Mills Act Contracts: Tax Savings on Bay Area Historic Homes

The Mills Act lets a California city or county sign a contract with the owner of a qualified historic property: the owner agrees to preserve and maintain the building, and the county assessor values it by an income formula instead of its Proposition 13 base. The contract runs at least 10 years, adds a year automatically each anniversary, and binds every later owner. Whether a contract is available depends entirely on the local government, and not every city in our markets runs a program.

The program comes from Government Code sections 50280 to 50290 and Revenue and Taxation Code sections 439 to 439.4. The state Office of Historic Preservation calls it “the single most important economic incentive program in California” for historic buildings, but it is not a party to any contract; each city or county sets its own eligibility, limits and deadlines. This post covers how the contract and the tax formula work, which programs we could confirm in Napa, San Francisco and the East and South Bay as of October 2026, and what to check when the house you’re buying already has a contract.

What a Mills Act contract requires

Section 50281 sets the minimum terms. The contract must last at least 10 years. Where applicable, it must require the owner to preserve the property and, when needed, restore and rehabilitate it to the Office of Historic Preservation’s rules, the Secretary of the Interior’s Standards for Rehabilitation and the State Historical Building Code.

The city or county inspects the interior and exterior before a new contract is signed and every five years after that to confirm compliance. Section 50281 also says the contract binds all successors in interest, who take on the same rights and duties as the original owner. That is the part buyers most often miss.

Under section 50282, the clerk records the signed contract with the county recorder within 20 days, which gives notice to anyone who later buys the property. A preliminary title report on a contract property should normally show it.

How the assessor values a Mills Act property

Revenue and Taxation Code section 439.2 tells the assessor to ignore sales of comparable homes. Instead, value equals the property’s annual income divided by a capitalization rate. For an owner-occupied house, income is the fair rent the property could command, less ordinary operating and maintenance costs. Property taxes, debt retirement and interest on invested funds are excluded from those costs.

The capitalization rate is built from four parts, none taken from market sales:

The result can’t exceed the value the property would carry without the contract under Proposition 13’s base-year rules. In practice that means a contract only helps when the income value comes in below the owner’s regular assessed value. San Francisco’s Preservation Bulletin 8 adds that its reduction applies only to the general tax levy portion of the bill, so voter-approved bonds and direct charges are still owed in full.

Why recent buyers tend to see larger savings

A long-time owner’s Proposition 13 value may already sit below the income value, leaving little to gain. When a home sells, its base year value resets to the purchase price, so the regular assessment rises while the income-based value does not track the sale price. The gap between the two, and so the potential savings, is often widest right after a purchase. Assessors recalculate the income value every year, so the savings move with rents and the interest component.

Renewal, nonrenewal and cancellation

Each anniversary, one more year is added to the term unless someone serves notice. Section 50282 gives the owner until 90 days before the renewal date to send a notice of nonrenewal, and the city or county until 60 days before. An owner can protest a city’s notice, and the city may withdraw it before the renewal date.

Nonrenewal is not an exit. The contract stays in force for the rest of its current term, so the restricted assessment and the obligations wind down over the remaining years rather than ending at once. San Francisco’s bulletin describes the owner as released ten years after giving notice.

Cancellation is the penalty route. Under section 50284, the city or county may cancel if the owner breached the contract or let the building deteriorate until it no longer qualifies, or it may go to court to enforce the contract instead. If it cancels, section 50286 requires the owner to pay a fee of 12.5 percent of the property’s current fair market value, as the assessor determines it without the contract’s restriction. On a valuable house, that fee can exceed many years of tax savings.

Which Bay Area and Napa programs we could confirm

We checked each city’s or county’s own program page in October 2026, along with the Office of Historic Preservation’s Mills Act contacts list. The state list is a contact directory, not a complete register: it did not include the City of Napa, which runs an active program.

The state contacts list also names Napa County, St. Helena, Belvedere in Marin, and Benicia and Vallejo in Solano County, among others. We did not open those agencies’ own pages, so confirm eligibility and deadlines with each planning department.

Sonoma County and most of Marin

The state list had no entries for any Sonoma County city or for the county itself, and none in Marin besides Belvedere. Our guides to Santa Rosa’s historic districts and Petaluma’s West Side note that neither city’s preservation materials we reviewed mention a Mills Act program. For a historic house in Sonoma, Petaluma, Santa Rosa or Healdsburg, ask the city planning office directly whether it will consider a contract. Our post on historic homes near the Sonoma Plaza covers the design review side of owning one there.

Buying a home that already has a contract

A contract runs with the land, so a buyer steps into the seller’s position: the remaining term, the maintenance plan, any unfinished rehabilitation work and the inspection schedule. San Francisco’s bulletin says later owners must complete the work the contract still requires, and the seller must disclose the contract.

During your investigation period, request:

1. The recorded contract and any amendments. Check the anniversary date, whether anyone has served a notice of nonrenewal, and any property-specific conditions.
2. The rehabilitation and maintenance plan. List which items are complete and which are due, with dates. An unfinished roof or foundation item becomes your obligation.
3. Inspection records from the city. Ask whether the last inspection found problems and whether any correction is outstanding.
4. The current tax bill and the assessor’s restricted value. Remember that the income value is recalculated each year.
5. Permit history. Work done under a contract usually needed historic review. Unpermitted changes can put the contract at risk.

A general home inspection and a pest report still matter; our guide to termite report sections explains how wood damage findings are split. Ask the city whether your planned changes, such as a kitchen addition or window replacement, fit the contract before you remove contingencies. Diamond may refer you to partners we work with, such as preservation architects and contractors; you’re free to choose any provider.

Valuing the tax savings in an offer

Don’t price the house as if the current bill will continue unchanged. Ask the assessor’s office how it will value the property after your purchase, and weigh the savings against the cost of the required work and the 12.5 percent cancellation risk. Our explainer on the supplemental tax bill covers the separate bill that follows most purchases.

Selling a Mills Act property

Disclose the contract early and have the paperwork ready: the recorded contract, the maintenance plan with a status for each item, city inspection letters and recent tax bills. Buyers who see that the required work is done, and what the bill looks like under the formula, can weigh the savings with fewer unknowns. Our overview of California seller disclosures lists the standard forms.

If you plan to stop the contract before a sale, remember that nonrenewal takes years to wind down and does not end the obligations at closing. A buyer may value the contract more than you expect, so talk through the options before serving notice.

Applying for a new contract

Most programs follow the same broad sequence:

1. Confirm designation. The building must be on the local, state or national list that the program accepts. An old house that isn’t designated usually has to be designated first.
2. Check the deadline and limits. San Francisco’s is before May 1, Berkeley’s June 1 and the City of Napa’s July 31. San Francisco also applies value caps.
3. Prepare a rehabilitation and maintenance plan. Programs expect work that meets the Secretary of the Interior’s Standards, scheduled over the contract term.
4. Go through review. Planning staff, a landmarks board or commission, and then the council or board typically act on each application.
5. Record the contract. The reduced assessment generally starts with a later tax year, depending on when the contract is recorded.

Oakland’s program page suggests owners talk to legal counsel or a financial adviser before signing, and that’s sound advice anywhere. This is general information, not tax or legal advice; have a California real estate attorney or property tax consultant review a specific Mills Act contract, and confirm projected savings with the county assessor before you rely on them.

Questions people ask

How much does the Mills Act save on property taxes?

It varies by property and year. The assessor values the home by capitalizing a fair rent, and the savings are the difference between that value and the regular assessed value. Owners who bought recently, at higher prices, usually have the most to gain.

Does a Mills Act contract transfer to a new owner?

Yes. Government Code section 50281 makes the contract binding on all successors in interest, and it is recorded against the property, so a buyer takes on the remaining term and the maintenance obligations.

Can I get out of a Mills Act contract?

An owner can serve notice of nonrenewal at least 90 days before the renewal date. The contract then continues for the rest of its current term instead of ending immediately.

What is the penalty for breaking a Mills Act contract?

If the city or county cancels for breach or deterioration, the owner pays a fee of 12.5 percent of the property’s current fair market value, determined as if the contract did not exist.

Does San Francisco have a value limit for Mills Act contracts?

SF Planning’s Preservation Bulletin 8, dated 2003 and reprinted in 2010, limits eligibility to $3 million in assessed value for residential property and $5 million for commercial or mixed use, with exceptions approved by the Board of Supervisors. Because the bulletin is dated, confirm current limits with SF Planning.

Is there a Mills Act program in Sonoma County?

We found no Sonoma County jurisdiction on the state’s Mills Act contacts list, and the Santa Rosa and Petaluma preservation materials we reviewed don’t describe one. Ask the city or county planning office about a specific property.

Does historic designation alone lower my taxes?

No. San Francisco Planning says designation of any kind does not affect property taxes unless the owner has an active Mills Act contract, and the same principle applies elsewhere.

If you’re buying or selling a designated historic home in Napa, San Francisco or the East Bay, contact Diamond Real Estate Group and we’ll help you gather the contract documents before you commit.

Sources & notes

• California Office of Historic Preservation: Mills Act Program
• California Office of Historic Preservation: Mills Act contacts list
• California Public Law: Government Code section 50281 (contract terms)
• California Public Law: Government Code section 50282 (renewal, nonrenewal, recording)
• California Public Law: Government Code section 50284 (cancellation grounds)
• California Public Law: Government Code section 50286 (cancellation fee)
• California Public Law: Revenue and Taxation Code section 439.2 (valuation)
• San Francisco Planning: Mills Act (updated January 19, 2026)
• San Francisco Planning: Mills Act application (updated May 10, 2026)
• San Francisco Planning: Preservation Bulletin 8, Mills Act (2003, reprinted 2010)
• City of Napa: Mills Act contracts
• City of Berkeley: Reduce taxes on landmark property
• City of Oakland: Mills Act tax incentives
• City of San Jose: Historic Property Contract application (January 18, 2023)
• Alameda County Community Development Agency: Mills Act handout

Last reviewed October 2026 by Matthew Martinez.