November 30, 1994 - From the November, 1994 issue

Mills Act: City of LA Acts to Support Historic Structures

The Mills Act is a property tax relief to owners of locally designated historic structures. William Delvac, principal of Historic Resources Group, lays out the benefits, and the mandatory provisions it comes with, the Act provides to landowners. 


The City of Los Angeles has decided to offer property tax relief to owners of locally designated historic structures under a little used state law known as the Mills Act. Recently, the City Council passed a motion (Ridley-Thomas, seconded by Goldberg) to instruct the City Attorney to draft an ordinance implementing the Mills Act for owners of certain properties designated as Historic-Cultural Monuments and significant buildings within Historic Preservation Overlay Zones, such as Angelino Heights, Highland Park and South Carthay Circle. Although not limited strictly to residential properties, a significant purpose of the City's program is to help maintain housing affordability. 

The Mills Act, named for Jim Mills (former State Senate President Pro Temps and historian), was enacted in 1976. Under this law, owners of historic properties may enter into "historical property contracts" with legislative bodies (here, the Los Angeles City Council) pursuant to Sections 50280-50290 of the California Government Code. 

The contract must be for a minimum period of ten years and must provide for the preservation and, when necessary, restoration and rehabilitation of the property. Furthermore, the contract is binding upon successors in interest. However, the benefits are also passed on to purchasers.

This incentive is intended to provide property tax relief to owners of both commercial and residential historic buildings. Under the City 's program, qualifying properties are 

limited to those with pre-relief assessed valuations of $500,000 for single family dwellings and $1,500,000 for multi-family and commercial properties. Owners of properties with valuations in excess of these limits will be able to apply to the Cultural Affairs Department for consideration. 

Under the Mills Act, rather than basing valuation on comparable sales it is determined by a capitalization of income method prescribed by statutory formula. Experience has shown that the actual savings for Mills Act properties can be as great as one-half of the annual property tax. 

Historical Property Contracts 

To qualify under the Mills Act, the legislative body of a city or county and the property owner must enter into a contract to provide for preservation. The property must be privately owned, not exempt from property taxation. 

The building must also be listed in the National Register of Historic Places (either individually or as part of an historic district) or in any state, or local official register of historical or architecturally significant sites, places, or landmarks. The City's program is limited to owners of City designated Historic-Cultural Monuments and historic structures in Historic Preservation Overlay Zones. 

Among the mandatory provisions, the contract must be for a minimum period of ten years. It must also provide the following:

  • Preservation of the property and, when necessary, restoration and rehabilitation of the property under the rules of the California Office of Historic Preservation.
  • Periodic examinations of the premises by the assessor, the Department of Parks and Recreation, and the State Board of Equalization as may be necessary to determine the owner's compliance with the contract.
  • The contract is binding upon, and shall inure to the benefit of, all successors in interest of the owner.

Furthermore, the legislative body may require the owner to pay a fee for the reasonable costs of administering the program. The proposed fees in Los Angeles are a one-time application fee of $25 and additional one-time fee of $125 to process the contract. 

Renewal, Non-Renewal And Cancellation Provisions 

The Mills Act provides for the presumptive renewal, non-renewal and cancellation of historical property contracts. On the anniversary date of the contract, one year is automatically added to the initial term of the contract unless notice of nonrenewal is given. To terminate the contract, the owner must serve notice at least 90 days prior to the renewal date. The presumptive renewal provision, in effect, requires a ten year notice to terminate the contract. 

The legislative body may choose to not renew the contract with notice to the owner at least 60 days prior to renewal date. The owner may make a written protest of the legislative body's notice of nonrenewal, and the legislative body may at any time prior to the renewal date, rescind its notice of nonrenewal. 


The legislative body also has the power to cancel the contract if it determines that the owner has:

  • breached any of the conditions of the contract;
  • allowed the property to deteriorate to the point that it no longer meets the standards for a qualified historical property; or
  • failed to restore or rehabilitate the property as specified in the contract.

A public hearing on the proposed cancellation, with notice to the owner, must be held prior to any action. If a contract is canceled, the owner is required to pay a cancellation fee of 12½ % of the full value of the property at time of cancellation. This figure is computed without regard to any restrictions imposed by the existing contract.

In its direction to the City Attorney to draft an implementation ordinance, the City Council specified that there would be an exemption from the cancellation penalty provision for properties affected by natural disasters. 

Within twenty days of execution of the contract, it must be recorded. Following the execution of the contract, new valuations take effect on the next March 1st. 

Valuation and Assessment Procedures

The property tax relief provided in California Revenue and Taxation Code Sections 439 through 439.4 requires the county assessor to value the property by a capitalization of income method. The usual valuation method is comparable sales to determine full cash value. 

There are three different methods for computing the annual income to be capitalized. If sufficient rental information is available, the assessor determines income based upon actual rents received. If sufficient rental information is not available, income can be estimated as that which can reasonably be expected under prudent management taken into account the provisions of the historical property contract. 

The annual income is net of expenditures that can be fairly charged against the revenue. Offsetting expenditures, however, do not include depiction charges, debt retirement, interest on funds invested in the property, property taxes, corporate income taxes, or corporate franchise taxes.

To determine the capitalization rate, the Mills Act provides a formula which is the sum of four components.

  • The interest component is pegged to the effective rate on conventional mortgages as determined by the Federal Home Loan Bank Board and rounded to the nearest one-quarter percent. For assessments of March l, 1995, this rate is 7.75 percent.
  • The historical property risk component is equal to 4 percent for single-family homeowners and 2 percent for all other properties.
  • The property tax component is a percentage equal to the estimated total tax rate applicable to the property for the assessment year times the assessment ratio. Usually, this component is equal to 1 percent.
  • The amortization component is a percentage equivalent to the reciprocal of the remaining life of the improvements. 

These components are intended to artificially drive up the capitalization rate above market rates, thereby, reducing assessed valuation for any given income stream. 


The Mills Act can result in property tax reduction of up to approximately 50 percent. The Mills Act is, therefore, a valuable preservation incentive to property owners. However, the decision to enter into a Mills Act contract must be made in light of the mandatory preservation requirements. Furthermore, some negotiation of optional provisions may be required. In most cases, the benefit of the ongoing property tax relief will exceed the burden. 

The City Attorney's Office expects to report back to the City Council with a draft ordinance by the end of October or the beginning of November. Once the ordinance is enacted, application forms and information will be available from the City of Los Angeles Cultural Affairs Department.


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