Picture a 1920s Spanish bungalow a few blocks off Montana Avenue, the kind with a barrel-tile roof and a plaque near the door noting its landmark status. The listing photos look like every other well-kept older home on the Westside. Then, somewhere in the disclosures, a buyer notices a line about a Mills Act contract, and the assumption kicks in that this must be a nice-to-have, a small perk that came with the house the way a water softener or a Nest thermostat might. That assumption is where the trouble starts, because a Mills Act contract is not a feature you can ignore or unplug. It is a binding agreement that survives the sale and taxes the property on a formula that has nothing to do with what anyone just paid for it.
That is the part most buyers do not expect: the sale resets the deed, but it does not reset the tax math.
A Different Formula Under the Same Roof
Most California homeowners assume their property tax bill is anchored to Proposition 13, which ties assessed value to purchase price with capped annual increases. A home with a Mills Act contract works differently. The Mills Act is a California state law that lets qualifying cities enter into contracts with owners of designated historic properties, and once a Santa Monica property has one, the county tax assessor is required to value it based on its income-earning potential rather than the standard Prop 13 formula. For an owner-occupied home, that income figure comes from comparable rental rates in the area rather than what a buyer actually paid for it. A capitalization rate then converts that income projection into the assessed value the county actually taxes.
The practical effect is that two nearly identical houses on the same block can carry very different tax bills, and the difference has nothing to do with square footage or when either owner bought.
Why the City Started Rethinking It
The scale of that gap is why Santa Monica's own council started asking questions. A case that went before the council in late 2024 involved an owner applying for a Mills Act contract on a property nicknamed the "House of Rock," a request that would have dropped the annual tax bill from around $90,000 to roughly $14,000. Numbers like that are why city staff eventually agreed a second look at the rules was overdue.
That review has not gone anywhere, at least not yet. In February 2026, the Santa Monica City Council voted 5-2 to pause its review of Mills Act reforms, even though a consultant, Robert Chattel, had already completed a study of how other cities structure the program, and Planning Director Jing Yeo confirmed staff had met with the Santa Monica Conservancy about options. Council Member Ellis Raskin, who co-sponsored the pause with Mayor Caroline Torosis and Council Member Dan Hall, argued the city needed to fold the Mills Act question into a broader review of the landmarks program rather than tackle it piecemeal. Mayor Pro Tem Jesse Zwick, who dissented alongside Council Member Natalya Zernitskaya, pushed back on the delay, noting that the council had directed this exact evaluation back in 2025 and warning that further delay could push any actual policy change to 2027 or 2028. As of a council review of board and commission structures in May 2026, the pause was still in effect.
For anyone buying or selling in Santa Monica right now, that stalemate matters more than it sounds like it should.
The Contract Doesn't Care Who Signs the New Deed
Here is the mechanism that catches people off guard during escrow. A Mills Act contract runs for a ten-year term that renews automatically every year, which means an owner is functionally always ten years away from the contract's end unless someone files a notice of non-renewal. More importantly, the rights and obligations of that contract bind successive owners for the remainder of the term. When the house sells, the new owner does not get a fresh choice about whether to participate. They inherit the tax formula, the maintenance obligations, and the restoration plan the previous owner agreed to, sight unseen until they read the actual recorded document.
Here's a simple way to think about what changes at closing and what does not:
| At closing | Resets to new owner | Stays with the property |
|---|---|---|
| Purchase price and loan terms | Yes | |
| Prop 13 base-year value (if no Mills Act contract exists) | Yes | |
| Existing Mills Act contract and its tax formula | Yes | |
| Ten-year restoration and maintenance plan | Yes | |
| Early-cancellation penalty exposure | Yes |
That last row is worth sitting with. An owner who wants out of a Mills Act contract before its term ends can petition the city for immediate cancellation, but doing so triggers a penalty equal to 12.5 percent of the property's assessed market value. That is not a fee schedule anyone wants to discover after the fact. The safer exit, filing a notice of non-renewal and letting the existing term run out, still takes years to fully unwind.
Applying Fresh Is a Different Bet Right Now
Some buyers hear all of this and think the smarter move is to skip a house with an existing contract and simply apply for a new one after closing on an uncontracted historic property. That is a real option, but the timing and the odds look different than they did a few years ago.
Santa Monica receives an average of three to four Mills Act applications per year, with a May submission deadline and council action required by October. The city's own application materials point to a May 31 filing deadline, followed by a site visit, a report to the Landmarks Commission, and finally a vote before the full council. That is not a fast or casual process even in a normal year, and this is not a normal year for Santa Monica's historic preservation rules. With the reform review paused and Zwick's warning about a 2027 or 2028 timeline still on the table, anyone filing an application today is doing so without knowing what the eligibility criteria, contract structure, or approval odds might look like by the time a future buyer inherits that same contract.
It also helps to know how selective this program is to begin with. Only a limited number of Los Angeles County cities have adopted the Mills Act at all, a list that includes Pasadena, Long Beach, West Hollywood, and the city of Los Angeles itself alongside Santa Monica. And even among cities that participate, the rules vary. Los Angeles caps the total tax revenue it will forgo through Mills Act contracts at $1 million a year, and once that cap is hit, only extreme cases get approved. Santa Monica has not adopted a similar cap, at least not yet, which is part of what makes its current policy pause worth watching rather than ignoring.
What This Means If You're Shopping Santa Monica's Older Housing Stock
None of this makes a Mills Act property a bad buy. For the right owner, the tax savings can be significant and the restoration requirements simply formalize maintenance a good steward would do anyway. But it does mean the due diligence looks different than it does for a standard resale.
Before writing an offer on a designated Santa Monica landmark, structure of merit, or historic-district contributor, it is worth confirming a few things directly rather than assuming the listing sheet tells the whole story:
- Whether an active Mills Act contract exists on the property, and if so, requesting the recorded contract itself, not just a summary
- The specific restoration and maintenance plan attached to that contract, since it commits future owners to a defined scope of exterior work on a set schedule
- Whether the property currently meets the baseline findings the city requires for approval, including no outstanding code violations and being current on property taxes
- How many years remain in the current contract term before you would need to decide whether to keep it, let it run out, or accept the 12.5 percent cancellation penalty
A Mills Act contract only regulates exterior features and general upkeep, not interior renovations, so it should not stand in the way of updating a kitchen or opening up a floor plan. What it will shape is the tax bill you carry for as long as you own the house, and possibly the sale price you can command from the next buyer who understands what they are inheriting.
FAQ
Does a Mills Act contract limit what I can do inside the house? No. The contract and the underlying restoration plan govern exterior features and general maintenance. Interior renovations generally fall outside its scope, though any exterior work still needs a certificate of appropriateness from the Landmarks Commission.
If I buy a home with an existing Mills Act contract, do I have to reapply for it myself? No, and that is precisely the point. The contract is binding on successive owners automatically. You do not choose whether to opt in, but you also do not need to file new paperwork to keep the tax treatment in place.
What if I don't want the contract once I own the house? You can petition the city for immediate cancellation, which comes with a penalty equal to 12.5 percent of the property's assessed market value. The lower-cost path is filing a notice of non-renewal, which lets the current ten-year term expire on its own timeline instead.
Buying or selling a designated historic home in Santa Monica means reading past the listing sheet into the actual recorded contract, and that is exactly the kind of detail worth walking through with someone who tracks Santa Monica's council agendas as closely as its open houses. If you're weighing a Mills Act property, or wondering whether one might make sense for a home you already own, Kyle Leibovitch can help you sort out what you are actually buying before you write the offer. Schedule a consultation and bring the questions.
