So, let’s say you are house hunting and you come across a home you absolutely adore and then you discover it’s under a Mills Act contract. What is a Mills Act contract, you may be asking yourself. Once you find that answer out you probably only have more questions. Questions like, what does that mean for me as a home owner? Do I receive a property tax credit at the end of the year? Or even can I use hollow dual pane to replace single layer glass?
In this piece we’ll explain The Mills Act, answer some of the most pertinent questions from potential home owners of properties under a Mills Act contract, and we will discuss why The Mills Act and incentives like this are so important for the cultural fabric, the look, the feel, and the history of Los Angeles county.
What is the Mills Act?
The Mills Act is the single most important economic incentive program in California for the restoration and preservation of qualified historic buildings by private property owners.
The Mills Act Program is administered and implemented by local governments. Mills Act contracts are between the property owner and the local government granting the tax abatement.
Enacted in 1972, the Mills Act legislation grants participating local governments (cities and counties) the authority to enter into contracts with owners of qualified historic properties who actively participate in the restoration and maintenance of their historic properties while receiving property tax relief.
Do you want to see the California State Codes Relating to the Mills Act? Hey, you might. Here they are:
California Government Code, Article 12, Sections 50280 – 50290
California Revenue and Taxation Code, Article 1.9, Sections 439 – 439.4
Why is the Mills Act so important to Los Angeles?
The big idea behind the Mills Act is that it will offer economic incentives that foster the preservation of residential neighborhoods and the revitalization of downtown commercial districts. In essence, the Mills Act promotes civic pride in neighborhoods and business districts and helps develop a sense of place and time. As Los Angeles continues to morph and grow taller and wider, the Mills Act has never been more vital than today.
Imagine LA not having the iconic Angels Flight Railway, the Bradbury Building, Saint Vibiana’s Cathedral, or the Hollyhock House in Barnsdall Art Park, Crossroads of the World, the Shakespeare Bridge, the Griffith Observatory, or the Hollywood Sign for that matter?
What are some examples of Mills Act and Historic Cultural Monument residential properties in Los Angeles?
Oh, there are so many amazing homes and properties that occasionally enter the market. The most notable, which was on the market earlier this year is perhaps Ennis House by architect Frank Lloyd Wright. Other notable homes include Samuel Freeman House, C.E. Toberman Estate, Stahl House / Case Study House #22, Sowden House, and Chemosphere House, to name a few in the Hollywood area alone.
My property or a property I am considering buying is already under a Mills Act contract. What does that mean to me as a property owner? And how will that benefit me?
Good question! Mills Act contracts are for 10 years initially with automatic yearly extensions and stay with the property when transferred. Subsequent owners are bound by the contract and have the same rights and obligations as the original owner who entered into the contract. Because the local government and the property owner negotiate other specific terms of the contract, you will need to contact your local government to determine the rights and obligations a Mills Act contract creates.
Owners of historic buildings may qualify for property tax relief if they pledge to rehabilitate and maintain the historical and architectural character of their properties for at least a ten-year period. The Mills Act program is especially beneficial for recent buyers of historic properties and for current owners of historic buildings who have made major improvements to their properties.
Mills Act participants may realize substantial property tax savings of between 40% and 60% each year for newly improved or purchased older properties because valuations of Mills Act properties are determined by the Income Approach to Value rather than by the standard Market Approach to Value. The income approach, divided by a capitalization rate, determines the assessed value of the property. In general, the income of an owner-occupied property is based on comparable rents for similar properties in the area, while the income amount on a commercial property is based on actual rent received. Because rental values vary from area to area, actual property savings vary from county to county. In addition, as County Assessors are required to assess all properties annually, Mills Act properties may realize slight increases in property taxes each year.
In short, this powerful incentive offers potentially significant tax relief to owners of historic properties.
Can I use hollow dual pane to replace the single layer glass of my home’s windows?
The age-old question about windows of historic properties. Use of materials will be looked at on a case-by-case basis but the important idea to remember is that your obligation is to maintain the historical appearance of the house, so the use of historic materials is tantamount to that.
And, hey, while we’re here, what is the difference between a property under a Mills Act Contract and a Historic Cultural Monument?
So, it can be a bit confusing. Basically desgination as a Historic-Cultural Monument paves the way for your Mills Act contract. Though it is extremely rare, you can have one without the other but why would an owner not want the tax incentives?
Historic-Cultural Monument status:
- Recognizes the building, structure, site, or plant life as important to the history of the city, state, or nation;
- Provides eligibility for the Mills Act program, providing a Historical Property Contract that can result in a property tax reduction;
- Permits use of the California Historical Building Code;
- Allows property owners to purchase and display a plaque showing that the property has Historic-Cultural Monument status.
I don’t know about you, but I would love my house to have its very own plaque.
Here’s a good list list of frequently asked questions if you are still seeking answers.