Laguna Beach Isn't Taking New Mills Act Applications. For Now, the Only Way In Is to Buy a Home That Already Has One.

The City of Laguna Beach has posted a notice at the top of its Historic Preservation page. It says Mills Act applications "will not be accepted this year" while the City reviews the program, so that the program "aligns with current best practices before it is re-launched." That sentence changes the arithmetic for anyone shopping Laguna's older cottages. Since 1993 the City has entered into 138 of these contracts, and four more were approved in November 2025. For the rest of this year, one of those existing contracts is the only route into the program. The contract stays with the house. So does everything it requires of the owner.

A December Deadline That Nobody Can Meet This Year

The timing comes from the property tax calendar. A footnote in the City's November 18, 2025 staff report explains it. The Orange County Assessor sets values as of January 1 each year. A property has to enter a Mills Act contract by December 31 of the year before to see savings the following year. In a normal year, the City starts processing applications in January. The Heritage Committee reviews them over the summer, and the City Council votes before year-end.

The 2025 group followed that schedule. The Heritage Committee reviewed the four applications on August 18 and September 15, 2025, and Council approved all four on November 18. This year the application window never opened. A registered historic home without a contract today has no path to one before the next January 1 assessment date.

Being on the Register does not fill that gap. The Orange County Assessor's glossary says Historic Register listing alone does not qualify a property for Mills Act treatment. The recorded Historical Properties Contract is what does it.

What the Assessor Values Instead of Your Purchase Price

When a Laguna Beach home sells, Proposition 13 normally resets its taxable value to the price paid. The California State Board of Equalization's assessment guidelines for Mills Act property work differently. Assessors value restricted historic property with a prescribed income method instead of comparable sales. The starting point is the fair rent the property could earn under its restrictions, less allowed operating expenses. Debt service, general property taxes and depreciation are not deductible.

Each year, the Assessor compares three numbers and enrolls the lowest:

1. The restricted value, which is net operating income divided by a prescribed capitalization rate
2. The property's current market value
3. Its factored base-year value under Proposition 13

A sale still creates a new base-year value. While the contract is in effect, though, that new base year is only one of the three numbers being compared. The purchase price does not automatically become the taxable value. The guidelines also say there is no supplemental assessment when a property already under contract changes hands. According to the Orange County Assessor, Mills Act treatment typically reduces taxes by 15% to 60%.

In a market where the purchase price is the largest number on the page, this matters a great deal. On a contracted home, the price you negotiate and the value you are taxed on are figured on separate tracks.

The Work Plan Comes With the Keys

California State Parks describes the standard contract as a 10-year initial term that renews automatically each year. It transfers to later owners, and the buyer steps into the seller's rights and obligations. In Laguna Beach, those obligations are written into a work plan. Applicants submit a description of the work, a timeline and cost estimates for the first ten years. Structural and historic items are scheduled for the early years and cosmetic improvements toward the end.

The four contracts approved in November 2025 show the scale. The last column is the City staff report's projection of property tax revenue lost to the City's General Fund. It is the City's share only, not an owner's total tax savings.

Together the four plans add up to $778,000 of committed work. The staff report calls its revenue estimates preliminary, because the Assessor calculates the exact reduction after evaluating each property under the signed agreement. Across every contract, the City estimated about $743,014 in lost property tax revenue in 2025.

The details of these plans are negotiated. In 2025, the Heritage Committee asked for changes to two of the four plans, and one owner asked the Committee to reconsider. Another plan dropped a recommended window replacement after the City's historic consultant found the existing window compatible with the house. A buyer of an existing contract inherits whatever was agreed, including items that come due in the year they move in. Ownership can also change partway through the process. One 2025 application, with a $3,201 application fee and a separate $4,000 historic-assessment deposit, notes that the fee was paid by a previous owner.

Leaving Is Slow, and Breaking the Contract Is Expensive

Because the term renews every year, the staff report explains, the contract keeps extending until the owner or the City files a notice of non-renewal. The restrictions stay in effect if the property is sold. Laguna Beach also records a separate historic preservation agreement with the County that binds later owners. That agreement sits on top of any Mills Act contract, according to the City's historic preservation code.

The faster way out costs more. Under the Board of Equalization guidance, a local government may cancel a contract for breach or deterioration after notice and a public hearing. The cancellation fee is 12.5% of the property's current fair market value, figured as if the contract's restrictions did not exist. On a coastal Laguna property, that is measured against the home's full unrestricted value. A deferred work plan item is therefore a contract risk, not just a maintenance chore.

The Rules Being Reconsidered Are the Ones a Buyer Lives With Longest

When Council approved the 2025 contracts, it also directed the Heritage Committee to research Mills Act best practices. It named two topics: how freestanding accessory dwelling units are treated in the assessed value, and how properties are monitored after the first ten years. The City's weekly newsletter for the week of July 20, 2026 previewed a joint study session of the Council and the Heritage Committee, set for July 21. The session was built around a report from consultant ASM Affiliates on how the City uses the Mills Act and how it approaches historic properties.

Both topics bear on resale. The City has been signing contracts since 1993, so some of the homes a buyer could purchase today are already past their first ten years, and the monitoring of those homes is one of the questions under review. The program grew in 2022, when the Historic Preservation Ordinance made any property on the Historic Register eligible for a contract. Before that, eligibility was limited to "E"-rated structures. The City's page says only that the program will be re-launched once the review aligns it with current best practices.

Questions to Settle Before an Offer on a Contracted Home

• Which year was the contract executed? That date determines where the house sits in its 10-year work plan and whether it is in the period after year ten that Council asked about.
• Which work plan items are done, and which are still due? Ask for documentation of completed work.
• Is the separate City historic preservation agreement recorded alongside the Mills Act contract?
• What value does the Assessor currently enroll for the property?
• Is there a freestanding ADU on the lot?

FAQ

Does placement on the Laguna Beach Historic Register lower property taxes by itself? No. The Orange County Assessor says Register listing alone does not qualify a property without a Historical Properties Contract.

Is there a fee to apply for the Historic Register? The City's municipal code lists Register placement applications as no-fee. The 2025 Mills Act application carried a $3,201 application fee and a $4,000 historic-assessment deposit.

Do contracts still have to involve "E"-rated homes? No. Since the 2022 ordinance, any property on the Historic Register has been eligible, whatever its rating.

This post is general information, not legal, tax or financial advice. Please confirm how a Mills Act contract would affect your own purchase with a qualified attorney, tax professional and the Orange County Assessor.

If a Laguna Beach cottage with a Mills Act contract is on your list, Kira Nimmer-Crabel can help you collect the contract history, the work plan status and the seller's records before you write an offer. Schedule a consultation.