Ownership Incentives for Historic Preservation

The state of California, through various ordinance, has provided incentives for historic preservation of buildings including homes: the Historical Building Code, Mills Act, Ellis Act, Mello-Roos and Adaptive Reuse.  Unfortunately, there is a lot of confusion and these programs are often misunderstood  Below is my brief primer on each.

As always, if you have a question regarding the sale of your home or questions regarding possible property tax savings and credits, please don’t hesitate to ask. I’m pleased to share information and investigate any concerns when you buy or sell a home in Los Angeles.

What is the California Historical Building Code?

Owners of qualified historic properties (either designated or determined eligible for designation) are entitled to use the California Historical Building Code (CHBC) for rehabilitation of older structures, which are typically out of conformance with code requirements for new construction. The CHBC does not allow code standards to be waived, but instead provides for alternative methods to achieve reasonable levels of safety.

Where prescriptive code alternatives are not identified in the CHBC, determination of the code lies with the State Historical Building Safety Board to provide interpretations, hear appeals, or act as a review body to state and local agencies or any affected party.

What is the Mills Act?

The Mills Act is a 1972 California state law allowing cities to enter into contracts with homeowners to provide property tax relief and reductions, provided historic structures were restored and maintained following Department of the Interior standards.  The saving may be substantial because the appraised valuations for Mills Act properties is based upon an Income Approach rather than standard Market values.

The contract is executed between the property owner and the city for a revolving ten-year term and is transferred to new owners if the property is sold.  It is binding to all successive owners.  The contract automatically renews each year so the term always remains ten years.  In the contract, the homeowner agrees to specific plans to maintain, restore and protect the property, and to allow inspections by city and county officials.  The city may impose penalties if the contract is breached.

A homeowner in Los Angeles must apply for a Mills Act reduction through the city’s Office of Historic Resources. The annual application process begins in January and homeowners must propose a preservation plan in order to be considered and approved for a property tax reduction. Contributing structures in a Historic Preservation Overlay Zone (HPOZ) and designated City of Los Angeles Historic-Cultural Monuments are among the buildings eligible for this program.

What is the Ellis Act?

The Ellis Act is a 1985 California state law, which allows landlords to evict tenants in rent stabilized units in order to take the building out of the rental business or demolish the building entirely. It most often has been applied to older properties and those with long-term tenants covered by rent stabilization ordinances. Lawmakers in Los Angeles, San Francisco and elsewhere in California have pushed back against so-called Ellis Act evictions and there are many rules surrounding the process. Initially, the Ellis Act was intended to help “mom and pop” landlords who wanted to exit the rental business.

What is Los Angeles’ Adaptive Reuse Ordinance?

This one of the most significant ordinances for historic preservation in Los Angeles.  The Ordinance was originally approved in 1999 for downtown Los Angeles and was extended into other neighborhoods of the city in 2003.  It provides for incentives for converting historic and under-utilized structures into housing.  These incentives include an expedited approval process and ensures that older and historic buildings are not subjected to the same zoning and code requirements that apply to new construction. The result has been the creation of several thousand new housing units, with thousands more in the development pipeline, demonstrating that historic preservation can serve as a powerful engine for economic revitalization and the creation of new housing supply.

What is Mello-Roos? Why does Mello-Roos matter to home buyers in Los Angeles?

If you’ve read any information or a listing on a residential property, you may have noticed an indication whether or not the property covered by Mello-Roos. A YES answer means the property is subject to a special property tax lien or bonded debt established by a city, county or other entity. Once a Mello-Roos Community Facilities District (CFD) is established, it allows for the financing of public works and services; it is often utilized for the improvement of public works (streets, sewer systems and other infrastructure updates) and civic works such schools, parks and cultural facilities.

These special property taxes typically have a time frame or will be reduced after a certain number of years. A seller must make a good faith effort to disclose if their residential property is in a CFD and subject to a Mello-Roos special tax.