Later, this idea was adopted into the real estate markets of the United States of America but it found prevalence in a few States such as Maryland, California, and Pennsylvania.
It should be noted that the US real estate market practices a form of ground rent, commonly known as a ground lease. The concept of the ground lease is conventionally used in everyday real estate transactions in the US housing market.
Ground rent agreements are profitable for most clients as it considerably increases affordability when it comes to real estate. When purchasing a property, most clients resort to home loans. Meeting the criteria to be eligible for a home loan is another factor altogether. Now, if the buyer decides on a ground rent arrangement, it not only reduces his mortgage but also increases his chances of obtaining the loan. However, ground rent arrangements may not be ideal for homeowners who prefer complete jurisdiction over such properties. It is vital to realize that paying ground rent for a property you own does not automatically give you ownership over the land it is built on.
