Carmel-by-the-Sea City Council
October 4, 2022

IRV #4865-6302-6227 v1
07904-0027
NOES:

ABSENT:

ABSTAIN:

APPROVED: ATTEST:
_________________________ _________________________
Dave Potter Nova Romero, MMC
Mayor City Clerk
Attachment 1

CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report
October 4, 2022

PUBLIC HEARINGS
TO: Honorable Mayor and City Council Members
SUBMITTED BY: Katherine Wallace, Associate Planner
APPROVED BY: Chip Rerig, City Administrator
SUBJECT:

MA 22-204 (Prentiss): Consideration of a recommendation from the Historic Resources Board to the City Council that the City enter into a Mills Act Historical Property Contract MA 22-204 (Prentiss) with Amanda S. Prentiss and Matthew J.

Mermer for the historic “Marion Daniels Shand House” located at Vizcaino Avenue 12 southwest of Mountain ViewAvenue (APN 010-055-021)
RECOMMENDATION:

Accept the recommendation of the Historic Resources Board, and Approve the Mills Act Historical Property Contract MA 22-204 (Prentiss) for the historic “Marion Daniels Shand House” located at Vizcaino Avenue 12 southwest of Mountain ViewAvenue (APN 010-055-021) and authorize the City Administrator to execute the contract.

BACKGROUND/SUMMARY:

The project site is located at Vizcaino Avenue 12 southwest of Mountain ViewAvenue in the Single Family Residential (R-1) Zoning District. The existing single-story residence was built in 1923 in the English Revival Style by San Jose contractors Floyd O. Bohnett and H.E. Clauser; a Moderne-style sunroom addition designed by Hugh Comstock was constructed in 1937. The building was constructed as a residence for original owner Marion Daniels, who married Arthur T. Shand in 1926 and became involved in his real estate business. Marion Daniels Shand was involved in local theatre and arts.

A Department of Parks and Recreation (DPR) Form 523A was completed for the property in 2022 by Seth Bergstein (Attachment 3, Exhibit B) and the resource was added to the Carmel Inventory on June 23, 2022.

A Resolution Designating a Historic Resource for the property at Vizcaino 12 southwest of Mountain View Avenue was recorded with the County Recorder on June 28, 2022 (Document #2022028672).

On June 15, 2022, Amanda Prentiss, one of the property owners, submitted an application for a Mills Act Historical Property Contract. The Mills Act is an incentive program available to owners of historical resources listed on the Carmel Inventory and the local Register of Historic Resources. As noted above, the property was added to the Carmel Inventory in June, 2022. On August 15, 2022, the Historic Resources Board adopted Resolution 2022-007-HRB (Attachment 5), recommending that the City Council enter into a Mills Act Contract with Amanda S. Prentiss and Matthew J. Mermer for the historic “Marion Daniels Shand House.”
Contract Value
The Monterey County Assessor’s Office is responsible for determining the value of a property under Mills Act Contract in accordance with sections 439 through 439.4 of the Revenue and Taxation Code. Properties with a Mills Act Contract are not valued based on sales data; rather they are valued by a prescribed income capitalization method (Attachment 6). After a Contract is approved, it is forwarded to the Monterey County Assessor who then determines the Mills Act value.

At previous Mills Act hearings, members of Council requested that staff obtain a preliminary calculation of Mills Act Contract values for the purposes of understanding the potential local tax revenue offset. A request was made to the Assessor’s Office on August 16, 2022, and a response was received on August 17, 2022, informing the City that time constraints and process complexity make preliminary calculations by the Assessor infeasible. There is typically a 40% to 60% tax reduction for Mills Act properties. The 2022 tax bill for this property was $23,859.78, with 6% of that amount going to the City's tax base ($1,431.60); an estimated 50% reduction in property tax would lower the amount collected to $11,929.89. Since the City receives 6% of the property tax collected by the County, granting the Mills Act Contract would also reduce the City's annual portion of property tax by an estimated 50% from $1,431.60 to $715.80.

STAFF ANALYSIS:

A Mills Act contract under State law is an agreement between the City of Carmel and a property owner of a historic building listed on the Carmel Register. In exchange for reduced property taxes, the property owner is contractually obligated to perform annual maintenance on the building. The property owner benefits from a reduction in property taxes. The City benefits from assurance, via contract, that the historic building is rehabilitated, maintained, and preserved with a portion of those property taxes that the city is giving up.

The primary purpose for offering Mills Act contracts in the City of Carmel-by-the-Sea is to assist in and ensure the rehabilitation or restoration and long-term maintenance of historic resources. All properties listed on the City’s Historic Register in all districts that have been preserved in their historical size, form, and design without significant alterations are eligible for Mills Act contracts.

All Mills Act contracts have a term of 10 years, and one year is added to this term annually upon each anniversary date of the contract unless one or both parties (City and property owner) have taken action to terminate the contract. The City Administrator is authorized to initiate contract termination on behalf of the City based on recommendations of the Community Planning & Building Department. The contract rights and obligations are binding upon all successive owners of the property during the life of the contract. The property retains the lower Mills Act tax rate when sold. To end a contract, either party may submit a notice of non-renewal to the other party. Such notices shall cause the contract to terminate at the end of the thencurrent 10-year contract period. Cancellation of a contract by the City due to non-compliance requires a public hearing and, if canceled, results in the immediate termination of the contract and a penalty equal to

12.5 percent of the assessed market value of the property.

The contract requires that the historical elements of the property are maintained in good condition. This includes a plan for rehabilitation and maintenance and may include a program to restore deteriorated features. All recipients of Mills Act contracts are required to implement a rehabilitation/restoration and maintenance plan prepared by a qualified professional. An annual report is submitted to the Community Planning & Building Department specifying all work that has been done to maintain and preserve the historic resource over the year in compliance with the approved rehabilitation/restoration and maintenance plan. All rehabilitation/restoration and maintenance work must be completed in conformance with the Secretary of Interior’s Standards for Rehabilitation. All Mills Act contracts must specify that the rehabilitation/restoration and maintenance plan shall be updated at least every ten years by a qualified professional and approved by both parties.

The Historic Resources Board considers each application for a Mills Act contract and provides a recommendation to the City Council to approve, approve with conditions, or deny the application.

The City Council considers the recommendations from the Historic Resources Board at a public hearing and resolves to approve, approve with conditions, or deny the proposed contract with sufficient time for action by the City Clerk so that recordation of approved contracts occurs before December 31st of the year in which the application is received.

Carmel Municipal Code Section 17.32.100.B.6(c) sets forth findings that the Historic Resources Board and City Council shall make in order to grant approval of a Mills Act Contract. The required findings are listed below followed by a staff response on whether the application meets the requirements.

1. The building is designated as a historic resource by the City and is listed on the Carmel Register.

Staff Response: A DPR 523A form was prepared by Seth Bergstein on June 8, 2022 (Attachment 3, Exhibit B), evaluating the property for historical significance and finding the property meets the criteria for listing as a local historic resource. The City added the property to the Carmel Inventory of Historic Resources on June 23, 2022. A Resolution Designating a Historic Resource for the property at Vizcaino Avenue 12 southwest of Mountain ViewAvenue was recorded with the Monterey County Recorder on June 28, 2022 (Instrument No.2007001127). On August 15, 2022, the Historic Resources Board adopted Resolution 2022-007-HRB adding the property to the Carmel Register. This application meets this finding.

2. The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficient in detail to guide long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property.

Staff Response: The proposed rehabilitation/restoration and maintenance plan (Attachment 4, Exhibit C) includes improvements that will protect the integrity of the resource. The plan covers a period of 10 years from 2023-2032. The plan includes rehabilitation and maintenance work which has been reviewed by Kent Seavey, a qualified architectural historian, and determined to be consistent with the Secretary of the Interior’s Standards for the Treatment of Historic Properties. The work will include structural upgrades; building system upgrades; work on interior and exterior features; and hardscape and landscape work. All exterior work is subject to Design Study approval and a determination of consistency with the Secretary of the Interior's Standards for Rehabilitation. In total, the applicant estimates spending $526,000 in rehabilitation and maintenance activities over the course of the 10-year contract period. The proposed Plan meets this finding.

3. Alterations to the historic resource have been in the past, and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and (B) Do not significantly alter, damage or diminish any primary elevation or characterdefining feature; and (C) Do not increase floor area on the property by more than 15 percent beyond the amount established in the documented original or historic design of the resource; and (D) Do not result in any second-story addition to a single-story historic resource.

Staff Response: As noted above, rehabilitation/restoration and maintenance work will be performed in conformance with the Secretary of Interior’s Standards for Rehabilitation. Any future alterations are required to be consistent with conditions A-D above. Minor alterations may be approved by staff; however, major alterations would be evaluated by a qualified professional and presented to the Historic Resources Board for review. The application meets this finding.

4. The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.

Staff Response: Approval of the contract would assist in offsetting the rehabilitation/restoration and maintenance costs of preserving the “Marion Daniels Shand House” by reducing the tax liability on the property thereby freeing up funds for the rehabilitation over the next ten years. Some of the more notable work that is proposed to be accomplished within the first few years would include, termite mitigation; crawl space and attic repair; roof and chimney repair; electrical, heating, and plumbing work; fenestration rehabilitation; and landscape/hardscape work. The application meets this finding.

5. Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in substantial adverse financial impact on the City.

Staff Response: Approval of the Mills Act Contract would be consistent with Goal 1-5 and Objective 1-16 of the Land Use & Community Character Element of the General Plan, which encourages providing incentives for property owners to preserve and rehabilitate historic resources. Although entering into a Mills Act Contract will decrease property tax revenue to the City, the financial impact would be minimal because:
1) The City Council adopted Resolution 2016-068 on September 13, 2016, limiting the number of Mills Act contracts that can be approved to fifteen (15) in any three-year calendar period. Two Mills Act Contracts have been approved in the last three years; one approval was granted in 2019 and one in 2022. The Council is considering a total of three contracts at this meeting which, if approved, would increase the total to five in the last three years. 2) Carmel currently has 284 historic resources, and since the adoption of the Mills Act program in 2004, the City has entered into a total of eleven Mills Act Contracts. 3) The City would continue to receive a portion of the property tax revenue, and the investment in rehabilitation and maintenance supports local tourism, which benefits both private and public interests.
4) The value of preserving the historic resource offsets the loss of property tax revenue.

FISCAL IMPACT:

The City will have a diminished tax base from the property at Vizcaino Avenue 12 southwest of Mountain ViewAvenue for the term of the contract. At previous Mills Act hearings, members of Council requested that staff obtain a preliminary calculation of Mills Act Contract values for the purposes of understanding the potential local tax revenue offset. A request was made to the Assessor’s Office on August 16, 2022, and a response was received on August 17, 2022, informing the City that time constraints and process complexity make preliminary calculations by the Assessor infeasible. There is typically a 40% to 60% tax reduction for Mills Act properties. The 2022 tax bill for this property was $23,859.78, with 6% of that amount going to the City's tax base ($1,431.60); an estimated 50% reduction in property tax would lower the amount collected to $11,929.89. Since the City receives 6% of the property tax collected by the County, granting the Mills Act Contract would also reduce the City's annual portion of property tax by an estimated 50% from $1,431.60 to $715.80.

PRIOR CITY COUNCIL ACTION:

On March 3, 2020, the City Council adopted standard contract language for Mills Act Contracts.

ATTACHMENTS:

Attachment 1) Standard Mills Act Contract, with exhibits Attachment 2) Exhibit A - Legal Description
Attachment 3) Exhibit B - DPR 523A Form
Attachment 4) Exhibit C - Maintenance Plan
Attachment 5) Resolution 2022-007-HRB
Attachment 6) Guidelines for the Assessment of Enforceably Restricted Historical Property

RECORDING REQUESTED BY

CITY OF CARMEL-BY-THE-SEA

AND WHEN RECORDED MAIL TO

Carmel City Hall
Attn: Community Planning & Building
P.O. Box CC
Carmel-By-The-Sea, CA 93921 This space reserved for the Recorder’s use only

CITY OF CARMEL-BY-THE-SEA

MILLS ACT HISTORIC PROPERTY PRESERVATION CONTRACT
THIS AGREEMENT is made and entered by and between the CITY OF CARMEL-BY-THE-SEA a municipal corporation (hereinafter referred to as “City”), and Matthew J. Mermer and Amanda S.

Prentiss (hereinafter referred to as “Owner”).

RECITALS
(i) California Government Code Section 50280, et seq. (known as the Mills Act) authorizes cities to enter into contracts with the owners of qualified historic properties to provide for their appropriate use, maintenance and restoration such that these historic properties retain their historic characteristics;
(ii) The Owner possesses fee title in and to that certain real property, together with associated structures and improvements thereon, located at Vizcaino Avenue 12 southwest of Mountain View Avenue (APN: 010-055-021), Carmel-By-The-Sea, California, (hereinafter referred to as the “Historic Property”). A legal description of the Historic Property is attached hereto, marked as “Exhibit A” and is incorporated herein by reference;
(iii) The property is identified as a historic resource on the City of Carmel-By-The-Sea’s Historic Inventory and Register of Historic Resources and is further described in the DPR 523A Form attached hereto, marked as “Exhibit B” and is incorporated herein by reference;
(iv) City and Owner, for their mutual benefit, now desire to enter into this Agreement both to protect and preserve the characteristics of historical significance of the Historic Property, as it exists at the date of this contract and as described in the City’s Register of Historic Resources and the National Register of Historic Places, and to qualify the Historic Property for an assessment of valuation pursuant to the provisions of Article 1.9 (commencing with section 439) of Chapter 3 of Part 2 of Division 1 of the California Revenue and Taxation Code.

Attachment 1
NOW, THEREFORE, City and Owner, in consideration of the mutual covenants and conditions contained herein, do hereby agree as follows:

1. INCORPORATION OF RECITALS. All recitals are incorporated into this Agreement.

2. EFFECTIVE DATE AND TERM. This Agreement shall be effective and commence on the date the Agreement is signed by the City, unless otherwise indicated by the County of Monterey, and shall remain in effect for a minimum term of ten (10) years thereafter.

3. AUTOMATIC RENEWAL. Each year, upon the anniversary of the effective date of this Agreement (hereinafter referred to as “annual renewal date”), one (1) year shall be added automatically to the term of this Agreement, unless timely notice of nonrenewal is given as provided in paragraph 4 of this Agreement. The total length of the contract shall not exceed twenty (20) years.

4. NOTICE OF NONRENEWAL. If City or Owner desires in any year not to renew this Agreement, that party shall serve written notice of nonrenewal in advance of the annual renewal date of this Agreement as follows: Owner must serve written notice of nonrenewal at least ninety (90) days prior to the annual renewal date; City must serve written notice of the nonrenewal at least sixty (60) days prior to the annual renewal date.

If notice is not received, the Agreement shall automatically be renewed for another year.

Upon receipt by Owner of a notice of nonrenewal from the City, Owner may make a written protest. At any time prior to the annual renewal date, City may withdraw its notice of nonrenewal.

5. EFFECT OF NOTICE OF NONRENEWAL. If either City or Owner serves timely notice of nonrenewal in any year, and this contract is not renewed, this Agreement shall remain in effect shall remain in effect for the balance of the period remaining since the original execution or the last annual renewal date.

6. FEES. The City may require that the Owner(s) of the Historic Property pay a fee that shall not exceed the reasonable cost of providing services, such as inspections, pursuant to Government Code Section 50281.1 (Article 12 of Chapter 1 of Part 1 of Division 1 of Title 5 of the Government Code), for which the fee is charged.

7. VALUATION OF PROPERTY. During the term of this Agreement, Owner is entitled to seek assessment of valuation of the Historic Property pursuant to the provisions of Chapter 3 of Part 2 of Division 1 of the California Revenue and Taxation Code.

8. PRESERVATION OF PROPERTY. Owner shall preserve and maintain the characteristics of historical significance of the Historic Property and agrees to complete rehabilitation and/or maintenance activities as defined in the Rehabilitation/Restoration and Attachment 1
Maintenance Plan attached as “Exhibit C”. Requests for revisions to the Maintenance and Rehabilitation plan shall be reviewed by the Historic Resources Board prior to implementation. In addition, Owner shall comply with the terms of the City’s Historic Preservation Ordinance (CMC 17.32). Owners shall not be permitted to further impede any view corridor with any new structure, including but not limited to walls, fences, or shrubbery, so as to prevent the viewing of the Historic Property from the public right-ofway.

9. RESTORATION OF PROPERTY. Owner shall, where necessary, restore and rehabilitate the Historic Property to conform to the rules and regulations of the Office of Historic Preservation of the State Department of Parks and Recreation, U. S. Secretary of the Interior’s Standards for Rehabilitation, the State Historical Building Code, and the City of Carmel-by-the-Sea, all as amended.

10. INSPECTIONS. Owner shall allow periodic examinations, at least every five (5) years, with reasonable notice thereof, of the interior and exterior of the Historic Property by representatives of the County of Monterey Assessor and the City of Carmel-By-The-Sea as may be necessary to determine Owner’s compliance with the terms and provisions of this Agreement. The City will coordinate inspections by such other agencies that have jurisdiction and will keep them to the minimum necessary to determinate such compliance.

11. PROVISION OF INFORMATION. Owner shall furnish City with any and all information required by City, in order to determine the eligibility of the Historic Property, and that City deems necessary or advisable to determine compliance with the terms and provisions of this Agreement.

12. ANNUAL REPORT. Owner shall submit an annual report at least 90 days prior to each annual renewal date (October 1st) to the Department of Planning and Building specifying all work that has been done to maintain and preserve the historic resource over the preceding year in compliance with the approved maintenance plan.

13. CANCELLATION. The City has the right to cancel the contract if the owner allows the property to deteriorate to the point that it no longer meets the standards for a qualified historical property. The City also has the right to cancel this contract if the owner(s) breaches the provisions of paragraph’s # 8, 9, 10 or 12 of this Agreement after the City has provided reasonable notice of any failure to comply with the agreement, and a public hearing. Notice of the hearing shall be mailed to the last known address of each owner of the property, with the notice conforming to the provisions of Government Code section 6061., If after notice and a hearing, the contract is cancelled, termination of the Agreement is immediate, and the owner shall pay a cancellation fee equal to 12.5 percent of the current fair market value of the property, as determined by the Monterey County Assessor as though the property were free of the contractual restriction. The cancellation fee shall be paid to the Assessor, at the time and in the manner that the Attachment 1
Assessor shall prescribe. City’s right to cancel this Agreement pursuant to this paragraph shall in no way limit or restrict its rights or legal remedies arising from City’s Historic Preservation Ordinance and Municipal Code.

14. ENFORCEMENT OF AGREEMENT. In lieu of and/or in addition to any provisions to cancel this Agreement as referenced herein, City may specifically enforce, or enjoin the breach of, the terms of this Agreement.

15. WAIVER. City does not waive any claim or default by Owner if City does not enforce or cancel this Agreement. All remedies at law or in equity, which are not otherwise provided for this Agreement or in City’s regulations governing historic properties are available to City to pursue in the event there is a breach of this Agreement. No waiver by City of any breach or default under this Agreement shall be deemed to be a waiver of any other subsequent breach thereof or default hereunder.

16. BINDING EFFECT OF AGREEMENT. Owner hereby subjects the Historic Property to the covenants, reservations and restrictions set forth in this Agreement. City and Owner hereby declare their specific intent that the covenants, reservations, and restrictions as set forth herein shall be deemed covenants running with the land and shall pass to and be binding upon Owner’s successors and assigns in title or interest to the Historic Property. A successor in interest shall have the same rights and obligations under this Agreement as the original owner who executed the Agreement.

Each and every contract, deed or other instrument hereinafter executed, governing or conveying the Historic Property, or any portion thereof, shall conclusively be held to have been executed, delivered and accepted subject to the covenants, reservations and restrictions expressed in this Agreement regardless of whether such covenants, reservations and restrictions are set forth in such contract, deed or other instrument.

City and Owner hereby declare their understanding and intent that the burden of the covenants, reservations and restrictions set forth herein touch and concern the land in that it restricts development of the Historic Property. City and Owner hereby further declare their understanding and intent that the benefit of such covenants, reservations and restrictions touch and concern the land by enhancing and maintaining the cultural and historic characteristics and significance of the Historic Property for the benefit of the public and Owner.

17. NOTICE. Any notice required to be given by the terms of this Agreement shall be provided at the address of the respective parties as specified below, by personal delivery or United States mail, postage prepaid, addressed as follows:

City: Carmel-By-The-Sea
Community Planning & Building Department
Attn: Community Planning & Building Director
P.O. Box CC
Carmel-By-The-Sea, CA 93921
Attachment 1
Owner: Matthew J. Mermer and Amanda S. Prentiss
834 7th Street
Boulder, CA, 80302
Notice to successors in interest to either party shall be sent to the appropriate address.

In the case of future Owner(s) of the Historic Property, notice shall be sent to the address on file with the county property tax office in power at the time.

18. RECORDATION. No later than twenty (20) days after the parties execute and enter into this Agreement, the City shall cause this Agreement to be recorded in the Office of the County Recorder of the County of Monterey. From and after the time of the recordation, this Agreement shall impart a notice thereof to all persons as is afforded under state law.

19. STATE LAW. The Owner or agent of Owner shall provide written notice of this Agreement to the State Office of Historic Preservation within six (6) months of the date of this Agreement.

20. GOVERNING LAW; VENUE. This Agreement shall be constructed and governed in accordance with the laws of the State of California. Should either party to this agreement bring legal action against the other, the case shall be handled in Monterey County, California and the party prevailing in such action shall be entitled to a reasonable attorney fee which shall be fixed by the judge hearing the case and such fee shall be included in the judgment together with all costs.

21. AMENDMENTS. This agreement may be amended in whole or in part, only by a writtenrecorded instrument executed by the parties hereto.

22. DESTRUCTION OF PROPERTY; EMINENT DOMAIN; CANCELLATION. If the Historic Property is destroyed by earthquake, fire, flood, or other natural disaster such that in the opinion of the City Building Official more than sixty percent (60%) of the original fabric of the structure must be preplaced, this Agreement shall be cancelled because the historic value of the structure will have been destroyed. If the Historic Property is acquired in whole or in part by eminent domain or other acquisition by any entity authorized to exercise the power of eminent domain, and the acquisition is determined by the City Council to frustrate the purpose of this Agreement, this Agreement shall be cancelled.

No cancellation fee pursuant to Government Code Section 50286 shall be imposed if the Agreement is cancelled pursuant to this paragraph. Such Agreement shall be null and void for all purposes of determining the value of the property so acquired.

23. INDEMNIFICATION. Owner shall defend, indemnify, and hold harmless City and its elected officials, officers, agents and employees from any actual or alleged claims, demands, causes of action, liability, loss, damage, or injury to property or persons, including wrongful death, whether imposed by a court of law or by administrative action of any Attachment 1
federal, state or local government agency, arising out of or incident to the direct or indirect use, operation, or maintenance of the Historic Property by Owner or any contractor, subcontractor, employee, agent, lessee, licensee, invitee, or any other person; (ii) Owner’s activities in connection with the Historic Property; and (iii) any restriction on the use of development of the Historic Property, from application or enforcement of the City’s Municipal Code, or from the enforcement of this Agreement.

This indemnification includes, without limitation, the payment of all penalties, fines, judgments, awards, decrees, attorneys’ fees, and related costs or expenses, and the reimbursement of the City, its elected officials, employees, and/or agents for all legal expenses and costs incurred by each of them. Owner’s obligation to indemnify shall survive the termination, cancellation, or expiration of this Agreement and shall not be restricted to insurance proceeds, if any, received by City, its elected officials, employees, or agents.

24. SEVERABILITY. In the event that any of the provisions of this Agreement are held to be unenforceable or invalid by any court of competent jurisdiction, or by subsequent preemptive legislation, the validity and enforceability of the remaining provisions, or portions thereof, shall not be affected thereby.

IN WITNESS THEREOF, the City and Owners have executed this Agreement on the day and year written above.

CITY OF CARMEL-BY-THE-SEA:

By: _______________________ Date: __________________
Name: Richard L. Rerig (“Chip”)
Title: City Administrator

PROPERTY OWNER(S):

By: __________________________ Date: ___________________ Name: Matthew J. Mermer
Title: Property Owner
By: __________________________ Date: ___________________ Name: Amanda S. Prentiss
Title: Property Owner
Attachment 1

EXHIBIT A

LEGAL DESCRIPTION

EXHIBIT B
DPR 523A FORM

EXHIBIT C

REHABILITATION/RESTORATION AND MAINTENANCE PLAN
Attachment 1
Attachment 2
State of California ⎯ The Resources Agency Primary #
DEPARTMENT OF PARKS AND RECREATION HRI #
PRIMARY RECORD Trinomial
NRHP Status Code
Other Listings
Review Code Reviewer Date

P1. Other Identifier:
*P2. Location: n Not for Publication o Unrestricted *a. County: Monterey and (P2b and P2c or P2d. Attach a Location Map as necessary.) *b. USGS 7.5' Quad: N/A Date: N/A T ; R ; ¼ of ¼ of Sec ; M.D. B.M. c. Address: Vizcaino Ave. 12 SW of Mountain View Ave. City: Carmel-by-the-Sea Zip: 93923 d. UTM: Zone: 10 ; mE/ mN (G.P.S.)
e. Other Locational Data: (e.g., parcel #, directions to resource, elevation, etc., as appropriate) Elevation: A.P.N. 010-055-021 *P3a. Description: (Describe resource and its major elements. Include design, materials, condition, alterations, size, setting, and boundaries) The subject property contains a concrete-block house constructed in the English Cottage Style. It has a rectangular plan with a cross-hipped roof and a projecting gable end, an arched entrance with original door, wood casement windows with diamond pane toplights, a stucco-clad chimney and cladding consisting of stucco walls and wood roof shakes with rolled eaves. See continuation sheet, page 3 for photographs (Figures 1 - 5).
*P3b. Resource Attributes: (List attributes and codes) HP2 *P4. Resources Present: nBuilding oStructure oObject oSite oDistrict oElement of District oOther (Isolates, etc.) P5b. Description of Photo: (View, date,
accession #)
Front (East) Elevation, 2022
*P6. Date Constructed/Age and Sources:
nHistoric oPrehistoric oBoth
Circa-1923
*P7. Owner and Address:

Amanda Prentiss
P.O.  Box  2493
Carmel, CA 93921
*P8. Recorded by: (Name, affiliation, and
address)
Seth A. Bergstein, Principal
PAST Consultants, LLC
P.O. Box 721
Pacific Grove, CA 93950
*P9. Date Recorded: 6/8/22
*P10. Survey Type: (Describe)
Owner-requested

*P11. Report Citation: None
*Attachments: oNONE oLocation Map oSketch Map nContinuation Sheet nBuilding, Structure, and Object Record oArchaeological Record oDistrict Record oLinear Feature Record oMilling Station Record oRock Art Record oArtifact Record oPhotograph Record o Other (List):

DPR 523A (1/95) *Required information
P5a. Photo or Drawing (Photo required for buildings, structures, and objects.) Attachment 3
DPR 523B (1/95) *Required information
State of California ⎯ The Resources Agency Primary #
DEPARTMENT OF PARKS AND RECREATION HRI#

BUILDING, STRUCTURE, AND OBJECT RECORD

*Resource Name or # (Assigned by recorder) Vizcaino Ave. 12 SW of Mountain View Ave.

B1. Historic Name:

B2. Common Name: None
B3. Original Use: Residential B4. Present Use: Residential *B5. Architectural Style: English Cottage
*B6. Construction History: (Construction date, alterations, and date of alterations) The house is in largely original condition and has original wall cladding, fenestration pattern, entrance and entry door. A sun porch addition by Hugh Comstock was placed onto the southwest elevation in 1937. A recent, circa-1980s metal rail and spiral staircase was installed onto the Comstock addition.
*B7. Moved? nNo oYes oUnknown Date: Original Location: Same *B8. Related Features: N/A
B9a. Architect: Unknown b. Builder: Original: ; Addition: Hugh Comstock *B10. Significance: Theme: Architectural Development Area: Carmel-by-the-Sea Period of Significance: 1923-1937 Property Type: Residence Applicable Criteria:
(Discuss importance in terms of historical or architectural context as defined by theme, period, and geographic scope. Also address integrity.) See continuation sheets, pages 4-7.

B11. Additional Resource Attributes: (List attributes and codes) HP4: Shed outbuilding *B12. References:
• “A.T. Shand (Arthur T. Shand Obituary),” The Carmel Pine Cone, 7/9/59. • “Marion Shand (Marion Daniels obituary),” The Carmel Pine Cone, 9/2/65. • “New Type of Construction is Going on Here,” The Carmel Pine Cone, 9/22/23. • Leslie Heumann Associates et al. Historic Context Statement Carmel-by-the-Sea, 1997, 2008. • McAlester, Virginia Savage, A Field Guide to American Houses, New York, NY: Alfred A. Knoph, 2020. • Polk’s Monterey, Pacfific Grove, Carmel City Directories (1923 - 1972). • Sawyer, Eugene Taylor, History of Santa Clara County, California, Volume 2, 1922, 1403.

B13. Remarks::
*B14. Evaluator: Seth A. Bergstein, Principal
PAST Consultants, LLC
*Date of Evaluation: 6/8/22

(This space reserved for official comments.)
Attachment 3
State of California ⎯ The Resources Agency Primary #
DEPARTMENT OF PARKS AND RECREATION HRI#
CONTINUATION SHEET Trinomial

*Recorded by: PAST Consultants, LLC *Date: 6/8/22 n Continuation o Update DPR 523L (1/95) *Required information
P3a. Description: Photographs

Figure 1. Front (east) elevation. Figure 2. Entrance detail showing arched entrance and rolled eaves.

Figure 3. 1937 Comstock sunroom Figure 4. Metal spiral staircase. Figure 5. Recent shed outbuilding.

Attachment 3
State of California ⎯ The Resources Agency Primary #
DEPARTMENT OF PARKS AND RECREATION HRI#
CONTINUATION SHEET Trinomial

*Recorded by: PAST Consultants, LLC *Date: 6/8/22 n Continuation o Update DPR 523L (1/95) *Required information
*B10. Significance:

Property History
On September 22, 1923, the Carmel Pine Cone published an article titled, “New Type of Construction Going on Here.” The article noted that the new owner, Marion Daniels, hired the San Jose contractors Floyd O. Bohnett and H.E. Clauser to construct a concrete-block building in the Eighty acres tract of Carmel-bythe-Sea. The partners, along with L.D. Bohnett patented their construction method under the company name of the Duplex Construction Equipment Company. The construction method employs a wall system of interlocking concrete blocks constructed in two wythes, with a void between to modulate temperature and moisture within the wall and to fireproof the building. By the mid-1920s, this construction method was being employed throughout the United States; it made its arrival at Carmel-by-the-Sea in the home constructed for Marion Daniels (Sawyer, Eugene T. , History of Santa Clara County, California, Volume 2, 1922).

The 1923 Carmel Pine Article notes:

The duplex construction is considered the highest type of scientific construction developed in the history of building. It is unique in that it is built as though a house within a house. Two distinct walls of concrete are erected, leaving between them a continuous air space which makes the house absolutely free from the penetration of moisture or condensation… Built like a thermos bottle or fireless cooker, it is cool in the summer and warm in the winter. No lath and no furring strips are used in the plastering work. The plaster is applied directly to the surface of the walls, both inside and outside, making the plaster become a part of the wall itself, instead of being applied to wood or metal lath, which, due to the elements disintegrates, while concrete continues to grow stronger… This is a new thing in Monterey county, and if you are interested in the progress of building, go up to the Eighty Acre tract and watch the process of manufacturing duplex blocks (“New Type of Construction is Going on Here,” The Carmel Pine Cone, 9/22/23).

The original owner, Marion Daniels Shand (1889-1965), was trained in theatre arts and acted in East Coast productions until 1921, when ill health forced her retirement. She moved to Carmel, purchased the subject property in 1923 and had the subject house constructed. In 1926, she married Arthur T. Shand and became involved in his real estate business. Marion Shand was involved in the theatre locally and was active at both the Arts and Crafts Club and later at the Golden Bough Theatre (“Marion Shand, The Carmel Pine Cone, 9/7/1968).

Born in Staten Island, New York, Arthur T. Shand (1880-1959) immigrated to Carmel in 1921 and became a realtor. He operated a successful real estate company for 38 years until retiring in 1958. By this time, he was voted a lifetime membership in the Carmel Board of Realtors. A lover of the outdoors, he helped acquire land for Camp Pico Blanco, a Boy Scout Camp in Big Sur (“A.T. Shand,” The Carmel Pine Cone, 7/9/1959).

Attachment 3
State of California ⎯ The Resources Agency Primary #
DEPARTMENT OF PARKS AND RECREATION HRI#
CONTINUATION SHEET Trinomial

*Recorded by: PAST Consultants, LLC *Date: 6/8/22 n Continuation o Update DPR 523L (1/95) *Required information
*B10. Significance:

National Register and California Register Significance
While the National and California registers have the same four-part criteria, it is unlikely that the house would be listed at the national level because of the regional nature of the original design and the 1937 Comstock addition. The following evaluates eligibility of the subject property for the California Register of Historical Resources:

Criterion 1. Associated with events that have made a significant contribution to the broad patterns of local or regional history or the cultural heritage of California or the United States.

The subject property is not eligible under this Criterion, as no specific event led to the development of the residence. The subject property was developed on a vacant infill lot as Carmel expanded eastward.

Criterion 2. Associated with the lives of persons important to local, California or national history.

Marion Daniels Shand and Arthur T. Shand worked as successful realtors in the Carmel area. While they had long and prosperous careers, their work would not constitute significant contributions to National, California or Carmel history. The property is not eligible under this Criterion.

Criterion 3. Embodies the distinctive characteristics of a type, period, region or method of construction or represents the work of a master or possesses high artistic values.

The subject house on the property contains two building campaigns of architectural significance. The 1923 English Cottage-style house is largely intact and maintains all of its historic character defining features. it was the first house in Monterey County constructed using the patented concrete-block “Duplex Method” of construction, pioneered by the Bohnett brothers and used throughout the United States.

In addition, the property received a sunroom addition designed by Hugh Comstock in 1937. Hugh Comstock is considered one of the region’s most important designers.

Criterion 4. Has yielded, or has potential to yield, information important to the prehistory or history of the local area, California or the nation.

Referred to as the archeological criterion, the subject property does not have the potential to yield any important prehistorical information.

California Register Significance Conclusion
The subject property is eligible for the California Register under Criterion 3.

Attachment 3
State of California ⎯ The Resources Agency Primary #
DEPARTMENT OF PARKS AND RECREATION HRI#
CONTINUATION SHEET Trinomial

*Recorded by: PAST Consultants, LLC *Date: 6/8/22 n Continuation o Update DPR 523L (1/95) *Required information
B10. Significance:

Carmel-by-the-Sea HRI Significance
The subject property satisfies all four aspects of the Carmel-by-the-Sea Historic Resources Inventory (HRI):

A. Should be representative of at least one theme included in the Historic Context Statement.

The subject property supports the theme, Architectural Development, listed in the Context Statement.

B. Shall retain substantial integrity according to the Federal definition and evaluation methodology for historic integrity as detailed in National Register Bulletin 15: How to Apply the National Register Criteria for Evaluation.

The house on the subject property maintains all seven aspects of historic integrity (see below).

C. Should be a minimum of 50 years of age and shall meet at least one of the four criteria for listing on the California Register at a national or statewide level of significance (primary resource) or at a regional or local level of significance (local resource) per CEQA Guidelines Section 15064.5(a)(3).

The house on the subject property is greater than 50 years old and is California-Register eligible.

D. To qualify for the Carmel Inventory, an historic resource eligible under California Register Criterion No. 3 (subsection (C)(3) of this section) only, should have been designed and/or constructed by an architect, designer/builder or contractor whose work has contributed to the unique sense of time and place recognized as significant in the Historic Context Statement.

The house’s 1937 addition was designed by Hugh Comstock, listed as a significant architect.

Figure 6. Image of 1937 Comstock Addition.

Attachment 3
State of California ⎯ The Resources Agency Primary #
DEPARTMENT OF PARKS AND RECREATION HRI#
CONTINUATION SHEET Trinomial

*Recorded by: PAST Consultants, LLC *Date: 6/8/22 n Continuation o Update DPR 523L (1/95) *Required information
B10. Significance:

Character Defining Features:
1923 English Cottage-style house:
- Rectangular plan with prominent front gable.
- Arched entrance with decorative plasterwork and original entrance door. - Original fenestration pattern consisting of wood casement windows with diamond-pane details. - Concrete-block “Duplex” construction method.
- Stucco wall cladding.
- Single stucco-clad chimney.
- Wood-shake roof cladding with rolled eaves.
1937 Comstock Sunroom Addition:
- Original hexagonal plan
- Ribbon fenestration pattern of original steel casement windows with wood window surrounds. - Stucco wall cladding.

Historic Integrity:
- Location: The house remains in its original location and has integrity of location. - Design: The 1923 house retains integrity of design because it is nearly intact, with few alterations. The 1937 Comstock addition is intact with a recent railing and staircase installed for a roof deck, which is a reversible alteration.
- Setting: The house remains in its original setting of residential homes and has integrity of setting. - Workmanship: The 1923 house and 1937 Comstock addition maintain integrity of workmanship, as seen in its intact collection of character defining features. - Materials: The 1923 house maintains its original construction materials consisting of concrete-block walls, stucco wall cladding and wood-casement windows, which give it sufficient integrity of materials. The 1937 Comstock addition maintains integrity of materials with stucco walls and intact band of steel-casement windows.
- Feeling: The house retains enough character-defining features to establish integrity of feeling as an English Cottage-style residence with an addition by a significant designer. - Association: The house retains enough character-defining features to establish integrity of association as an English Cottage-style residence with an addition by a significant designer.

Historic Significance Conclusions
The house on the subject property qualifies as an individual historic resource under California-register Criterion 3 under the category of architecture and is eligible for the Carmel-by-the-Sea HRI as a local historic resource supporting the theme, “Architectural Development in Carmel.” The house maintains all seven aspects of historic integrity.

Attachment 3
Attachment 3
Mills Act Application
Vizcaino 12 southwest of Mountain View Avenue
APN 010-055-021
This Mills Act Application was prepared by historian Kent Seavey and Amanda Prentiss, one of the property owners. Mr. Seavey is an approved architectural historian for Monterey County and the author of Carmel: A History in Architecture (Charleston, South Carolina, 2007).

Amanda Prentiss and Matthew Mermer recently purchased the property at Vizcaino 12 southwest of Mountain View Avenue (APN 010-055-021), Block 102, Lots 12, 13, and 14. They wish to have it added to the Carmel Register of Historic Resources. It was evaluated in June 2022 by Seth Bergstein, a consultant contracted with the City of Carmel, who found the property to be significant under Criterion 3 of the California Register of Historical Resources as an English Cottage-style house constructed in 1923 and a Moderne-style sunroom addition designed by Hugh Comstock in 1937. The original owner, Marion Daniels, hired the San Jose contractors Floyd O. Bohnett and H.E. Clauser to construct a concrete-block building in the Eighty Acres tract of Carmel-by-the-Sea. The construction method employs a wall system of interlocking concrete blocks constructed in two wythes, with a void between to modulate temperature and moisture within the wall and to fireproof the building. By the mid-1920s, this construction method was being employed throughout the United States; it made its arrival at Carmel-by-the-Sea in this home constructed for Marion Daniels.

The property has been subject to deferred maintenance over the years. Upon purchasing the property, the current owners discovered multiple work items needing to be addressed immediately. These items, due to their urgency, have been either already completed or scheduled for 2022. They have been excluded from the Mills Act Maintenance Plan (2023-2032) but are as follows: urgent termite mitigation ($2,000); replace rotting interior floorboards ($3,000); ground/upgrade outlets not to code and update wiring/untangle wires in attic (fire hazard) ($5,000); remove and replace corroding 25-year old 80-gallon water heater ($6,000); filter and piping work ($7,000); and replace 30-year old heating unit ($5,000).

The Maintenance Plan and supplemental photographs that follow describe the condition of the property and illustrate the intent of Amanda Prentiss and Mathew Mermer to fully rehabilitate the historic property.

Attachment 4
YEAR LOCATION DESCRIPTION Rehabilitation /
Maintenance
COST
2023 attic/crawlspace update duct work for proper venting rehabilitation 2,500 2023 attic repair/replace the attic insulation so vapor barrier side faces out rehabilitation 2,000 2023 crawl space update corroded piping throughout crawlspace rehabilitation 7,000 2023 front door site drainage, replace framing, restore original door rehabilitation 10,000 2023 door threshold install proper barrier to the exterior rehabilitation 500 2023 stucco repair stucco rehabilitation 4,000
2023 kitchen remove leaking appliances, mitigate mold in floor and walls, structurally repair floor joists and walls for water damage as needed rehabilitation 15,000 2023 attic repair historic exterior attic door, add a vent to attic, mitigate water damage from roof leaks rehabilitation 5,000 2023 back stairs repair and affix back staircase. Necessary for access. Needs to be properly attached to structure rehabilitation 8,000 2023 roof remove and dispose of two satellite dishes on roof rehabilitation 1,000 2023 patio fix broken stonework and maintain over 10 years rehabilitation 10,000 2024 crawl space install sill plate anchors and repair raised piers rehabilitation 20,000 2024 crawl space drainage contractor to address crawlspace moisture. Regrade hardscape to move water from the house, install drainage system rehabilitation 50,000 2024 roof install rain chains and drainage where possible rehabilitation 2,000 2024 roof install spark arrester rehabilitation 1,000
2024 chimney install flashing and increase height to code rehabilitation 3,000 2024 living + bedroom windows restore windows with munton pattern- match original damaged wood exactly. Save original glass if possible rehabilitation 40,000 2024 skylight replace skylight in master bath and repair dry rot and termite damage on the frame maintenance 5,000 2025 main house roof the existing roof is in terrible repair. A new cedar shake roof is needed per inspection report. Roofing company bid rehabilitation 90,000 2025 whole house repaint exterior including trim and railings. Very poor job at present. Use historically accurate colors rehabilitation 40,000 2025 exterior lights back/side replace current fixture with historically accurate ones rehabilitation 3,000 2025 landscape restore cottage garden rehabilitation 35,000 2027 bathroom mitigate mold damage behind shower tile and cabinets in the walls; structural repairs to walls/joists rehabilitation 10,000 2032 sunroom roof remove carpeting, reinforce water barrier install proper surface rehabilitation 25,000 2032 main house roof inspector recommends restoration every 5-10 years maintenance 20,000 2032 whole house repaint every 7-10 years maintenance 40,000 2023-2032 wood throughout termite mitigation every several years maintenance 20,000 2023-2032 chimney clean chimney annually for fire prevention maintenance 3,000 2023-2032 heating system clean ducts annually for proper venting moisture control maintenance 1,000 2023-2032 stucco periodic repair of stucco over 10 years maintenance 10,000 2023-2032 fence/gate repair as needed over 10 years maintenance 8,000 2023-2032 landscape maintain landscape over 10 years maintenance 20,000 2023-2032 landscape prune trees annually that touch the house over 10 years maintenance 15,000 TOTAL 526,000

Façade.

Crawlspace to be rehabilitated: install sill plate anchors and repair raised piers.

Drainage system to be installed by drainage contractor. Regrade hardscape to move water away from the house.

This will address moisture in the crawl space.

Front door to be restored.

Attachment 4

Sunroom roof to be repaired; carpeting will be removed, water barrier reinforced; proper surface installed; and railing affixed.

The main house roof is in disrepair; a new cedar shake roof is needed per the inspection report.

Windows will be repaired as needed (see above and below).

Attachment 4

Stucco will be repaired and painted throughout.

Exterior lights will be replaced with historically accurate lights.

Rear spiral stair will be repaired.

Patio stonework will be regraded to direct water away from the home.

Attachment 4

Broken landing and step stonework will be repaired.

Fences and gates will be repaired as needed.

The landscape will restored as a cottage garden.

Trees in immediate vicinity of house will be pruned annually to protect the home.

Attachment 4

CITY OF CARMEL-BY-THE-SEA

HISTORIC RESOURCES BOARD
HISTORIC RESOURCES BOARD RESOLUTION NO. 2022-007-HRB

A RESOLUTION OF THE HISTORIC RESOURCES BOARD OF THE CITY OF CARMEL-BY-THE-SEA

ADDING A HISTORIC RESOURCE TO THE CARMEL REGISTER AND RECOMMENDING THAT THE CITY COUNCIL ENTER INTO A MILLS ACT CONTRACT WITH AMANDA S. PRENTISS AND MATTHEW J.

MERMER FOR THE PROPERTY LOCATED AT VIZCAINO AVENUE 12 SOUTHWEST OF MOUNTAIN VIEW AVENUE APN 010-055-021
WHEREAS, Amanda Prentiss (“Applicant”) submitted an application on behalf of Matthew J. Mermer and Amanda S. Prentiss (“Owners”) requesting to add the historic “Marion Daniels Shand House” to the Carmel Register of Historic Resources and enter into a Mills Act contract (MA 22-204, Prentiss) described herein as (“Application”); and WHEREAS, the Application has been submitted for the property located at Vizcaino Avenue 12 southwest of Mountain View Avenue, in the Single Family Residential (R-1) District (Block 102, Lot 12, 13,14); and
WHEREAS, the Applicant is requesting to add the historic “Marion Daniels Shand House” to the Carmel Register of Historic Resources; and
WHEREAS, in accordance with Carmel Municipal Code (CMC) Section 17.32.090 (Carmel Register of Historic Resources) the City shall maintain a Register of Historic Resources designated by the City for public recognition and benefits; and
WHEREAS, historic resources identified as significant at a local or regional level shall be eligible for listing in the Register at the request of the property owner and upon approval by the Historic Resources Board; and
WHEREAS, one of the benefits of being included on the Register is the ability to enter into a Mills Act Historical Property Contract with the City; and WHEREAS, the Applicant is also requesting to enter into a Mills Act contract with the City and in accordance with Carmel Municipal Code (CMC) Section 17.32.100.B.6 (Review Process), the Historic Resources Board shall consider the application and make a recommendation to the City Council to approve, approve with conditions, or deny the application; and WHEREAS, notice of the August 15, 2022 public hearing was published in the Carmel Pine Cone on August 5, 2022 in compliance with State law (California Government Code 65091), and mailed to owners of real property within a 300-foot radius of the project indicating the date and time of the public hearing; and
Attachment 5
Resolution No. 2022-007-HRB

WHEREAS, on August 5, 2022 the Applicant posted the public notice on the project site and hand-delivered a copy of the public notice to each property within a 100-foot radius of the project site indicating the date and time of the public hearing; and WHEREAS, on August 12, 2022 the meeting agenda was posted in three locations in compliance with State law indicating the date and time of the public hearing; and WHEREAS, on August 15, 2022, the Historic Resources Board held a public meeting to consider adding the historic “Marion Daniels Shand House” to the Carmel Register and to consider the application for a Mills Act contract, including without limitation, information provided to the Historic Resources Board by City staff and through public testimony; and WHEREAS, this Resolution and its findings are made based upon evidence presented to the Board at the August 15, 2022 meeting including, without limitation, the staff report and attachments submitted by the Community Planning and Building Department; and WHEREAS, theHistoric Resources Board did hear and consider all said reports, attachments, recommendations and testimony herein above set forth and used their independent judgement to evaluate the project; and
WHEREAS, the facts set forth in the recitals are true and correct and are incorporated herein by reference.

NOW, THEREFORE, BE IT RESOLVED, that the Historic Resources Board of theCity of CarmelBy-The-Sea does hereby make the following findings and determinations regarding the Mills Act Contract:

FINDINGS REQUIRED FOR A MILLS ACT CONTRACT
For each of the required findings listed below, staff has indicated whether the application supports adoption of the findings. For all findings checked "no" the staff report discusses the issues to facilitate the Historic Resources Board decision-making. Findings checked "yes" may or may not be discussed in the report depending on the issues.

CMC 17.32.100.B.6.c YES NO
i. The building is designated as an historic resource by the City and is listed on the Carmel Register.
✔
ii. The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficient in detail to guide long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property. ✔
iii. Alterations to the historic resource have been in the past, and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and ✔
Attachment 5
Resolution No. 2022-007-HRB

(B) Do not significantly alter, damage or diminish any primary elevation or character-defining feature; and
(C) Do not increase floor area on the property by more than 15 percent beyond the amount established in the documented original or historic design of the resource; and
(D) Do not result in any second-story addition to a single-story historic resource.
iv. The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.
✔
v. Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in substantial adverse financial impact on the City.
✔
BE IT FURTHER RESOLVED that the Historic Resources Board of the City of Carmel-by-theSea does hereby add the historic “Marion Daniels Shand House” to the Carmel Register of Historic Resources and recommend that the City Council enter into a Mills Act Contract (MA 22-204, Prentiss) for the property located at Vizcaino Avenue 12 southwest of Mountain View Avenue (APN 010-055-021).

PASSED, APPROVED AND ADOPTED BY THE HISTORIC RESOURCES BOARD OF THE CITY OF CARMEL-BY-THE-SEA this 15th day of August, 2022, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

APPROVED: ATTEST:
_________________________ _________________________
Erik Dyar Leah Young
Chair Historic Resources Board Secretary
Attachment 5
June 2, 2005
BETTY T. YEE
Acting Member
First District, San Francisco

BILL LEONARD
econd District, Sacramento/Ontario

CLAUDE PARRISH
Third District, Long Beach

JOHN CHIANG
Fourth District, Los Angeles

STEVE WESTLY
State Controller, Sacramento
RAMON J. HIRSIG
Executive Director
No. 2005/035
O COUNTY ASSESSORS AND INTERESTED PARTIES:

NOTICE OF BOARD ACTION

GUIDELINES FOR THE ASSESSMENT OF

ENFORCEABLY RESTRICTED HISTORICALPROPERTY
On May 25, 2005, the Board of Equalization approved the following guidelines pertaining to the assessment of enforceably restricted historical property. These guidelines supersede Letter To Assessors No. 77/174 (dated December 19, 1977).

On June 8, 1976, the voters of California approved Proposition 7 which amended section 8 of article XIII of the California Constitution. This amendment requires that enforceably restricted historical property be valued on a basis that is consistent with its restrictions and uses. Sections 439 through 439.4 were added to the Revenue and Taxation Code to implement Proposition 7.

These statutes, in particular section 439.2, prohibit a valuation of enforceably restricted historical property based on sales data and instead require that such property be valued by a prescribed income capitalization method.

Staff drafted these guidelines in consultation with interested parties and, after discussions, no issues remained unresolved. The guidelines discuss the enforceably restricted historical property requirements, the income to be capitalized, the capitalization rate, the effect of Proposition 13 upon enforceably restricted historical properties that undergo change in ownership or new construction, and the valuation of property under notice of nonrenewal.

The guidelines are posted on the Board's website at www.boe.ca.gov/proptaxes/guideproc.htm.

We hope this information proves useful and promotes uniformity of assessment for these properties. If you have any questions, please contact our Real Property Technical Services Unit at 916-445-4982.

Sincerely,
/s/ David J. Gau
David J. Gau
Deputy Director
Property and Special Taxes Department
DJG:grs
Enclosure

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

PROPERTY AND SPECIAL TAXES DEPARTMENT
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0064
916 445-4982  FAX 916 323-8765
www.boe.ca.gov
Attachment 6
1 GUIDELINES FOR THE ASSESSMENT OF

ENFORCEABLY RESTRICTED HISTORICAL PROPERTY

HISTORY
Effective March 7, 1973, Chapter 1442 of the Statutes of 1972 (also known as the Mills Act) added sections 50280 through 50289 to the Government Code to allow an owner of qualified historical property to enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics.

Prior to the passage of Proposition 7 in 1976, these agreements (i.e., Mills Act contracts) constituted enforceable restrictions on the use of land within the meaning of Revenue and Taxation Code section 402.11 (Property Tax Rule 60, repealed January 10, 1978). However, Proposition 7 added the second paragraph to section 8 of article XIII of the California Constitution:

To promote the preservation of property of historical significance, the Legislature may define such property and shall provide that when it is enforceably restricted, in a manner specified by the Legislature, it shall be valued for property tax purposes only on a basis that is consistent with its restrictions and uses.

To implement Proposition 7, Chapter 1040 of the Statutes of 1977 (Senate Bill 380) added sections 439 through 439.4 to the Revenue and Taxation Code. These statutes, in particular section 439.2, prohibit a valuation of enforceably restricted historical property based on sales data and instead require that such property be valued by a prescribed income capitalization method.

ENFORCEABLY RESTRICTED HISTORICAL PROPERTY
Under section 439, historical property is "enforceably restricted" if it meets the definition of a "qualified historical property" as defined in Government Code section 50280.1 and is subject to a historical property contract executed pursuant to Government Code section 50280 and following.

A qualified historical property includes qualified historical improvements and the land on which the improvements are situated, as specified in the historical property contract. If the contract does not specify the land to be included, the qualified historical property includes only a land area of reasonable size to situate the improvements.

A qualified historical property is privately-owned property that is not exempt from property taxation and that also meets either of the following criteria:
• The property is listed in the National Register of Historic Places, or is located within a registered historic district; or
1 Unless otherwise noted, all statutory references are to the Revenue and Taxation Code.

Attachment 6
2 • The property is listed in any official state, county, city, or city and county official register of historical or architecturally significant sites, places or landmarks, including the California Register of Historical Resources, California Historical Landmarks, State Points of Historical Interest, local landmarks, and local survey listings of historical properties.

The historical property contract must have a minimum term of ten years, and, as applicable, must contain certain other elements, including the following:
• A provision relating to the preservation of the qualified historical property and, when necessary, the restoration and rehabilitation of the property in conformance with state historic preservation guidelines;
• A requirement for the periodic examination of the property to ensure compliance with the agreement;
• A requirement that the historical property agreement be binding upon successor owners of the qualified historical property; and
• A provision for an automatic one-year extension of the contract, with an additional year added to the initial contract term on each anniversary of the contract, unless either party provides notice of nonrenewal. If a notice of nonrenewal is given, the contract runs for its remaining term.

Once a contract is signed, accepted, and recorded, the property subject to the contract must be assessed under section 439.2 on the ensuing lien date. For example, if a contract were recorded in August 2004, the property should have been valued pursuant to section 439.2 for lien date January 1, 2005.

Local authorities may cancel a historical property agreement for breach of contract or failure to protect the historical property. Alternatively, the local entity may take legal action to enforce the contract.

ASSESSMENT
The assessment of an enforceably restricted historical property involves the following aspects:
(1) valuing the restricted historical property; (2) properly applying certain assessment provisions relating to article XIII A of the California Constitution (Prop 13); (3) valuing the restricted historical property following a notice of nonrenewal; and (4) valuing the restricted historical property following cancellation of the contract.

Valuing the Restricted Historical Property
Section 439.2 prohibits the assessor from using sales data relating to similar properties, whether or not enforceably restricted, to value an enforceably restricted historical property. Instead, the assessor must annually value a restricted historical property using an income approach that Attachment 6
3 follows the specific provisions of section 439.2. These provisions explicitly address (1) the determination of the income to be capitalized, (2) the development of the capitalization rate, (3) the capitalization technique to be used, and (4) the determination of the restricted historical property's taxable value on each lien date.

Income to be Capitalized
As provided in section 439.2(a), the income to be capitalized when valuing a restricted historical property is the property's fair rent less allowed expenditures, or allowed expenses. In general, section 439.2(a) follows Property Tax Rule 8(c), with fair rent in section 439.2 corresponding to gross return in Rule 8(c); allowed expenditures, or allowed expenses, in section 439.2 corresponding to gross outgo in Rule 8(c); and the income to be capitalized in section 439.2 corresponding to net return in Rule 8(c). In addition, for the purposes here, "gross income" is synonymous with fair rent, and "net operating income" is synonymous with the income to be capitalized.

The parties to a historical property agreement may stipulate a minimum annual income to be capitalized, in which case the income to be capitalized may not be less than the stipulated amount.

Fair rent, or gross income. The gross income of a restricted historical property is the fair rent for the property considering the restrictions on the property's use. When establishing the fair rent for a restricted historical property, the appraiser should consider the actual rent and typical rents in the area for similar properties in similar use, where the owner pays the property taxes.

The actual rent received by the owner of the subject restricted historical property is relevant to an estimate of fair market rent only if the actual rent is the same rent that would be expected if the existing lease were renegotiated in light of current market conditions, including the subject property's enforceable restrictions on use. With respect to rents from similar, or comparable, properties, if such rents are from properties outside the geographic or market area of the subject property, or from properties that are otherwise dissimilar to the subject property, the rents may not be relevant to an estimate of the subject property's fair rent.

Comparable rental data for single-family residences can be obtained from real estate brokers, rental agencies, and newspaper ads. Many assessors offices maintain rental data for commercial properties, and this data may be helpful when establishing the fair rent for restricted historical property when the contract allows a commercial use. Rental data for commercial property also can be obtained from commercial real estate brokers. For the purpose of estimating anticipated market fair rent and expenditures for use in calculating the subject property's value, rental and expense data for existing restricted historical properties, including the subject historical property, can be obtained through an annual questionnaire sent to property owners.

If sufficient rental data are not available, or such data are unreliable, the appraiser must impute a gross income for the subject restricted historical property. The imputed income should be based on what an informed investor would reasonably expect the property to yield under prudent management, given the provisions under which the property is enforceably restricted.

Attachment 6
4 Allowed expenditures. Section 439.2(a)(3) defines allowed expenditures, or allowed expenses, as expenses necessary for the maintenance of the property's income. Allowed expenses are the same as those permitted in Property Tax Rule 8(c).

Typical expenses include the cost of utilities, maintenance and repair, insurance and property management. Allowed expenses also may include amounts owing for special assessments and special taxes. Expenses related to debt service, general property taxes, and depreciation should not be deducted.

In general, to arrive at the net income to be capitalized, allowed expenses are subtracted from the estimated rental income. However, in order to properly process the income, the appraiser must be aware of the structure of the lease with regard to how expenses are shared between the landlord-owner and the tenant.

The proper perspective from which to view the processing of income and expenses is that of the landlord-owner. The objective is to estimate the net income to the landlord-owner—this is the amount that should be capitalized—and the correct question to ask is the following: What, if any, allowed expenses must the landlord-owner pay out of the rental income that he or she receives?
In a gross lease, almost all of the allowed expenses must be paid out of the gross rent and, therefore, must be subtracted from the gross rent to arrive at the net income to be capitalized. In a net lease, relatively few allowed expenses must be paid by the landlord-owner out of the net rent (because the tenant pays most expenses) and only these expenses should be subtracted from the net rent to arrive at the net income to be capitalized. Frequently, there is a hybrid arrangement—some expenses are paid by the landlord-owner and some by the tenant. How expenses are shared often depends upon the property type together with local conventions.

Income to be capitalized, or net operating income. The income to be capitalized, or net operating income, is simply the fair rent, or gross income, described above less the allowed expenditures described above.

Capitalization Rate
The method of developing the capitalization rate to be used when valuing restricted historical property is prescribed by statute; a capitalization rate derived from sales data or the band of investment is not permitted.

Section 439.2 prescribes two types of capitalization rates for restricted historical property: (1) a capitalization rate to be used when valuing restricted historical property that is an owneroccupied single-family residence and (2) a capitalization rate to be used when valuing all other restricted historical property. Both types of capitalization rates include components for interest (i.e., yield), risk, property taxes, and amortization of improvements; in fact, the two rates are identical except for the amount of the risk component. The capitalization rate contains the following components:

Attachment 6
5 • An interest component annually determined by the State Board of Equalization and based on the effective rate on conventional mortgages as determined by the Federal Housing Finance Board. The interest component is announced annually, in a Letter To Assessors, by October 1 of the preceding assessment year.
• A historical property risk component determined by property type. For owner-occupied single-family residences, the rate is 4 percent; for all other types of restricted historical property, the rate is 2 percent.
• An amortization component for improvements defined as a percentage equal to the reciprocal of the remaining life of the improvements (e.g., if the remaining economic life of the improvements were 20 years, the amortization component would be 5 percent). Since the amortization component applies only to improvements, not to land, which is a nondepreciating asset, it is necessary to adjust the amortization component described in the statute. We recommend the following method of adjustment:

1. Based upon market data, estimate the percentage of total property value attributable to improvements.

2. Multiply this percentage by the amortization component described in the statute (i.e., by the reciprocal of the remaining life of the improvements). For example, if the remaining life of the improvements was 20 years, yielding a reciprocal percentage of 5 percent, and if 70 percent of the total property value was attributable to the improvements, the adjusted amortization factor would be 3.5 percent (0.05 x 0.70 =

0.035).

3. Add the adjusted amortization component to the other capitalization rate components to arrive at the total capitalization rate.
• A property taxes component equal to the percentage of the estimated total tax rate applicable to the property for the assessment year multiplied by the assessment ratio. Typically, the property tax component includes the basic tax rate of 1 percent plus an additional ad valorem rate related to any bonded indebtedness pertaining to the tax rate area in which the property is located. Special district assessments and special taxes are not included in the property tax component. As noted above, they should be treated as allowed expenses.

Capitalization Technique
The capitalization technique to be used when valuing a restricted historical property is prescribed by statute and is formulaic. Section 439.2(e) provides that the restricted value shall be the income to be capitalized, or net operating income, developed as prescribed by statute, divided by one of the two types of capitalization rates prescribed by statute. In other words, the restricted value is the simple quotient of the prescribed income to be capitalized and the prescribed capitalization rate.

Attachment 6
6 Determination of Taxable Value on Each Lien Date
Section 439.2(d) provides that a historical property's restricted value may not be enrolled if it exceeds either (1) the value of the subject property as determined under section 110 (i.e., current market value) or (2) the value of the subject property as determined under section 110.1 (i.e., factored base year value). In other words, section 439.2 states that the taxable value of a restricted historical property on each lien date shall be the lowest of its restricted value, current market value, or factored base year value. The factored base year value for an enforceably restricted historical property is the value that was established for the 1975 lien date2 or as of the date of the most recent change in ownership, whichever is later, adjusted by the annual inflation factor.

Article XIII A (Prop 13) Considerations
This section discusses how three important elements relating to implementation of article XIII A—change in ownership, new construction, and supplemental assessment—relate to the assessment of restricted historical property. Also discussed is the case in which only a portion of a property is subject to the historical property agreement—that is, the case in which a single property unit contains both restricted and unrestricted portions.

Change in Ownership
When a property subject to a historical property contract undergoes a change in ownership, a new base year value should be established for the property as of the date of change in ownership, as provided in section 110.1. Typically, a restricted historical property's base year value will be greater than its restricted value determined under section 439.2 and hence will not be enrolled as the property's taxable value. However, the establishment of a new base year value enables the assessor to perform the three-way value comparison prescribed by section 439.2(d) and described above. The establishment of a base year value is also necessary in order to calculate the assessed values of historical property should the historical property agreement enter nonrenewal status.

New Construction
Section IV of National Register Bulletin #15 defines a "building" as follows:

A building, such as a house, barn, church, hotel, or similar construction, is created principally to shelter any form of human activity. "Building" may also be used to refer to a historically and functionally related unit, such as a courthouse and jail or a house and barn.

Section IV further specifies that "[b]uildings eligible for the National Register must include all of their basic structural elements. Parts of buildings, such as interiors, facades, or wings, are not eligible independent of the rest of the existing building. The whole building must be considered, 2 Sections 110.1(d) and 405.5 do not apply to historical properties under contract as of lien date 1975 because the constitutional amendment which placed the valuation of historical property under article XIII rather than article XIII A had not yet been passed and, thus, was not in effect for the 1975 lien date.

Attachment 6
7 and its significant features must be identified." Thus, eligibility for the National Register is determined by the extent to which the basic structural elements of an existing building are intact.

In general, a newly constructed building would not be eligible because it is not an existing building with basic structural elements.3
Also, a newly constructed building is not a historic resource, and, thus, is not a qualified historical property within the meaning of Government Code section 50280.1. For example, a newly constructed detached garage (assuming it is not a reconstruction of a historical garage) clearly would not be eligible because it has no significance in American history or architecture, nor does it meet any of the other requisite criteria.

Bulletin 15, however, does list one type of newly constructed property that may be eligible for inclusion under the Mills Act. A reconstructed historic building is eligible for the National Register if the reconstruction is "accurately executed in a suitable environment and presented in a dignified manner as part of a restoration master plan, and when no other building or structure with the same association has survived."
The historical property contract typically specifies the scope and type of any work to be performed on the historical improvements. Improvements existing as of the date of the contract would be subject to the provisions of section 439.2 unless specifically excluded by the contract.

Any new construction made to the historical structure after the issuing date of the contract would not be subject to the provisions of section 439.2 unless specifically included in the contract or an amendment to the contract. Any questions regarding new construction to enforceably restricted historical structures should be directed to the counsel of the legislative body of the city, county, or city and county that contracted with the property owner.

Assuming that the newly constructed property is subject to the historical property contract, a base year value should be established for the newly constructed portion and this value added to the factored base year value of the existing restricted property.

In some cases, an existing historical property may include a portion that is restricted (i.e., subject to a historical property contract) and a portion that is unrestricted. In this case, separate factored base year values should be maintained for the restricted and unrestricted portions and the base year value of any newly constructed property added to the appropriate portion. The assessment treatment of this type of property is discussed further below.

Supplemental Assessment
Although the assessor is required to establish a new base year value upon a change in ownership or completed new construction involving restricted historical property, such property is not subject to supplemental assessment. As provided in Revenue and Taxation Code section 75.14:

Supplemental assessment; limitation. A supplemental assessment pursuant to this chapter shall not be made for any property not subject to the assessment 3 National Register Bulletin 15, "How to Apply the National Register Criteria for Evaluation," U.S. Department of the Interior, National Park Service (www.cr.nps.gov/nr/publications/).

Attachment 6
8 limitations of Article XIII A of the California Constitution. All property subject to the assessment limitations of Article XIII A of the California Constitution shall be subject to the provisions of this chapter, except as otherwise provided in this article.

As discussed above, the assessment of enforceably restricted historical property is subject to the provisions of article XIII, section 8 of the California Constitution, not article XIII A. Thus, section 75.14 precludes the assessor from enrolling supplemental assessments for enforceably restricted historical property.

Historical property not yet under contract that undergoes a change in ownership or new construction is subject to supplemental assessment, even if the property owner later executes a historical property contract in the same fiscal year. Also, any new construction involving a historical property that does not come under the existing historical property contract (e.g., a detached garage added to a restricted historical property) would be subject to supplemental assessment.

When a Property Contains Both Restricted and Unrestricted Portions When only a portion of a property that would normally be considered a single appraisal unit is restricted by a historical property contract, the assessed value should be determined by making a comparison of three values, determined as follows. First, the portion under contract should be valued using the capitalization method prescribed by section 439.2. Added to this figure should be the lower of the unrestricted portion's fair market value or factored base year value. The resulting sum should be compared to both the fair market value and the factored base year value of the entire property (i.e., both restricted and unrestricted portions) and the lowest of the three figures should be enrolled.

Valuing Property Under Notice of Nonrenewal
As provided in Government Code section 50282, either the owner of a restricted historical property or the local government entity may serve notice that it does not intend to renew the historical property contract. If such notice is not given, another year is automatically added to the term of the initial contract, thus creating a "rolling" contract term that is always equal to the initial contract term.

Section 439.3 prescribes the valuation method for a restricted historical property in nonrenewal status; this valuation method applies until the end of the restricted period (i.e., until the existing contract expires). In essence, the method results in a restricted value that gradually approaches the historical property's factored base year value as the remaining term under the contract decreases. For a property in nonrenewal status, the assessor must annually value the property as follows:

1. Determine the full cash value (i.e., factored base year value) of the property in accordance with section 110.1. (Alternatively, if the property will not be subject to section 110.1 when the historical property agreement expires, determine its fair market value in accordance with Attachment 6
9 section 110, as if the property were free of the agreement's restrictions; or, if the property will be subject to another type of restricted value standard when the historical property agreement expires, determine the property's value as if it were subject to the new restrictions.)

2. Determine the restricted value of the property by the capitalization of income method provided in section 439.2.

3. Subtract the restricted value determined in Step 2 from the factored base year (or other) value determined in Step 1.

4. Using the amount for the interest rate component (section 439.2(b)(1)) announced by the Board, discount the amount obtained in Step 3 for the number of years remaining until the termination of the contract.

5. Determine the restricted value of the property in nonrenewal status by adding the value determined in Step 2 to the amount obtained in Step 4.

The historical property's restricted value in nonrenewal status—that is, the value determined above, in accordance with section 439.3—should be compared with the historical property's factor base year and current market values, and the lowest of these three values should be enrolled as the property's taxable value.

Cancellation of Contract
The government entity party to a historical property contract may cancel the contract, after notice and a public hearing, if it determines that either the owner has breached the agreement or the property has deteriorated to the extent that it no longer meets the standards of a historical property. If the contract is cancelled, the property owner must pay a cancellation fee equal to 12½ percent of the property's current fair market value as though free of the contractual restriction, such value to be determined by the county assessor. After a contract is cancelled, the lower of the property's factored base year value or current market value should be enrolled for the ensuing lien date.

SUMMARY
The key points contained in these guidelines can be summarized as follows:

1. An owner of qualified historical property may enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics. Such property receives the special valuation treatment prescribed under Revenue and Taxation Code sections 439 through 439.4.

2. Enforceably restricted historical property is to be annually valued by the income capitalization method prescribed in section 439.2, which contains specific instructions with Attachment 6
10 regard to the income to be capitalized, the capitalization rate, and the capitalization technique to be used. The restricted value must be compared to the property's current market value and factored base year value, with the lowest of these three values enrolled as the property's taxable value.

3. When assessing restricted historical property, the appraiser should consider how three important elements of article XIII A—change in ownership, new construction, and supplemental assessment—relate to the assessment. The appraiser should consider how a property should be assessed when only a portion of it is subject to a historical property agreement.

4. Restricted historical property under a notice of nonrenewal should be valued in accordance with section 439.3.

5. The government entity party to a historical property contract may cancel the contract. The cancellation fee is 12½ percent of the property's current fair market value as though free of the contractual restriction, with such value to be determined by the local assessor.

Additional information about Mills Act contracts may be obtained from the state Office of Historic Preservation, either by telephone at 916-653-6624, or from their website (www.ohp.parks.ca.gov).
(Note: Please see the assessment examples following.)
Attachment 6
Historical Property Valuation Examples Page 1
EXAMPLE 1 (OWNER-OCCUPIED SINGLE-FAMILY RESIDENCE)
Subject Restricted Historical Property
Restored, 105-year-old, Victorian single-family residence. Excellent condition. Under Mills Act contract since 1985 and not in nonrenewal status. Owner-occupied.

Determination of Restricted Value (current lien date)
Gross income (Fair rent)
$1,500 per month x 12 months = $18,000
Less: Anticipated vacancy and collection loss
$18,000 x 5% - 900
Effective gross income $17,100
Less: Anticipated operating expenses
Grounds maintenance $600
Fire insurance 400
Management Fee 360
Water and garbage 240
Building maintenance + 500 - 2,100
Net Operating Income $15,000
Restricted Capitalization Rate
Rate Components:

Interest rate .080
Risk (owner-occupied SFR) .040
Property tax (ad valorem) .015
Amortization (50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 – 0.014) + .014 .149
Restricted Value
$15,000 ÷ .149 = $100,671
Taxable Value—Three-Way Value Comparison
Restricted value $100,671
Factored base year value (based on prior change in ownership) $357,000 Current market value (based on comparable sales) $450,000 The lowest of the three possible values is the restricted value. Thus, the net taxable value would be $93,671 ($100,671 restricted value less the homeowners' exemption of $7,000).

Note 1: If this property had been a non-owner-occupied SFR, the only difference in the determination of the restricted value would have been the use of a risk rate component of 2% rather than 4% in the capitalization rate.

Note 2: In this and the following examples, the gross income, or fair rent, is presented on a gross rent basis, that is, under the assumption that the landlord-owner pays all operating expenses out of the gross income.

Attachment 6
Historical Property Valuation Examples Page 2
EXAMPLE 2 (OFFICE USE)
Subject Restricted Historical Property
Multi-tenant, restored historical office building in a downtown commercial district. Under Mills Act contract since 1985 and not in nonrenewal status.

Determination of Restricted Value (current lien date)
Gross Income (Fair rent):

Offices 140,000 sf @ $1.75/sf = $245,000
x 12 months = $2,940,000
Less: Anticipated vacancy and collection loss
$2,940,000 x 5% - 147,000
Effective gross income $2,793,000
Less: Anticipated operating expenses
Management $290,000
Maintenance 95,000
Insurance 75,000
Utilities 360,000
Janitorial + 140,000 - 960,000
Net Operating Income $1,833,000
Restricted Capitalization Rate
Rate Components:

Interest component .08
Risk .02
Property tax (ad valorem) .011
Amortization (50-year remaining life; improvements
constitute 75% of total property market value

0.02 x 0.75 = 0.015) + .015 .126
Restricted Value
($1,833,000 ÷ .126) = $14,547,619
Taxable Value—Three-Way Value Comparison
Restricted value $14,547,619
Factored base year value (based on prior change in ownership) $18,191,077 Current market value (based on comparable sales) $21,000,000 The lowest of the three possible values is the restricted value. Thus, the taxable value would be $14,547,619
Attachment 6
Historical Property Valuation Examples Page 3
EXAMPLE 3 (MIXED USE—RESIDENTIAL AND OFFICE)
Subject Restricted Historical Property
Two-story, restored historical property in a downtown district. Upper level is residential unit occupied by owner. Lower level contains three office spaces subject to short-term rental agreements. The income stream for the upstairs unit must be calculated separately from the downstairs unit because the risk rate is different for the owner-occupied unit.

Determination of Restricted Value
Separate restricted values for the upper-level residence and the lower-level office space must be determined, because the risk components are different for restricted value is sum of these two values.

Upper-Level Unit
Gross income (Fair rent) based upon comparable rent data the two types of use. The total
$975 per month x 12 months = $11,700
Less: Anticipated vacancy and collection loss
$11,700 x 5% - 585
Effective gross income
Less: Anticipated operating expenses
Grounds maintenance $300
$11,115
Fire insurance 200
Management Fee 180
Water and garbage 120
Building maintenance + 250 - 1,050
Upper-Level Net Operating Income $10,065
Restricted Capitalization Rate (owner-occupied SFR)
Rate components:

Interest rate .080
Risk .040
Property tax .010
Amortization ( 50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 = 0.014) + .014 .144
Upper-level Restricted Value ($10,065 ÷ .144) = $69,895 Lower-Level Offices
Gross income (Fair rent)
1000 sf @ $1.60/sf = $1,600 x 12 months $19,200
Less: Anticipated vacancy and collection loss
$19,200 x 5% - 960
Effective gross income $18,240
Attachment 6
Historical Property Valuation Examples Page 4
Less: Anticipated operating expenses
Grounds maintenance $300
Fire insurance 200
Management Fee 180
Water and garbage 120
Building maintenance + 250 - 1,050
Lower-Level Net Operating Income $17,190
Restricted Capitalization Rate
Rate components:

Interest component .080
Risk .020
Property tax .010
Amortization (50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 = 0.014) + .014 .124
Lower Level Restricted Value ($17,190 ÷ .124) $138,629
Add: Upper Level Restricted Value + $69,895
Total Restricted Value $208,524
Taxable Value—Three-Way Value Comparison
Restricted Value $208,524
Factored base year value (based upon prior change in ownership) $364,140 Current market value (based upon comparable sales data) $400,000 The lowest of the three possible values is the restricted value. Thus, the net taxable value would be $201,524 ($208,524 less the homeowners' exemption of $7,000).

Attachment 6
Historical Property Valuation Examples Page 5
EXAMPLE 4 (MIXED VALUATION—PART RESTRICTED AND PARTUNRESTRICTED) Description of Subject Property (Comprises Both Restricted and UnrestrictedPortions) The subject property is a 10-acre parcel with a farmhouse and barn situated on 2 acres; the remaining 8 acres are farmland. The farmhouse and barn are used as an owner-occupied singlefamily residence; this portion of the property is restricted remaining 8 acres of farmland are unrestricted.

Value of Restricted Portion (current lien date)
Gross income (Fair rent) for farmhouse and barn
under a Mills Act contract. The
$2,000 per month x 12 months = $24,000
Less: Anticipated vacancy and collection loss
$24,000 x 5% - 1,200
Effective gross income $22,800
Less: Anticipated operating expenses
Grounds maintenance $600
Fire insurance 400
Management Fee 360
Water and garbage 240
Building maintenance + 500 - 2,100
Net Operating Income = $20,700
Restricted Capitalization Rate
Rate components:

Interest component .080
Risk (owner-occupied) .040
Property tax (ad valorem) .010
Amortization (50-year remaining life; improvements
constitute 70% of total property market value

0.02 x 0.70 = 0.014) + .014 .144
Restricted Value ($20,700 ÷ .144) = $143,750
Taxable Value—Three-Way Comparison
Total Property Restricted Value (sum of restricted value above and lower of FBYV or current market value of unrestricted portion)
Restricted Value (portion under contract) $143,750
FBYV (unrestricted portion) + $102,000
Restricted Value (total property) $245,750
Factored base year values (based upon a prior change in ownership of the entire property, allocated between restricted and unrestricted portions):

Farmhouse, barn, and 2 acres (restricted portion) $204,000 8 acres (unrestricted portion) + $102,000
Total FBYV (total property) $306,000
Attachment 6
Historical Property Valuation Examples Page 6
Current market values (based upon comparable sales data):

Farmhouse, barn, and 2 acres (restricted portion) $230,000 8 acres (unrestricted portion) + $120,000
Total Current Market Value (total property) $350,000
The lowest of the three values is the Restricted Value (total property), $245,750. Thus, the net taxable value would be $238,750 ($245,750 less $7,000 homeowners' exemption).

Attachment 6
Historical Property Valuation Examples Page 7
EXAMPLE 5 (PROPERTY IN NONRENEWALSTATUS)
Description of Subject Restricted Historical Property
The same property as in Example 2, except the property owner has served notice of nonrenewal.

The Mills Act contract covering the property was originally executed in September 1995, and the owner served notice of nonrenewal in June 2004. Value the property for the 2005 lien date, reflecting its nonrenewal status. Assume that the property's restricted, current market, and factored base year values from Example 2, provided below, also refer to January 1, 2005.

Restricted value $14,547,619
Current market value $21,000,000
Factored base year value $18,191,077
Restricted Value in Nonrenewal Status
Value as if unrestricted (factored base year value) $18,191,077 Restricted value - 14,547,619
Difference $ 3,643,458
Present worth of difference
PW1 @ 6.00 %, 9 years (interest component for lien date 2005) x .591898 Plus restricted value
= $ 2,156,555
+ $14,547,619
Restricted value in nonrenewal status—lien date January 1, 2005 $16,704,174 Taxable Value
Since the restricted value in nonrenewal status, $16,704,174, is less than either the property's current market value or its factored base year value, this is the taxable value.

Attachment 6

CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report
October 4, 2022

PUBLIC HEARINGS
TO: Honorable Mayor and City Council Members
SUBMITTED BY: Katherine Wallace, Associate Planner
APPROVED BY: Chip Rerig, City Administrator
SUBJECT:

MA 22-214 (Ludwick): Consideration of a recommendation from the Historic Resources Board to the City Council that the City enter into a Mills Act Historical Property Contract MA 22-214 (Ludwick) with Christopher & Adrienne Ludwick Trust for the historic “Frederick Ten Winkel House” located at the southeast corner of San Antonio Avenue and 4
th Avenue (APN 010-253-018)
RECOMMENDATION:

Accept the recommendation of the Historic Resources Board, and Approve the Mills Act Historical Property Contract MA 22-214 (Ludwick) for the historic “Frederick Ten Winkel House” located at the southeast corner of San Antonio Avenue and 4
th Avenue (APN 010-253-018) and authorize the City Administrator to execute the contract.

BACKGROUND/SUMMARY:

The project site is located at the southeast corner of San Antonio Avenue and 4 th Avenue in the Single
Family Residential (R-1) Zoning District. The existing two-story residence was built in 1925 in the Tudor Style by Carmel master builder, M.J. Murphy. The building was constructed as a residence for original owner Frederick Ten Winkel, a Carmel businessman who operated a furniture and hardware store on Ocean Avenue.

A Department of Parks and Recreation (DPR) Form 523A was completed for the property in 2002 by Kent Seavey (Attachment 3, Exhibit B) and the resource was added to the Carmel Inventory on May 25, 2005. A Resolution Designating a Historic Resource for the property at southeast corner of San Antonio Avenue and 4
th Avenue was recorded with the County Recorder on January 4, 2007 (Instrument No.2007001127).

On June 22, 2022, Adrienne Ludwick, one of the property owners, submitted an application for a Mills Act Historical Property Contract. The Mills Act is an incentive program available to owners of historical resources listed on the Carmel Inventory and the local Register of Historic Resources. As noted above, the property was added to the Carmel Inventory in 2005. On August 15, 2022, the Historic Resources Board adopted Resolution 2022-008-HRB (Attachment 5), recommending that the City Council enter into a Mills Act Contract with Christopher & Adrienne Ludwick Trust for the historic “Frederick Ten Winkel House.” Contract Value
The Monterey County Assessor’s Office is responsible for determining the value of a property under Mills Act Contract in accordance with sections 439 through 439.4 of the Revenue and Taxation Code. Properties with a Mills Act Contract are not valued based on sales data; rather they are valued by a prescribed income capitalization method (Attachment 6). After a Contract is approved, it is forwarded to the Monterey County Assessor who then determines the Mills Act value.

At previous Mills Act hearings, members of Council requested that staff obtain a preliminary calculation of Mills Act Contract values for the purposes of understanding the potential local tax revenue offset. A request was made to the Assessor’s Office on August 16, 2022, and a response was received on August 17, 2022, informing the City that time constraints and process complexity make preliminary calculations by the Assessor infeasible. There is typically a 40% to 60% tax reduction for Mills Act properties. The 2022 tax bill for this property was $1,889.78, with 6% of that amount going to the City's tax base ($113.39); an estimated 50% reduction would lower the amount collected to $944.89. Since the City receives 6% of the property tax collected by the County, granting the Mills Act Contract would also reduce the City's annual portion of property tax by an estimated 50% from $113.40 to $56.70.

STAFF ANALYSIS:

A Mills Act contract under State law is an agreement between the City of Carmel and a property owner of a historic building listed on the Carmel Register. In exchange for reduced property taxes, the property owner is contractually obligated to perform annual maintenance on the building. The property owner benefits from a reduction in property taxes. The City benefits from assurance, via contract, that the historic building is rehabilitated, maintained, and preserved with a portion of those property taxes that the city is giving up.

The primary purpose for offering Mills Act contracts in the City of Carmel-by-the-Sea is to assist in and ensure the rehabilitation or restoration and long-term maintenance of historic resources. All properties listed on the City’s Historic Register in all districts that have been preserved in their historical size, form, and design without significant alterations are eligible for Mills Act contracts.

All Mills Act contracts have a term of 10 years, and one year is added to this term annually upon each anniversary date of the contract unless one or both parties (City and property owner) have taken action to terminate the contract. The City Administrator is authorized to initiate contract termination on behalf of the City based on recommendations of the Community Planning & Building Department. The contract rights and obligations are binding upon all successive owners of the property during the life of the contract. The property retains the lower Mills Act tax rate when sold. To end a contract, either party may submit a notice of non-renewal to the other party. Such notices shall cause the contract to terminate at the end of the thencurrent 10-year contract period. Cancellation of a contract by the City due to non-compliance requires a public hearing and, if canceled, results in the immediate termination of the contract and a penalty equal to

12.5 percent of the assessed market value of the property.

The contract requires that the historical elements of the property are maintained in good condition. This includes a plan for rehabilitation and maintenance and may include a program to restore deteriorated features. All recipients of Mills Act contracts are required to implement a rehabilitation/restoration and maintenance plan prepared by a qualified professional. An annual report is submitted to the Community Planning & Building Department specifying all work that has been done to maintain and preserve the historic resource over the year in compliance with the approved rehabilitation/restoration and maintenance plan. All rehabilitation/restoration and maintenance work must be completed in conformance with the Secretary of Interior’s Standards for Rehabilitation. All Mills Act contracts must specify that the rehabilitation/restoration and maintenance plan shall be updated at least every ten years by a qualified professional and approved by both parties.

The Historic Resources Board considers each application for a Mills Act contract and provides a recommendation to the City Council to approve, approve with conditions, or deny the application.

The City Council considers the recommendations from the Historic Resources Board at a public hearing and resolves to approve, approve with conditions, or deny the proposed contract with sufficient time for action by the City Clerk so that recordation of approved contracts occurs before December 31st of the year in which the application is received.

Carmel Municipal Code Section 17.32.100.B.6(c) sets forth findings that the Historic Resources Board and City Council shall make in order to grant approval of a Mills Act Contract. The required findings are listed below followed by a staff response on whether the application meets the requirements.

1. The building is designated as a historic resource by the City and is listed on the Carmel Register.

Staff Response: A DPR 523A form was prepared by Kent Seavey in 2002 (Attachment 3, Exhibit B), evaluating the property for historical significance and finding the property meets the criteria for listing as a local historic resource. The City added the property to the Carmel Inventory of Historic Resources on May 25, 2005. A Resolution Designating a Historic Resource for the property at the southeast corner of San Antonio Avenue and 4
th Avenue was recorded with the Monterey County Recorder on January 4, 2007 (Instrument No.2007001127). On August 15, 2022, the Historic Resources Board adopted Resolution 2022-008-HRB adding the property to the Carmel Register. This application meets this finding.

2. The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficient in detail to guide long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property.

Staff Response: The proposed rehabilitation/restoration and maintenance plan (Attachment 4, Exhibit C) includes improvements that will protect the integrity of the resource. The plan covers a period of 10 years from 2023-2032. The plan includes rehabilitation and maintenance work which has been reviewed by Anthony Kirk, a qualified architectural historian, and determined to be consistent with the Secretary of the Interior’s Standards for the Treatment of Historic Properties. The work will include electrical; plumbing; chimney repair; hardscape repair; exterior paint; garden and landscaping restoration; foundation and subfloor repair; door and window restoration; gutter work; and roof maintenance. All exterior work is subject to Design Study approval and a determination of consistency with the Secretary of the Interior's Standards for Rehabilitation. In total, the applicant estimates spending $485,000 in rehabilitation and maintenance activities over the course of the 10-year contract period. The proposed Plan meets this finding.

3. Alterations to the historic resource have been in the past, and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and (B) Do not significantly alter, damage or diminish any primary elevation or characterdefining feature; and (C) Do not increase floor area on the property by more than 15 percent beyond the amount established in the documented original or historic design of the resource; and (D) Do not result in any second-story addition to a single-story historic resource.

Staff Response: As noted above, rehabilitation/restoration and maintenance work will be performed in conformance with the Secretary of Interior’s Standards for Rehabilitation. Any future alterations are required to be consistent with conditions A-D above. Minor alterations may be approved by staff; however, major alterations would be evaluated by a qualified professional and presented to the Historic Resources Board for review. The application meets this finding.

4. The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.

Staff Response: Approval of the contract would assist in offsetting the rehabilitation/restoration and maintenance costs of preserving the “Frederick Ten Winkel House” by reducing the tax liability on the property thereby freeing up funds for the rehabilitation over the next ten years. Some of the more notable work that is proposed to be accomplished within the first few years would include repairing the stone chimney and restoring the formal landscaping and stone hardscape. The application meets this finding.

5. Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in substantial adverse financial impact on the City.

Staff Response: Approval of the Mills Act Contract would be consistent with Goal 1-5 and Objective 1-16 of the Land Use & Community Character Element of the General Plan, which encourages providing incentives for property owners to preserve and rehabilitate historic resources. Although entering into a Mills Act Contract will decrease property tax revenue to the City, the financial impact would be minimal because:
1) The City Council adopted Resolution 2016-068 on September 13, 2016, limiting the number of Mills Act contracts that can be approved to fifteen (15) in any three-year calendar period. Two Mills Act Contracts have been approved in the last three years; one approval was granted in 2019 and one in 2022. The Council is considering a total of three contracts at this meeting, which, if approved, would increase the total to 5 in the last 3 years. 2) Carmel currently has 284 historic resources, and since the adoption of the Mills Act program in 2004, the City has entered into a total of eleven Mills Act Contracts. 3) The City would continue to receive a portion of the property tax revenue, and the investment in rehabilitation and maintenance supports local tourism, which benefits both private and public interests.
4) The value of preserving the historic resource offsets the loss of property tax revenue.

FISCAL IMPACT:

The City will have a diminished tax base from the property at the southeast corner of San Antonio and 4 th
Avenue for the term of the contract. There is typically a 40% to 60% tax reduction for Mills Act properties. The 2022 tax bill for this property was $1,889.78, with 6% of that amount going to the City's tax base ($113.39); an estimated 50% reduction would lower the amount collected to $944.89. Since the City receives 6% of the property tax collected by the County, granting the Mills Act Contract would also reduce the City's annual portion of property tax by an estimated 50% from $113.40 to $56.70.

PRIOR CITY COUNCIL ACTION:

On March 3, 2020, the City Council adopted standard contract language for Mills Act Contracts.

ATTACHMENTS:

Attachment 1) Standard Mills Act Contract, with exhibits Attachment 2) Exhibit A - Legal Description
Attachment 3) Exhibit B - DPR 523A Form
Attachment 4) Exhibit C - Maintenance Plan
Attachment 5) Resolution 2022-008-HRB
Attachment 6) Guidelines for the Assessment of Enforceably Restricted Historical Property

RECORDING REQUESTED BY

CITY OF CARMEL-BY-THE-SEA

AND WHEN RECORDED MAIL TO

Carmel City Hall
Attn: Community Planning & Building
P.O. Box CC
Carmel-By-The-Sea, CA 93921 This space reserved for the Recorder’s use only

CITY OF CARMEL-BY-THE-SEA

MILLS ACT HISTORIC PROPERTY PRESERVATION CONTRACT
THIS AGREEMENT is made and entered by and between the CITY OF CARMEL-BY-THE-SEA a municipal corporation (hereinafter referred to as “City”), and Christopher & Adrienne Ludwick Trust (hereinafter referred to as “Owner”).

RECITALS
(i) California Government Code Section 50280, et seq. (known as the Mills Act) authorizes cities to enter into contracts with the owners of qualified historic properties to provide for their appropriate use, maintenance and restoration such that these historic properties retain their historic characteristics;
(ii) The Owner possesses fee title in and to that certain real property, together with associated structures and improvements thereon, located at the southeast corner of San Antonio Avenue and 4th Avenue (APN: 010-253-018), Carmel-By-The-Sea, California, (hereinafter referred to as the “Historic Property”). A legal description of the Historic Property is attached hereto, marked as “Exhibit A” and is incorporated herein by reference;
(iii) The property is identified as a historic resource on the City of Carmel-By-The-Sea’s Historic Inventory and Register of Historic Resources and is further described in the DPR 523A Form attached hereto, marked as “Exhibit B” and is incorporated herein by reference;
(iv) City and Owner, for their mutual benefit, now desire to enter into this Agreement both to protect and preserve the characteristics of historical significance of the Historic Property, as it exists at the date of this contract and as described in the City’s Register of Historic Resources and the National Register of Historic Places, and to qualify the Historic Property for an assessment of valuation pursuant to the provisions of Article 1.9 (commencing with section 439) of Chapter 3 of Part 2 of Division 1 of the California Revenue and Taxation Code.

Attachment 1
NOW, THEREFORE, City and Owner, in consideration of the mutual covenants and conditions contained herein, do hereby agree as follows:

1. INCORPORATION OF RECITALS. All recitals are incorporated into this Agreement.

2. EFFECTIVE DATE AND TERM. This Agreement shall be effective and commence on the date the Agreement is signed by the City, unless otherwise indicated by the County of Monterey, and shall remain in effect for a minimum term of ten (10) years thereafter.

3. AUTOMATIC RENEWAL. Each year, upon the anniversary of the effective date of this Agreement (hereinafter referred to as “annual renewal date”), one (1) year shall be added automatically to the term of this Agreement, unless timely notice of nonrenewal is given as provided in paragraph 4 of this Agreement. The total length of the contract shall not exceed twenty (20) years.

4. NOTICE OF NONRENEWAL. If City or Owner desires in any year not to renew this Agreement, that party shall serve written notice of nonrenewal in advance of the annual renewal date of this Agreement as follows: Owner must serve written notice of nonrenewal at least ninety (90) days prior to the annual renewal date; City must serve written notice of the nonrenewal at least sixty (60) days prior to the annual renewal date.

If notice is not received, the Agreement shall automatically be renewed for another year.

Upon receipt by Owner of a notice of nonrenewal from the City, Owner may make a written protest. At any time prior to the annual renewal date, City may withdraw its notice of nonrenewal.

5. EFFECT OF NOTICE OF NONRENEWAL. If either City or Owner serves timely notice of nonrenewal in any year, and this contract is not renewed, this Agreement shall remain in effect shall remain in effect for the balance of the period remaining since the original execution or the last annual renewal date.

6. FEES. The City may require that the Owner(s) of the Historic Property pay a fee that shall not exceed the reasonable cost of providing services, such as inspections, pursuant to Government Code Section 50281.1 (Article 12 of Chapter 1 of Part 1 of Division 1 of Title 5 of the Government Code), for which the fee is charged.

7. VALUATION OF PROPERTY. During the term of this Agreement, Owner is entitled to seek assessment of valuation of the Historic Property pursuant to the provisions of Chapter 3 of Part 2 of Division 1 of the California Revenue and Taxation Code.

8. PRESERVATION OF PROPERTY. Owner shall preserve and maintain the characteristics of historical significance of the Historic Property and agrees to complete rehabilitation and/or maintenance activities as defined in the Rehabilitation/Restoration and Attachment 1
Maintenance Plan attached as “Exhibit C”. Requests for revisions to the Maintenance and Rehabilitation plan shall be reviewed by the Historic Resources Board prior to implementation. In addition, Owner shall comply with the terms of the City’s Historic Preservation Ordinance (CMC 17.32). Owners shall not be permitted to further impede any view corridor with any new structure, including but not limited to walls, fences, or shrubbery, so as to prevent the viewing of the Historic Property from the public right-ofway.

9. RESTORATION OF PROPERTY. Owner shall, where necessary, restore and rehabilitate the Historic Property to conform to the rules and regulations of the Office of Historic Preservation of the State Department of Parks and Recreation, U. S. Secretary of the Interior’s Standards for Rehabilitation, the State Historical Building Code, and the City of Carmel-by-the-Sea, all as amended.

10. INSPECTIONS. Owner shall allow periodic examinations, at least every five (5) years, with reasonable notice thereof, of the interior and exterior of the Historic Property by representatives of the County of Monterey Assessor and the City of Carmel-By-The-Sea as may be necessary to determine Owner’s compliance with the terms and provisions of this Agreement. The City will coordinate inspections by such other agencies that have jurisdiction and will keep them to the minimum necessary to determinate such compliance.

11. PROVISION OF INFORMATION. Owner shall furnish City with any and all information required by City, in order to determine the eligibility of the Historic Property, and that City deems necessary or advisable to determine compliance with the terms and provisions of this Agreement.

12. ANNUAL REPORT. Owner shall submit an annual report at least 90 days prior to each annual renewal date (October 1st) to the Department of Planning and Building specifying all work that has been done to maintain and preserve the historic resource over the preceding year in compliance with the approved maintenance plan.

13. CANCELLATION. The City has the right to cancel the contract if the owner allows the property to deteriorate to the point that it no longer meets the standards for a qualified historical property. The City also has the right to cancel this contract if the owner(s) breaches the provisions of paragraph’s # 8, 9, 10 or 12 of this Agreement after the City has provided reasonable notice of any failure to comply with the agreement, and a public hearing. Notice of the hearing shall be mailed to the last known address of each owner of the property, with the notice conforming to the provisions of Government Code section 6061., If after notice and a hearing, the contract is cancelled, termination of the Agreement is immediate, and the owner shall pay a cancellation fee equal to 12.5 percent of the current fair market value of the property, as determined by the Monterey County Assessor as though the property were free of the contractual restriction. The cancellation fee shall be paid to the Assessor, at the time and in the manner that the Attachment 1
Assessor shall prescribe. City’s right to cancel this Agreement pursuant to this paragraph shall in no way limit or restrict its rights or legal remedies arising from City’s Historic Preservation Ordinance and Municipal Code.

14. ENFORCEMENT OF AGREEMENT. In lieu of and/or in addition to any provisions to cancel this Agreement as referenced herein, City may specifically enforce, or enjoin the breach of, the terms of this Agreement.

15. WAIVER. City does not waive any claim or default by Owner if City does not enforce or cancel this Agreement. All remedies at law or in equity, which are not otherwise provided for this Agreement or in City’s regulations governing historic properties are available to City to pursue in the event there is a breach of this Agreement. No waiver by City of any breach or default under this Agreement shall be deemed to be a waiver of any other subsequent breach thereof or default hereunder.

16. BINDING EFFECT OF AGREEMENT. Owner hereby subjects the Historic Property to the covenants, reservations and restrictions set forth in this Agreement. City and Owner hereby declare their specific intent that the covenants, reservations, and restrictions as set forth herein shall be deemed covenants running with the land and shall pass to and be binding upon Owner’s successors and assigns in title or interest to the Historic Property. A successor in interest shall have the same rights and obligations under this Agreement as the original owner who executed the Agreement.

Each and every contract, deed or other instrument hereinafter executed, governing or conveying the Historic Property, or any portion thereof, shall conclusively be held to have been executed, delivered and accepted subject to the covenants, reservations and restrictions expressed in this Agreement regardless of whether such covenants, reservations and restrictions are set forth in such contract, deed or other instrument.

City and Owner hereby declare their understanding and intent that the burden of the covenants, reservations and restrictions set forth herein touch and concern the land in that it restricts development of the Historic Property. City and Owner hereby further declare their understanding and intent that the benefit of such covenants, reservations and restrictions touch and concern the land by enhancing and maintaining the cultural and historic characteristics and significance of the Historic Property for the benefit of the public and Owner.

17. NOTICE. Any notice required to be given by the terms of this Agreement shall be provided at the address of the respective parties as specified below, by personal delivery or United States mail, postage prepaid, addressed as follows:

City: Carmel-By-The-Sea
Community Planning & Building Department
Attn: Community Planning & Building Director
P.O. Box CC
Carmel-By-The-Sea, CA 93921
Attachment 1
Owner: Christopher & Adrienne Ludwick Trust
406 Arboleda Drive
Los Altos, CA, 94024
Notice to successors in interest to either party shall be sent to the appropriate address.

In the case of future Owner(s) of the Historic Property, notice shall be sent to the address on file with the county property tax office in power at the time.

18. RECORDATION. No later than twenty (20) days after the parties execute and enter into this Agreement, the City shall cause this Agreement to be recorded in the Office of the County Recorder of the County of Monterey. From and after the time of the recordation, this Agreement shall impart a notice thereof to all persons as is afforded under state law.

19. STATE LAW. The Owner or agent of Owner shall provide written notice of this Agreement to the State Office of Historic Preservation within six (6) months of the date of this Agreement.

20. GOVERNING LAW; VENUE. This Agreement shall be constructed and governed in accordance with the laws of the State of California. Should either party to this agreement bring legal action against the other, the case shall be handled in Monterey County, California and the party prevailing in such action shall be entitled to a reasonable attorney fee which shall be fixed by the judge hearing the case and such fee shall be included in the judgment together with all costs.

21. AMENDMENTS. This agreement may be amended in whole or in part, only by a writtenrecorded instrument executed by the parties hereto.

22. DESTRUCTION OF PROPERTY; EMINENT DOMAIN; CANCELLATION. If the Historic Property is destroyed by earthquake, fire, flood, or other natural disaster such that in the opinion of the City Building Official more than sixty percent (60%) of the original fabric of the structure must be preplaced, this Agreement shall be cancelled because the historic value of the structure will have been destroyed. If the Historic Property is acquired in whole or in part by eminent domain or other acquisition by any entity authorized to exercise the power of eminent domain, and the acquisition is determined by the City Council to frustrate the purpose of this Agreement, this Agreement shall be cancelled.

No cancellation fee pursuant to Government Code Section 50286 shall be imposed if the Agreement is cancelled pursuant to this paragraph. Such Agreement shall be null and void for all purposes of determining the value of the property so acquired.

23. INDEMNIFICATION. Owner shall defend, indemnify, and hold harmless City and its elected officials, officers, agents and employees from any actual or alleged claims, demands, causes of action, liability, loss, damage, or injury to property or persons, including wrongful death, whether imposed by a court of law or by administrative action of any Attachment 1
federal, state or local government agency, arising out of or incident to the direct or indirect use, operation, or maintenance of the Historic Property by Owner or any contractor, subcontractor, employee, agent, lessee, licensee, invitee, or any other person; (ii) Owner’s activities in connection with the Historic Property; and (iii) any restriction on the use of development of the Historic Property, from application or enforcement of the City’s Municipal Code, or from the enforcement of this Agreement.

This indemnification includes, without limitation, the payment of all penalties, fines, judgments, awards, decrees, attorneys’ fees, and related costs or expenses, and the reimbursement of the City, its elected officials, employees, and/or agents for all legal expenses and costs incurred by each of them. Owner’s obligation to indemnify shall survive the termination, cancellation, or expiration of this Agreement and shall not be restricted to insurance proceeds, if any, received by City, its elected officials, employees, or agents.

24. SEVERABILITY. In the event that any of the provisions of this Agreement are held to be unenforceable or invalid by any court of competent jurisdiction, or by subsequent preemptive legislation, the validity and enforceability of the remaining provisions, or portions thereof, shall not be affected thereby.

IN WITNESS THEREOF, the City and Owners have executed this Agreement on the day and year written above.

CITY OF CARMEL-BY-THE-SEA:

By: _______________________ Date: __________________
Name: Richard L. Rerig (“Chip”)
Title: City Administrator

PROPERTY OWNER(S):

By: __________________________ Date: ___________________ Name: Christopher Ludwick
Title: Property Owner
By: __________________________ Date: ___________________ Name: Adrienne Ludwick
Title: Property Owner
Attachment 1

EXHIBIT A

LEGAL DESCRIPTION

EXHIBIT B
DPR 523A FORM

EXHIBIT C

REHABILITATION/RESTORATION AND MAINTENANCE PLAN
Attachment 1

EXHIBIT A

LEGAL DESCRIPTION
For APN/Parcel ID(s): 010-253-018

THE LAND REFERRED TO HEREIN BELOW IS SITUATION IN THE CITY OF CARMEL, COUNTY OF MONTEREY, STATE OF CALIFORNIA AND IS DESCRIBED AS FOLLOWS:

LOT 28, IN THE BLOCK LETTERED “HH”, AS SAID LOT AND BLOCK ARE SHOWN ON THAT CERTAIN MAP ENTITLED, “ADDITION NO. 3 TO CARMEL-BY-THE-SEA”, FILED AUGUST 12, 1907 IN VOLUME 2 OF MAPS, “CITIES AND TOWNS”, AT PAGE 5, MONTEREY COUNTY RECORDS.

Attachment 2
r
State of California - The Resources Agency

DEPARTMENT OF PARKS AND RECREATION

PRIMARY RECORD
Primary#
HRI#
Trinomial
- ----/
NRHP Status Code
other Listings 5S1 I
Review Code Reviewer cc=="-"---'D=a=tc.:e_,.cccc_-:.:__c·,_,-,...c=-=----'~- Page of Resource Name or#: (Assigned by recorder) F. Ten Winkel Hse.

P1. Other Identifier:

P2. Location: . Not for Publication I J Unrestricted
and (P2b and P2c or P2d. Attach a Location Map as necessary.) b. USGS 7.5' Quad Date T
c. Address:
d. UTM: (Give more than one for large and/linear resources) a. County Monterey
; R 1/4 of
City Carmel by-the-Sea
mE/
1/4 of Sec B.M.

Zip 93921
mN
e. Other Locational Data (Enter Parcel#, legal description, directions to resource, elevation, etc., as appropriate) Blk HH, Lot 28 SE er. of San Antonio & 4th
Parcel No. 010-253-0"IB
P3. Description (DesaiJe reooure and ifs ITlcp"elemens. lrrl.de desgt, l'l'Wials, cx:mm, clacB'.16, sire, setlilJ, Cl1d l:Ja.rme;) A one-and-one-half story woad-framed Tudor style bldg., irregular in plan, resting on a concrete foundation. The exterior waif cladding is smooth cement stucco. The steeply pitched cross-gable roof has a slightly lower dominant front gable. The roof planes of this feature, and that of the main building block flare dramatically towards the NW er. of the main building block. The raised entry is found on the north side of the main building block. ff is a round-headed flush-wood door wlwide wrought-iron strap hinges, reached by a straight nm of open Carmel stone steps. All roof coverings are composition shingle wlstaggared butts. There is a tall, Carmel stone exterior eave wall chimney found at the junction of the front gable and main building block along the s/side-elevation. ft has a round-headed Carmel stone cap. Slightly stepped shed roof dormers on the north side of the west facing main building block die into the north roof plane of the lower front gable. A one-story angled bay wla steep hipped roof projects from the front gable, toward the west. A smaller angled bay is found on the SE er. of the building. Fenestration is irregular wlsingfe, paired and banded multi-paned wood windows that are fixed, casement type and sliders, in a variety of sizes and shapes. The residence sits on the SE er. of San Antonio & 4th, surrounded and masked by heavy foliage including two mature redwood trees. ,b. Resource Attributes: (List attributes and codes)

4. Resources Present ' i Building I.] Structure L) Object [] Site [] District 1·1 Element of District [] Other (Isolates, etc.) PSa. Photograph or Drawing(Photograph required for buildings, structures, and objects) P5b. ~ of F'tdo: (View, dae, a:nissb 1#) (View toward ). Photo No: 5124-, .

P6. Date Constructed/Age and Sources:
[ ] Prehistoric D Historic [ l Both
1925 Carmel bldg. records
P7. Owner and Address
Wayne & Phyllis Kelly
P.O. Box554
Carmel, CA 93921
PB. Recorded by:{Nmie,affialion,Cl"ldaH'e$)
Kent L. Seavey, Preservation Consultant, 310
Lighthouse Ave., Pacific Grove, CA 93950
P9. Date Recorded: 6/2212002
P10. Survey Type: (Describe)
Carmel Historic Resource Inventory - 2001
. Report Citation: (Cite survey report and other sources, or enter "none") -mnel by-the-Sea Survey 1989-1996
.,tachments i NONE
i Location Map
i Sketch Map
DPR 523A (1/95) HistoryMaker 4
Continuation Sheet [] District Record O Rock Art Record 1.J Other: (Lisi} Building, Structure, and Object Record D Linear Feature Record D Artifact Record Archaeological Record O Milling Station Record D Photograph Record San Buenaventura Research Associates
Attachment 3
State of California - The Resources Agency

DEPARTMENT OF PARKS AND RECREATION
BUILDING, STRUCTURE, AND OBJECT RECORD HRI# Primary# --- .... -- - -----. - --------------------------- of NRHP Status Code 5S1 Resource Name or#: (Assigned by recorder) F. Ten Winkel Hse.

B1. Historic Name: F. Ten Winkel Hse.

B2. Common Name: ''..4n Neadinn
B3. Original Use: residence B4. Present Use: residence
B5. Architectural Style: Tudor
B6. Construction History:(Construction dale, alterations, and date of alterations) Constructed 1925 (Cbp# 967); interior kitchen/bath remodel 1960 (Cbp#3495); minor window change in bathroom remodel 1993 (Cbp#93-174)
B7. Moved? : No Yes I j Unknown Date: Original Location:

B8. Related Features: extend rear of one car detached garage, NE er. of parcel 1960 (Cbp#4524) B9a. Architect: designer/M.J. Murphy b. Builder: M.J. Murphy B10. Significance: Theme: Architectural Development Area: Carmel by-the-Sea Period of Significance: 1903-1940 Property Type: single family residence Applicable Criteria: CR 3 (Discuss importance in terms of historical or architectural context as defined by theme, period and geographic scope. Also address integrity.) The Ten Winkel Hse. is significant under California Register criterion 3, in the area of architecture as an excellent and intact example of the Tudor style of architecture by Carmel Master-builder M.J. Murphy. The Ten Winkel Hse. is only slightly varied in design from Murphy's 1922 office building on Monte Verde, exhibiting the success of his model for potential clients. The Ten Winkel Hse. varies from the Murphy office building only in the placement of the front door in the west facing plane of the main building block, the size of some windows, and the placement of a chimney. The bays on the s/side of the Murphy office were added after the construction of the Ten Winkel Hse. Murphy was an astute builder who understood what his potential clients might be interested in. His Tudor cottages were Jess whimsical that the worn of his chief competitor, Hugh Comstock, but easier to live in. The two buildings are most useful in comparison of Murphy designs in Carmel within the Tudor mode.

Michael J. Murphy (1885-1949), first came to Carmel as a painter in 1902, wllittle training as a carpenter. Two years later Frank Devendorf hired him to be the builder for the Carmel Development Company. Murphy went on to become the most prolific designer-builder in Carmel's history, wlas many as 350 structures to his credit. In 1914 Murphy established his own contracting firm, and in 1924 opened M.J. Murphy, Inc., which sold building supplies, did rock crushing and concrete worn and operated a lumber mill and cabinet shop, located between San Carlos and Mission Sts. Murphy was the most active designer-builder in the area between 1902 and 1940, and did as much to give Carmel its basic architectural character than any other person.

Frederick Ten Winkel, was a successful Carmel businessman. He operated a furniture and hardware store on the north side of Ocean Ave., in the building that later housed Village Hardware. The Ten Winkel Hse. clearly reflects the findings of, and is consistent with the 1997 Carmel Historic Context Statement under the theme of architectural development.

B 11. Additional Resource Attributes: (List attributes and codes} B12. References:

HP2 - Single Family Property
(Sketch Map with north arrow required.) Carmel bldg. records, Carmel Planning Dept., City Hall, Carmel Carmel Historic Context Statement 1997
Hale, Sharron, A Tribute to Yesterday Valley Publishers:Santa Cruz, 1980
Rasmussan, Lillian, bio. of M.J. Murphy, n/d
Weekly Sun, 10/3/91
B13. Remarks: Zoning R-1

CHCS(AD)
B14. Evaluator:

Date of Evaluation:

Kent L. Seavey
612212002
I - (This space reserved for official comments.)
OPR 523B (1195) HistoryMaker 4
I ' . ®! ~ ;-
,"'.•~ ~. ·_,. '':i:a;,;r ... ~ ..
-· ...

Attachment 3
State of California - The Resources Agency

DEPARTMENT OF PARKS AND RECREATION

CONTINUATION SHEET
~ of
orded by:

Resource Name or#: (Assigned by recorder)
Kent L. Seavey
Primary#
HRI#
Trinomial
F. Ten Winkel Hse.

Date 6/22/2002
----~-J
---------
[] Continuation ! .. ! Update
P3. There is a formal garden fronting the house, wllow topiary hedges and flower beds. A small, wood-framed one-car garage, wlpent roof is located at the NE end of the parcel. It appears to h_ave been constructed with the house, in 1925.

DPR 523L (1/95) HistoryMaker 4
Attachment 3
Stephen L. Vagnini CRLUCY
Monterey County Recorder 1/04/2007
Recorded at the request of 10:36:26
City of Carmel Return to:

Carmel City Hall DOCUMENT : 2007001127 Titles: 1/ Pages:

Post Office Drawer G
Carmel, CA 93921 Fees
Attention, Brian Roseth Taxes
Other ..

AMT PAID

RESOLUTION

DESIGNATING AN HISTORIC RESOURCE
The Department of Community Planning and Building of the City of Carmel-by-the-Sea completed intensive survey work, received approval from the California Coastal Commission and made an Administrative Determination that the property identified below meets the criteria for an historic resource as established in the City's General Plan, the Municipal Code and the Local Coastal Program for Carmel-by-the-Sea.

Based on this determination, effective 25 May 2005, the Department of Community Planning and Building resolved to designate the property described below as a local resource on the Carmel Inventory of Historic Resources.

This Resolution/Administrative Determination isrecorded pursuant to section 5029(b) of the California Public Resources Code that requires the City to record all historic resource determinations. This action also is taken in furtherance of the Local Coastal Program certified by the California Coastal Commission and implemented by the City of Carmelby-the-Sea Ordinances No. 2004-01 and 2004-02.

Assessor's Parcel Number: 010253018000
Block: HH Lot(s): ALL LOT 28
Current Owner: KELLEY, WAYNE G. & PHYLLIS TR
Street Location: SE CORNER SAN ANTONIO AND 4TH
It is the purpose of this Resolution/Administrative Determination to alert the owner, successors and assigns to the existence of an historic resource on the property. This historic resource is protected under laws of the State of California and of the City of Carmel-by-the-Sea including the California Coastal Act, the California Public Resources Code, the Carmel-by-the-Sea Municipal Code and the Local Coastal Program. Specific regulations affecting remodels, alterations, additions and demolitions can be found in the City of Carmel-by-the-Sea planning documents referenced above.

Certified by:

Brin Rost
Brian Roseth,
Principal Planner, Carmel-by-the-Sea

END OF DOCUMENT
Attachment 3
Mills Act Application
House at Southeast Corner of San Antonio and 4th Avenues Carmel-by-the-Sea
This Mills Act Application was prepared by Anthony Kirk, Ph.D., with the assistance of Adrienne Ludwick, one of the property owners. Dr. Kirk holds a Ph.D. in American History from the University of California, Santa Barbara. For more than three decades he has been employed as a consultant specializing in environmental, cultural, and architectural history. He was appointed to the City of Santa Cruz Historic Preservation Commission in 1994 and served until 1998, chairing the commission for the final two years of his term. He meets the Secretary of the Interior’s Professional Qualification Standards in history and in architectural history.

The historic property that is the subject of this paper is located on Lot 28, in the Block Lettered "HH", as said Lot and Block are shown on that certain Map entitled, "Addition No. 3 to Carmel-by-the-Sea", filed August 12, 1907 in Volume 2 of Maps, "Cities and Towns", at Page 5, Monterey County Records.

Chris and Adrienne Ludwick purchased the property at the southeast corner of San Antonio and 4th Avenues (APN 010-253-018) in December 2021. They wish to have it added to the Carmel Register of Historic Resources. It was evaluated in June 2002 by Kent L. Seavey, who is an approved architectural historian for Monterey County and the author of Carmel: A History in Architecture (Charleston, South Carolina, 2007). Mr. Seavey found the property to be significant under Criterion 3 of the California Register of Historical Resources as “an excellent and intact example of the Tudor style of architecture by Carmel Master-builder M. J. Murphy.” The house was built for Frederick Ten Winkel, who operated a furniture and hardware store on Ocean Avenue in Carmel. There are a few corrections to Mr. Seavey’s evaluation, none of which bear on the significance of the property. He characterized both the house and the garage as wood-frame construction, when, in fact, they are both single-wall construction. He also didn’t mention the presence of a partial basement on the west side of the house, which is entered by descending a flight of steps to the doorway.

The property has been subject to general maintenance over the years, but as the Ludwicks have discovered, significant work needs to be done to address safety issues, such as replacing the original knob-and-tube electrical wiring and the plumbing, which leaks. It is their intention to make the following improvements to the property, to make sure this historic home is properly preserved and cared for.

Façade (west elevation), looking east. Rear (east elevation), looking northwest.

Attachment 4
10-Year Rehabilitation and
Maintenance Plan
Work Item ‘23 ‘24 ‘25 ‘26 ‘27 ‘28 ‘29 ‘30 ‘31 ‘32 Cost
Estimate

1. Repair stone chimney X $10,000

2. Restore gardens &
landscaping X $120,000

3. Restore exterior
stone hardscape X $60,000

4. Paint exterior X $55,000

5. Repair/restore iron
features: hinges and
hardware etc.

X $25,000

6. Restore exterior
gutters X $20,000

7. Repair foundation
& subfloor X $25,000

8. Electrical: rewire
home X $25,000

9. Replace
plumbing/pipes X $25,000

10. Inspect/ restore
windows & doors X $85,000

11. Roofing
maintenance X $35,000
Total:
$485,000
Attachment 4
Work Item Descriptions

1. Chimney: The Ludwick's inspection report on the house states that there is moss and or algae growing on the exterior of the chimney. Water is retained in this area. Vegetation growth on the chimney can be damaging to the masonry structure. A certified chimney expert will be retained to address the problem.

2. Tree/landscape/garden work: The ground near the house does not drain properly after a storm. A landscape expert will be retained to slope it away from the house, preventing the entry of water and damage to the foundation and to interior finishes. Trees and bushes are in contact with the house. They will be properly trimmed to minimize damage to the house and to discourage animal activity. Also, the formal front gardens are a key part of the landscaping and feel of the home. They need to be restored.

The garden lampposts will be restored as well.

3. Exterior hardscape: The patio shows surface wear and cracking. A professional mason will be retained to address the problem.

4. Exterior painting: The walls of the house are clad with stucco, which has been painted on numerous occasions. The paint has deteriorated in certain areas. General maintenance will be required to avoid further degradation. The paint on the trim is peeling, faded, or generally deteriorated. It will be repainted by professional painters to maintain a weather-resistant coating and to prevent water damage.

5. Restore exterior iron ‘features’: Over time it will be necessary to repair and restore various exterior features, such as the iron front door frame, window hardware, shutter hardware, and hinges throughout.

6. Gutters: The gutters and downspouts are leaking at the seams. An appropriate professional will be retained to repair the seams, which will promote the movement of water away from the structure. The downspouts have become loose. They will be repaired to provide proper drainage and to prevent water damage to the house.

7. Foundation: Earth to wood contact has been noted in the crawlspace beneath the house. An appropriate professional will be retained to remove the earth and to maintain necessary clearances.

This will significantly reduce the opportunity for termites and other pests to damage beams and other wood members.

8. Electrical: The house retains its original knob-and-tube wiring, which needs to be replaced with modern wiring. It has, as well, ungrounded two-prong receptacles, which will be assessed and replaced as needed by a professional electrician.

9. Plumbing: An inspection of the house revealed the presence of leaky pipes, which will be assessed and replaced as needed by a professional plumber.

10. Window and door restoration: An inspection of the property revealed that the current paint on the window sash is flaking and deteriorated. It will be necessary for professional painters to repaint the window sash to maintain a weather resistant seal and to avoid further deterioration. The wooden doors are worn and weathered. General maintenance and repairs are needed to avoid further deterioration.

11. Roof maintenance: The current roof is about halfway through the average life cycle of a roof. It will be replaced in approximately ten years.

Attachment 4
Work Item Descriptions with Photographs

1. Chimney: The Ludwick's inspection report on the house states that there is moss and or algae growing on the exterior of the chimney. Water is retained in this area. Vegetation growth on the chimney can be damaging to the masonry structure. A certified chimney expert will be retained.

2. Tree/landscape work: The ground near the house does not drain properly after a storm. A landscape expert will be retained to slope it away from the house, preventing the entry of water and damage to the foundation and to interior finishes. Trees and bushes are in contact with the house. They will be properly trimmed to minimize damage to the house and to discourage animal activity. Also, the formal front gardens are a key part of the landscaping and feel of the home. They need to be restored.

The garden lampposts will be restored as well.

3. Exterior hardscape: The patio shows surface wear and cracking. A professional mason will be retained to address the problem.

Attachment 4

4. Exterior painting: The walls of the house are clad with stucco, which has been painted on numerous occasions. The paint has deteriorated in certain areas. General maintenance will be required to avoid further degradation. The paint on the trim is peeling, faded, or generally deteriorated. It will be repainted by professional painters to maintain a weather-resistant coating and to prevent water damage.

5. Restore exterior iron ‘features’: Over time it will be necessary to repair and restore various exterior features, such as the iron front door frame, window hardware, shutter hardware, and hinges throughout.

6. Gutters: The gutters and downspouts are leaking at the seams. An appropriate professional will be retained to repair the seams, which will promote the movement of water away from the structure. The downspouts have become loose. They will be repaired to provide proper drainage and to prevent water damage to the house.

Attachment 4

7. Foundation: Earth to wood contact has been noted in the crawlspace beneath the house. An appropriate professional will be retained to remove the earth and to maintain necessary clearances.

This will significantly reduce the opportunity for termites and other pests to damage beams and other wood members.

8. Electrical: The house retains its original knob-and-tube wiring, which needs to be replaced with modern wiring. It has, as well, ungrounded two-prong receptacles, which will be assessed and replaced as needed by a professional electrician.

9. Plumbing: An inspection of the house revealed the presence of leaky pipes, which will be assessed and replaced as needed by a professional plumber.

Attachment 4

10. Window and door restoration: An inspection of the property revealed that the current paint on the window sash is flaking and deteriorated. It will be necessary for professional painters to repaint the window sash to maintain a weather resistant seal and to avoid further deterioration. The wooden doors are worn and weathered. General maintenance and repairs are needed to avoid further deterioration.

Attachment 4

11. Roof maintenance: The current roof is about halfway through the average life cycle of a roof. It will be replaced in approximately ten years.

Attachment 4

CITY OF CARMEL-BY-THE-SEA

HISTORIC RESOURCES BOARD
HISTORIC RESOURCES BOARD RESOLUTION NO. 2022-008-HRB

A RESOLUTION OF THE HISTORIC RESOURCES BOARD OF THE CITY OF CARMEL-BY-THE-SEA

ADDING A HISTORIC RESOURCE TO THE CARMEL REGISTER AND RECOMMENDING THAT THE CITY

COUNCIL ENTER INTO A MILLS ACT CONTRACT WITH CHRISTOPHER & ADRIENNE LUDWICK TRUST FOR THE PROPERTY LOCATED AT THE SOUTHEAST CORNER OF SAN ANTONIO AVENUE AND 4TH AVENUE APN 010-253-018
WHEREAS, Christopher and Adrienne Ludwick (“Applicant”) submitted an application on behalf of Christopher and Adrienne Ludwick Trust (“Owners”) requesting to add the historic “Frederick Ten Winkel House” to the Carmel Register of Historic Resources and enter into a Mills Act contract (MA 22-214, Ludwick) described herein as (“Application”); and WHEREAS, the Application has been submitted for the property located at the southeast corner of San Antonio Avenue and 4th Avenue, Single Family Residential (R-1) District (Block HH, Lot 28); and
WHEREAS, the Applicant is requesting to add the historic “Frederick Ten Winkel House” to the Carmel Register of Historic Resources; and
WHEREAS, in accordance with Carmel Municipal Code (CMC) Section 17.32.090 (Carmel Register of Historic Resources) the City shall maintain a Register of Historic Resources designated by the City for public recognition and benefits; and
WHEREAS, historic resources identified as significant at a local or regional level shall be eligible for listing in the Register at the request of the property owner and upon approval by the Historic Resources Board; and
WHEREAS, one of the benefits of being included on the Register is the ability to enter into a Mills Act Historical Property Contract with the City; and WHEREAS, the Applicant is also requesting to enter into a Mills Act contract with the City and in accordance with Carmel Municipal Code (CMC) Section 17.32.100.B.6 (Review Process), the Historic Resources Board shall consider the application and make a recommendation to the City Council to approve, approve with conditions, or deny the application; and WHEREAS, notice of the August 15, 2022 public hearing was published in the Carmel Pine Cone on August 5, 2022 in compliance with State law (California Government Code 65091), and mailed to owners of real property within a 300-foot radius of the project indicating the date and time of the public hearing; and
Attachment 5
Resolution No. 2022-008-HRB

WHEREAS, on August 5, 2022 the Applicant posted the public notice on the project site and hand-delivered a copy of the public notice to each property within a 100-foot radius of the project site indicating the date and time of the public hearing; and WHEREAS, on August 12, 2022 the meeting agenda was posted in three locations in compliance with State law indicating the date and time of the public hearing; and WHEREAS, on August 15, 2022, the Historic Resources Board held a public meeting to consider adding the historic “Frederick Ten Winkel House” to the Carmel Register and to consider the application for a Mills Act contract, including without limitation, information provided to the Historic Resources Board by City staff and through public testimony; and WHEREAS, this Resolution and its findings are made based upon evidence presented to the Historic Resources Board at the August 15, 2022 meeting including, without limitation, the staff report and attachments submitted by the Community Planning and Building Department; and WHEREAS, theHistoric Resources Board did hear and consider all said reports, attachments, recommendations and testimony herein above set forth and used their independent judgement to evaluate the project; and
WHEREAS, the facts set forth in the recitals are true and correct and are incorporated herein by reference.

NOW, THEREFORE, BE IT RESOLVED, that the Historic Resources Board of theCity of CarmelBy-The-Sea does hereby make the following findings and determinations regarding the Mills Act Contract:

FINDINGS REQUIRED FOR A MILLS ACT CONTRACT
For each of the required findings listed below, staff has indicated whether the application supports adoption of the findings. For all findings checked "no" the staff report discusses the issues to facilitate the Historic Resources Board decision-making. Findings checked "yes" may or may not be discussed in the report depending on the issues.

CMC 17.32.100.B.6.c YES NO
i. The building is designated as an historic resource by the City and is listed on the Carmel Register.
✔
ii. The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficient in detail to guide long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property. ✔
iii. Alterations to the historic resource have been in the past, and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and ✔
Attachment 5
Resolution No. 2022-008-HRB

(B) Do not significantly alter, damage or diminish any primary elevation or character-defining feature; and
(C) Do not increase floor area on the property by more than 15 percent beyond the amount established in the documented original or historic design of the resource; and
(D) Do not result in any second-story addition to a single-story historic resource.
iv. The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.
✔
v. Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in substantial adverse financial impact on the City.
✔
BE IT FURTHER RESOLVED that the Historic Resources Board of the City of Carmel-by-theSea does hereby add the historic “Frederick Ten Winkel House” to the Carmel Register of Historic Resources and recommend that the City Council enter into a Mills Act Contract (MA 22-214, Ludwick) for the property located at the southeast corner of San Antonio Avenue and 4th Avenue (APN 010-253-018).

PASSED, APPROVED AND ADOPTED BY THE HISTORIC RESOURCES BOARD OF THE CITY OF CARMEL-BY-THE-SEA this 15th day of August, 2022, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

APPROVED: ATTEST:
_________________________ _________________________
Erik Dyar Leah Young
Chair Historic Resources Board Secretary
Attachment 5
June 2, 2005
BETTY T. YEE
Acting Member
First District, San Francisco

BILL LEONARD
econd District, Sacramento/Ontario

CLAUDE PARRISH
Third District, Long Beach

JOHN CHIANG
Fourth District, Los Angeles

STEVE WESTLY
State Controller, Sacramento
RAMON J. HIRSIG
Executive Director
No. 2005/035
O COUNTY ASSESSORS AND INTERESTED PARTIES:

NOTICE OF BOARD ACTION

GUIDELINES FOR THE ASSESSMENT OF

ENFORCEABLY RESTRICTED HISTORICALPROPERTY
On May 25, 2005, the Board of Equalization approved the following guidelines pertaining to the assessment of enforceably restricted historical property. These guidelines supersede Letter To Assessors No. 77/174 (dated December 19, 1977).

On June 8, 1976, the voters of California approved Proposition 7 which amended section 8 of article XIII of the California Constitution. This amendment requires that enforceably restricted historical property be valued on a basis that is consistent with its restrictions and uses. Sections 439 through 439.4 were added to the Revenue and Taxation Code to implement Proposition 7.

These statutes, in particular section 439.2, prohibit a valuation of enforceably restricted historical property based on sales data and instead require that such property be valued by a prescribed income capitalization method.

Staff drafted these guidelines in consultation with interested parties and, after discussions, no issues remained unresolved. The guidelines discuss the enforceably restricted historical property requirements, the income to be capitalized, the capitalization rate, the effect of Proposition 13 upon enforceably restricted historical properties that undergo change in ownership or new construction, and the valuation of property under notice of nonrenewal.

The guidelines are posted on the Board's website at www.boe.ca.gov/proptaxes/guideproc.htm.

We hope this information proves useful and promotes uniformity of assessment for these properties. If you have any questions, please contact our Real Property Technical Services Unit at 916-445-4982.

Sincerely,
/s/ David J. Gau
David J. Gau
Deputy Director
Property and Special Taxes Department
DJG:grs
Enclosure

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

PROPERTY AND SPECIAL TAXES DEPARTMENT
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0064
916 445-4982  FAX 916 323-8765
www.boe.ca.gov
Attachment 6
1 GUIDELINES FOR THE ASSESSMENT OF

ENFORCEABLY RESTRICTED HISTORICAL PROPERTY

HISTORY
Effective March 7, 1973, Chapter 1442 of the Statutes of 1972 (also known as the Mills Act) added sections 50280 through 50289 to the Government Code to allow an owner of qualified historical property to enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics.

Prior to the passage of Proposition 7 in 1976, these agreements (i.e., Mills Act contracts) constituted enforceable restrictions on the use of land within the meaning of Revenue and Taxation Code section 402.11 (Property Tax Rule 60, repealed January 10, 1978). However, Proposition 7 added the second paragraph to section 8 of article XIII of the California Constitution:

To promote the preservation of property of historical significance, the Legislature may define such property and shall provide that when it is enforceably restricted, in a manner specified by the Legislature, it shall be valued for property tax purposes only on a basis that is consistent with its restrictions and uses.

To implement Proposition 7, Chapter 1040 of the Statutes of 1977 (Senate Bill 380) added sections 439 through 439.4 to the Revenue and Taxation Code. These statutes, in particular section 439.2, prohibit a valuation of enforceably restricted historical property based on sales data and instead require that such property be valued by a prescribed income capitalization method.

ENFORCEABLY RESTRICTED HISTORICAL PROPERTY
Under section 439, historical property is "enforceably restricted" if it meets the definition of a "qualified historical property" as defined in Government Code section 50280.1 and is subject to a historical property contract executed pursuant to Government Code section 50280 and following.

A qualified historical property includes qualified historical improvements and the land on which the improvements are situated, as specified in the historical property contract. If the contract does not specify the land to be included, the qualified historical property includes only a land area of reasonable size to situate the improvements.

A qualified historical property is privately-owned property that is not exempt from property taxation and that also meets either of the following criteria:
• The property is listed in the National Register of Historic Places, or is located within a registered historic district; or
1 Unless otherwise noted, all statutory references are to the Revenue and Taxation Code.

Attachment 6
2 • The property is listed in any official state, county, city, or city and county official register of historical or architecturally significant sites, places or landmarks, including the California Register of Historical Resources, California Historical Landmarks, State Points of Historical Interest, local landmarks, and local survey listings of historical properties.

The historical property contract must have a minimum term of ten years, and, as applicable, must contain certain other elements, including the following:
• A provision relating to the preservation of the qualified historical property and, when necessary, the restoration and rehabilitation of the property in conformance with state historic preservation guidelines;
• A requirement for the periodic examination of the property to ensure compliance with the agreement;
• A requirement that the historical property agreement be binding upon successor owners of the qualified historical property; and
• A provision for an automatic one-year extension of the contract, with an additional year added to the initial contract term on each anniversary of the contract, unless either party provides notice of nonrenewal. If a notice of nonrenewal is given, the contract runs for its remaining term.

Once a contract is signed, accepted, and recorded, the property subject to the contract must be assessed under section 439.2 on the ensuing lien date. For example, if a contract were recorded in August 2004, the property should have been valued pursuant to section 439.2 for lien date January 1, 2005.

Local authorities may cancel a historical property agreement for breach of contract or failure to protect the historical property. Alternatively, the local entity may take legal action to enforce the contract.

ASSESSMENT
The assessment of an enforceably restricted historical property involves the following aspects:
(1) valuing the restricted historical property; (2) properly applying certain assessment provisions relating to article XIII A of the California Constitution (Prop 13); (3) valuing the restricted historical property following a notice of nonrenewal; and (4) valuing the restricted historical property following cancellation of the contract.

Valuing the Restricted Historical Property
Section 439.2 prohibits the assessor from using sales data relating to similar properties, whether or not enforceably restricted, to value an enforceably restricted historical property. Instead, the assessor must annually value a restricted historical property using an income approach that Attachment 6
3 follows the specific provisions of section 439.2. These provisions explicitly address (1) the determination of the income to be capitalized, (2) the development of the capitalization rate, (3) the capitalization technique to be used, and (4) the determination of the restricted historical property's taxable value on each lien date.

Income to be Capitalized
As provided in section 439.2(a), the income to be capitalized when valuing a restricted historical property is the property's fair rent less allowed expenditures, or allowed expenses. In general, section 439.2(a) follows Property Tax Rule 8(c), with fair rent in section 439.2 corresponding to gross return in Rule 8(c); allowed expenditures, or allowed expenses, in section 439.2 corresponding to gross outgo in Rule 8(c); and the income to be capitalized in section 439.2 corresponding to net return in Rule 8(c). In addition, for the purposes here, "gross income" is synonymous with fair rent, and "net operating income" is synonymous with the income to be capitalized.

The parties to a historical property agreement may stipulate a minimum annual income to be capitalized, in which case the income to be capitalized may not be less than the stipulated amount.

Fair rent, or gross income. The gross income of a restricted historical property is the fair rent for the property considering the restrictions on the property's use. When establishing the fair rent for a restricted historical property, the appraiser should consider the actual rent and typical rents in the area for similar properties in similar use, where the owner pays the property taxes.

The actual rent received by the owner of the subject restricted historical property is relevant to an estimate of fair market rent only if the actual rent is the same rent that would be expected if the existing lease were renegotiated in light of current market conditions, including the subject property's enforceable restrictions on use. With respect to rents from similar, or comparable, properties, if such rents are from properties outside the geographic or market area of the subject property, or from properties that are otherwise dissimilar to the subject property, the rents may not be relevant to an estimate of the subject property's fair rent.

Comparable rental data for single-family residences can be obtained from real estate brokers, rental agencies, and newspaper ads. Many assessors offices maintain rental data for commercial properties, and this data may be helpful when establishing the fair rent for restricted historical property when the contract allows a commercial use. Rental data for commercial property also can be obtained from commercial real estate brokers. For the purpose of estimating anticipated market fair rent and expenditures for use in calculating the subject property's value, rental and expense data for existing restricted historical properties, including the subject historical property, can be obtained through an annual questionnaire sent to property owners.

If sufficient rental data are not available, or such data are unreliable, the appraiser must impute a gross income for the subject restricted historical property. The imputed income should be based on what an informed investor would reasonably expect the property to yield under prudent management, given the provisions under which the property is enforceably restricted.

Attachment 6
4 Allowed expenditures. Section 439.2(a)(3) defines allowed expenditures, or allowed expenses, as expenses necessary for the maintenance of the property's income. Allowed expenses are the same as those permitted in Property Tax Rule 8(c).

Typical expenses include the cost of utilities, maintenance and repair, insurance and property management. Allowed expenses also may include amounts owing for special assessments and special taxes. Expenses related to debt service, general property taxes, and depreciation should not be deducted.

In general, to arrive at the net income to be capitalized, allowed expenses are subtracted from the estimated rental income. However, in order to properly process the income, the appraiser must be aware of the structure of the lease with regard to how expenses are shared between the landlord-owner and the tenant.

The proper perspective from which to view the processing of income and expenses is that of the landlord-owner. The objective is to estimate the net income to the landlord-owner—this is the amount that should be capitalized—and the correct question to ask is the following: What, if any, allowed expenses must the landlord-owner pay out of the rental income that he or she receives?
In a gross lease, almost all of the allowed expenses must be paid out of the gross rent and, therefore, must be subtracted from the gross rent to arrive at the net income to be capitalized. In a net lease, relatively few allowed expenses must be paid by the landlord-owner out of the net rent (because the tenant pays most expenses) and only these expenses should be subtracted from the net rent to arrive at the net income to be capitalized. Frequently, there is a hybrid arrangement—some expenses are paid by the landlord-owner and some by the tenant. How expenses are shared often depends upon the property type together with local conventions.

Income to be capitalized, or net operating income. The income to be capitalized, or net operating income, is simply the fair rent, or gross income, described above less the allowed expenditures described above.

Capitalization Rate
The method of developing the capitalization rate to be used when valuing restricted historical property is prescribed by statute; a capitalization rate derived from sales data or the band of investment is not permitted.

Section 439.2 prescribes two types of capitalization rates for restricted historical property: (1) a capitalization rate to be used when valuing restricted historical property that is an owneroccupied single-family residence and (2) a capitalization rate to be used when valuing all other restricted historical property. Both types of capitalization rates include components for interest (i.e., yield), risk, property taxes, and amortization of improvements; in fact, the two rates are identical except for the amount of the risk component. The capitalization rate contains the following components:

Attachment 6
5 • An interest component annually determined by the State Board of Equalization and based on the effective rate on conventional mortgages as determined by the Federal Housing Finance Board. The interest component is announced annually, in a Letter To Assessors, by October 1 of the preceding assessment year.
• A historical property risk component determined by property type. For owner-occupied single-family residences, the rate is 4 percent; for all other types of restricted historical property, the rate is 2 percent.
• An amortization component for improvements defined as a percentage equal to the reciprocal of the remaining life of the improvements (e.g., if the remaining economic life of the improvements were 20 years, the amortization component would be 5 percent). Since the amortization component applies only to improvements, not to land, which is a nondepreciating asset, it is necessary to adjust the amortization component described in the statute. We recommend the following method of adjustment:

1. Based upon market data, estimate the percentage of total property value attributable to improvements.

2. Multiply this percentage by the amortization component described in the statute (i.e., by the reciprocal of the remaining life of the improvements). For example, if the remaining life of the improvements was 20 years, yielding a reciprocal percentage of 5 percent, and if 70 percent of the total property value was attributable to the improvements, the adjusted amortization factor would be 3.5 percent (0.05 x 0.70 =

0.035).

3. Add the adjusted amortization component to the other capitalization rate components to arrive at the total capitalization rate.
• A property taxes component equal to the percentage of the estimated total tax rate applicable to the property for the assessment year multiplied by the assessment ratio. Typically, the property tax component includes the basic tax rate of 1 percent plus an additional ad valorem rate related to any bonded indebtedness pertaining to the tax rate area in which the property is located. Special district assessments and special taxes are not included in the property tax component. As noted above, they should be treated as allowed expenses.

Capitalization Technique
The capitalization technique to be used when valuing a restricted historical property is prescribed by statute and is formulaic. Section 439.2(e) provides that the restricted value shall be the income to be capitalized, or net operating income, developed as prescribed by statute, divided by one of the two types of capitalization rates prescribed by statute. In other words, the restricted value is the simple quotient of the prescribed income to be capitalized and the prescribed capitalization rate.

Attachment 6
6 Determination of Taxable Value on Each Lien Date
Section 439.2(d) provides that a historical property's restricted value may not be enrolled if it exceeds either (1) the value of the subject property as determined under section 110 (i.e., current market value) or (2) the value of the subject property as determined under section 110.1 (i.e., factored base year value). In other words, section 439.2 states that the taxable value of a restricted historical property on each lien date shall be the lowest of its restricted value, current market value, or factored base year value. The factored base year value for an enforceably restricted historical property is the value that was established for the 1975 lien date2 or as of the date of the most recent change in ownership, whichever is later, adjusted by the annual inflation factor.

Article XIII A (Prop 13) Considerations
This section discusses how three important elements relating to implementation of article XIII A—change in ownership, new construction, and supplemental assessment—relate to the assessment of restricted historical property. Also discussed is the case in which only a portion of a property is subject to the historical property agreement—that is, the case in which a single property unit contains both restricted and unrestricted portions.

Change in Ownership
When a property subject to a historical property contract undergoes a change in ownership, a new base year value should be established for the property as of the date of change in ownership, as provided in section 110.1. Typically, a restricted historical property's base year value will be greater than its restricted value determined under section 439.2 and hence will not be enrolled as the property's taxable value. However, the establishment of a new base year value enables the assessor to perform the three-way value comparison prescribed by section 439.2(d) and described above. The establishment of a base year value is also necessary in order to calculate the assessed values of historical property should the historical property agreement enter nonrenewal status.

New Construction
Section IV of National Register Bulletin #15 defines a "building" as follows:

A building, such as a house, barn, church, hotel, or similar construction, is created principally to shelter any form of human activity. "Building" may also be used to refer to a historically and functionally related unit, such as a courthouse and jail or a house and barn.

Section IV further specifies that "[b]uildings eligible for the National Register must include all of their basic structural elements. Parts of buildings, such as interiors, facades, or wings, are not eligible independent of the rest of the existing building. The whole building must be considered, 2 Sections 110.1(d) and 405.5 do not apply to historical properties under contract as of lien date 1975 because the constitutional amendment which placed the valuation of historical property under article XIII rather than article XIII A had not yet been passed and, thus, was not in effect for the 1975 lien date.

Attachment 6
7 and its significant features must be identified." Thus, eligibility for the National Register is determined by the extent to which the basic structural elements of an existing building are intact.

In general, a newly constructed building would not be eligible because it is not an existing building with basic structural elements.3
Also, a newly constructed building is not a historic resource, and, thus, is not a qualified historical property within the meaning of Government Code section 50280.1. For example, a newly constructed detached garage (assuming it is not a reconstruction of a historical garage) clearly would not be eligible because it has no significance in American history or architecture, nor does it meet any of the other requisite criteria.

Bulletin 15, however, does list one type of newly constructed property that may be eligible for inclusion under the Mills Act. A reconstructed historic building is eligible for the National Register if the reconstruction is "accurately executed in a suitable environment and presented in a dignified manner as part of a restoration master plan, and when no other building or structure with the same association has survived."
The historical property contract typically specifies the scope and type of any work to be performed on the historical improvements. Improvements existing as of the date of the contract would be subject to the provisions of section 439.2 unless specifically excluded by the contract.

Any new construction made to the historical structure after the issuing date of the contract would not be subject to the provisions of section 439.2 unless specifically included in the contract or an amendment to the contract. Any questions regarding new construction to enforceably restricted historical structures should be directed to the counsel of the legislative body of the city, county, or city and county that contracted with the property owner.

Assuming that the newly constructed property is subject to the historical property contract, a base year value should be established for the newly constructed portion and this value added to the factored base year value of the existing restricted property.

In some cases, an existing historical property may include a portion that is restricted (i.e., subject to a historical property contract) and a portion that is unrestricted. In this case, separate factored base year values should be maintained for the restricted and unrestricted portions and the base year value of any newly constructed property added to the appropriate portion. The assessment treatment of this type of property is discussed further below.

Supplemental Assessment
Although the assessor is required to establish a new base year value upon a change in ownership or completed new construction involving restricted historical property, such property is not subject to supplemental assessment. As provided in Revenue and Taxation Code section 75.14:

Supplemental assessment; limitation. A supplemental assessment pursuant to this chapter shall not be made for any property not subject to the assessment 3 National Register Bulletin 15, "How to Apply the National Register Criteria for Evaluation," U.S. Department of the Interior, National Park Service (www.cr.nps.gov/nr/publications/).

Attachment 6
8 limitations of Article XIII A of the California Constitution. All property subject to the assessment limitations of Article XIII A of the California Constitution shall be subject to the provisions of this chapter, except as otherwise provided in this article.

As discussed above, the assessment of enforceably restricted historical property is subject to the provisions of article XIII, section 8 of the California Constitution, not article XIII A. Thus, section 75.14 precludes the assessor from enrolling supplemental assessments for enforceably restricted historical property.

Historical property not yet under contract that undergoes a change in ownership or new construction is subject to supplemental assessment, even if the property owner later executes a historical property contract in the same fiscal year. Also, any new construction involving a historical property that does not come under the existing historical property contract (e.g., a detached garage added to a restricted historical property) would be subject to supplemental assessment.

When a Property Contains Both Restricted and Unrestricted Portions When only a portion of a property that would normally be considered a single appraisal unit is restricted by a historical property contract, the assessed value should be determined by making a comparison of three values, determined as follows. First, the portion under contract should be valued using the capitalization method prescribed by section 439.2. Added to this figure should be the lower of the unrestricted portion's fair market value or factored base year value. The resulting sum should be compared to both the fair market value and the factored base year value of the entire property (i.e., both restricted and unrestricted portions) and the lowest of the three figures should be enrolled.

Valuing Property Under Notice of Nonrenewal
As provided in Government Code section 50282, either the owner of a restricted historical property or the local government entity may serve notice that it does not intend to renew the historical property contract. If such notice is not given, another year is automatically added to the term of the initial contract, thus creating a "rolling" contract term that is always equal to the initial contract term.

Section 439.3 prescribes the valuation method for a restricted historical property in nonrenewal status; this valuation method applies until the end of the restricted period (i.e., until the existing contract expires). In essence, the method results in a restricted value that gradually approaches the historical property's factored base year value as the remaining term under the contract decreases. For a property in nonrenewal status, the assessor must annually value the property as follows:

1. Determine the full cash value (i.e., factored base year value) of the property in accordance with section 110.1. (Alternatively, if the property will not be subject to section 110.1 when the historical property agreement expires, determine its fair market value in accordance with Attachment 6
9 section 110, as if the property were free of the agreement's restrictions; or, if the property will be subject to another type of restricted value standard when the historical property agreement expires, determine the property's value as if it were subject to the new restrictions.)

2. Determine the restricted value of the property by the capitalization of income method provided in section 439.2.

3. Subtract the restricted value determined in Step 2 from the factored base year (or other) value determined in Step 1.

4. Using the amount for the interest rate component (section 439.2(b)(1)) announced by the Board, discount the amount obtained in Step 3 for the number of years remaining until the termination of the contract.

5. Determine the restricted value of the property in nonrenewal status by adding the value determined in Step 2 to the amount obtained in Step 4.

The historical property's restricted value in nonrenewal status—that is, the value determined above, in accordance with section 439.3—should be compared with the historical property's factor base year and current market values, and the lowest of these three values should be enrolled as the property's taxable value.

Cancellation of Contract
The government entity party to a historical property contract may cancel the contract, after notice and a public hearing, if it determines that either the owner has breached the agreement or the property has deteriorated to the extent that it no longer meets the standards of a historical property. If the contract is cancelled, the property owner must pay a cancellation fee equal to 12½ percent of the property's current fair market value as though free of the contractual restriction, such value to be determined by the county assessor. After a contract is cancelled, the lower of the property's factored base year value or current market value should be enrolled for the ensuing lien date.

SUMMARY
The key points contained in these guidelines can be summarized as follows:

1. An owner of qualified historical property may enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics. Such property receives the special valuation treatment prescribed under Revenue and Taxation Code sections 439 through 439.4.

2. Enforceably restricted historical property is to be annually valued by the income capitalization method prescribed in section 439.2, which contains specific instructions with Attachment 6
10 regard to the income to be capitalized, the capitalization rate, and the capitalization technique to be used. The restricted value must be compared to the property's current market value and factored base year value, with the lowest of these three values enrolled as the property's taxable value.

3. When assessing restricted historical property, the appraiser should consider how three important elements of article XIII A—change in ownership, new construction, and supplemental assessment—relate to the assessment. The appraiser should consider how a property should be assessed when only a portion of it is subject to a historical property agreement.

4. Restricted historical property under a notice of nonrenewal should be valued in accordance with section 439.3.

5. The government entity party to a historical property contract may cancel the contract. The cancellation fee is 12½ percent of the property's current fair market value as though free of the contractual restriction, with such value to be determined by the local assessor.

Additional information about Mills Act contracts may be obtained from the state Office of Historic Preservation, either by telephone at 916-653-6624, or from their website (www.ohp.parks.ca.gov).
(Note: Please see the assessment examples following.)
Attachment 6
Historical Property Valuation Examples Page 1
EXAMPLE 1 (OWNER-OCCUPIED SINGLE-FAMILY RESIDENCE)
Subject Restricted Historical Property
Restored, 105-year-old, Victorian single-family residence. Excellent condition. Under Mills Act contract since 1985 and not in nonrenewal status. Owner-occupied.

Determination of Restricted Value (current lien date)
Gross income (Fair rent)
$1,500 per month x 12 months = $18,000
Less: Anticipated vacancy and collection loss
$18,000 x 5% - 900
Effective gross income $17,100
Less: Anticipated operating expenses
Grounds maintenance $600
Fire insurance 400
Management Fee 360
Water and garbage 240
Building maintenance + 500 - 2,100
Net Operating Income $15,000
Restricted Capitalization Rate
Rate Components:

Interest rate .080
Risk (owner-occupied SFR) .040
Property tax (ad valorem) .015
Amortization (50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 – 0.014) + .014 .149
Restricted Value
$15,000 ÷ .149 = $100,671
Taxable Value—Three-Way Value Comparison
Restricted value $100,671
Factored base year value (based on prior change in ownership) $357,000 Current market value (based on comparable sales) $450,000 The lowest of the three possible values is the restricted value. Thus, the net taxable value would be $93,671 ($100,671 restricted value less the homeowners' exemption of $7,000).

Note 1: If this property had been a non-owner-occupied SFR, the only difference in the determination of the restricted value would have been the use of a risk rate component of 2% rather than 4% in the capitalization rate.

Note 2: In this and the following examples, the gross income, or fair rent, is presented on a gross rent basis, that is, under the assumption that the landlord-owner pays all operating expenses out of the gross income.

Attachment 6
Historical Property Valuation Examples Page 2
EXAMPLE 2 (OFFICE USE)
Subject Restricted Historical Property
Multi-tenant, restored historical office building in a downtown commercial district. Under Mills Act contract since 1985 and not in nonrenewal status.

Determination of Restricted Value (current lien date)
Gross Income (Fair rent):

Offices 140,000 sf @ $1.75/sf = $245,000
x 12 months = $2,940,000
Less: Anticipated vacancy and collection loss
$2,940,000 x 5% - 147,000
Effective gross income $2,793,000
Less: Anticipated operating expenses
Management $290,000
Maintenance 95,000
Insurance 75,000
Utilities 360,000
Janitorial + 140,000 - 960,000
Net Operating Income $1,833,000
Restricted Capitalization Rate
Rate Components:

Interest component .08
Risk .02
Property tax (ad valorem) .011
Amortization (50-year remaining life; improvements
constitute 75% of total property market value

0.02 x 0.75 = 0.015) + .015 .126
Restricted Value
($1,833,000 ÷ .126) = $14,547,619
Taxable Value—Three-Way Value Comparison
Restricted value $14,547,619
Factored base year value (based on prior change in ownership) $18,191,077 Current market value (based on comparable sales) $21,000,000 The lowest of the three possible values is the restricted value. Thus, the taxable value would be $14,547,619
Attachment 6
Historical Property Valuation Examples Page 3
EXAMPLE 3 (MIXED USE—RESIDENTIAL AND OFFICE)
Subject Restricted Historical Property
Two-story, restored historical property in a downtown district. Upper level is residential unit occupied by owner. Lower level contains three office spaces subject to short-term rental agreements. The income stream for the upstairs unit must be calculated separately from the downstairs unit because the risk rate is different for the owner-occupied unit.

Determination of Restricted Value
Separate restricted values for the upper-level residence and the lower-level office space must be determined, because the risk components are different for restricted value is sum of these two values.

Upper-Level Unit
Gross income (Fair rent) based upon comparable rent data the two types of use. The total
$975 per month x 12 months = $11,700
Less: Anticipated vacancy and collection loss
$11,700 x 5% - 585
Effective gross income
Less: Anticipated operating expenses
Grounds maintenance $300
$11,115
Fire insurance 200
Management Fee 180
Water and garbage 120
Building maintenance + 250 - 1,050
Upper-Level Net Operating Income $10,065
Restricted Capitalization Rate (owner-occupied SFR)
Rate components:

Interest rate .080
Risk .040
Property tax .010
Amortization ( 50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 = 0.014) + .014 .144
Upper-level Restricted Value ($10,065 ÷ .144) = $69,895 Lower-Level Offices
Gross income (Fair rent)
1000 sf @ $1.60/sf = $1,600 x 12 months $19,200
Less: Anticipated vacancy and collection loss
$19,200 x 5% - 960
Effective gross income $18,240
Attachment 6
Historical Property Valuation Examples Page 4
Less: Anticipated operating expenses
Grounds maintenance $300
Fire insurance 200
Management Fee 180
Water and garbage 120
Building maintenance + 250 - 1,050
Lower-Level Net Operating Income $17,190
Restricted Capitalization Rate
Rate components:

Interest component .080
Risk .020
Property tax .010
Amortization (50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 = 0.014) + .014 .124
Lower Level Restricted Value ($17,190 ÷ .124) $138,629
Add: Upper Level Restricted Value + $69,895
Total Restricted Value $208,524
Taxable Value—Three-Way Value Comparison
Restricted Value $208,524
Factored base year value (based upon prior change in ownership) $364,140 Current market value (based upon comparable sales data) $400,000 The lowest of the three possible values is the restricted value. Thus, the net taxable value would be $201,524 ($208,524 less the homeowners' exemption of $7,000).

Attachment 6
Historical Property Valuation Examples Page 5
EXAMPLE 4 (MIXED VALUATION—PART RESTRICTED AND PARTUNRESTRICTED) Description of Subject Property (Comprises Both Restricted and UnrestrictedPortions) The subject property is a 10-acre parcel with a farmhouse and barn situated on 2 acres; the remaining 8 acres are farmland. The farmhouse and barn are used as an owner-occupied singlefamily residence; this portion of the property is restricted remaining 8 acres of farmland are unrestricted.

Value of Restricted Portion (current lien date)
Gross income (Fair rent) for farmhouse and barn
under a Mills Act contract. The
$2,000 per month x 12 months = $24,000
Less: Anticipated vacancy and collection loss
$24,000 x 5% - 1,200
Effective gross income $22,800
Less: Anticipated operating expenses
Grounds maintenance $600
Fire insurance 400
Management Fee 360
Water and garbage 240
Building maintenance + 500 - 2,100
Net Operating Income = $20,700
Restricted Capitalization Rate
Rate components:

Interest component .080
Risk (owner-occupied) .040
Property tax (ad valorem) .010
Amortization (50-year remaining life; improvements
constitute 70% of total property market value

0.02 x 0.70 = 0.014) + .014 .144
Restricted Value ($20,700 ÷ .144) = $143,750
Taxable Value—Three-Way Comparison
Total Property Restricted Value (sum of restricted value above and lower of FBYV or current market value of unrestricted portion)
Restricted Value (portion under contract) $143,750
FBYV (unrestricted portion) + $102,000
Restricted Value (total property) $245,750
Factored base year values (based upon a prior change in ownership of the entire property, allocated between restricted and unrestricted portions):

Farmhouse, barn, and 2 acres (restricted portion) $204,000 8 acres (unrestricted portion) + $102,000
Total FBYV (total property) $306,000
Attachment 6
Historical Property Valuation Examples Page 6
Current market values (based upon comparable sales data):

Farmhouse, barn, and 2 acres (restricted portion) $230,000 8 acres (unrestricted portion) + $120,000
Total Current Market Value (total property) $350,000
The lowest of the three values is the Restricted Value (total property), $245,750. Thus, the net taxable value would be $238,750 ($245,750 less $7,000 homeowners' exemption).

Attachment 6
Historical Property Valuation Examples Page 7
EXAMPLE 5 (PROPERTY IN NONRENEWALSTATUS)
Description of Subject Restricted Historical Property
The same property as in Example 2, except the property owner has served notice of nonrenewal.

The Mills Act contract covering the property was originally executed in September 1995, and the owner served notice of nonrenewal in June 2004. Value the property for the 2005 lien date, reflecting its nonrenewal status. Assume that the property's restricted, current market, and factored base year values from Example 2, provided below, also refer to January 1, 2005.

Restricted value $14,547,619
Current market value $21,000,000
Factored base year value $18,191,077
Restricted Value in Nonrenewal Status
Value as if unrestricted (factored base year value) $18,191,077 Restricted value - 14,547,619
Difference $ 3,643,458
Present worth of difference
PW1 @ 6.00 %, 9 years (interest component for lien date 2005) x .591898 Plus restricted value
= $ 2,156,555
+ $14,547,619
Restricted value in nonrenewal status—lien date January 1, 2005 $16,704,174 Taxable Value
Since the restricted value in nonrenewal status, $16,704,174, is less than either the property's current market value or its factored base year value, this is the taxable value.

Attachment 6

CITY OF CARMEL-BY-THE-SEA

CITY COUNCIL
Staff Report
October 4, 2022

PUBLIC HEARINGS
TO: Honorable Mayor and City Council Members
SUBMITTED BY: Katherine Wallace, Associate Planner
APPROVED BY: Chip Rerig, City Administrator
SUBJECT:

MA 22-254 (Strom & Miller): Consideration of a recommendation from the Historic Resources Board to the City Council that the City enter into a Mills Act Historical Property Contract MA 22-254 (Strom & Miller) with Nancy Strom and Gavin Miller for the historic “Enoch A. Lewis House” located at Monte Verde Street 2 northeast of 9 th
Avenue (APN 010-193-010)
RECOMMENDATION:

Accept the recommendation of the Historic Resources Board, and Approve the Mills Act Historical Property Contract MA 22-254 (Strom & Miller) for the historic “Enoch A. Lewis House” located at Monte Verde Street 2 northeast of 9
th Avenue (APN 010-193-010) and authorize the City Administrator to execute the contract.

BACKGROUND/SUMMARY:

The project site is located at Monte Verde Street 2 northeast of 9 th Avenue in the Single Family Residential
(R-1) Zoning District. The existing single-story-over basement residence was built c.1906 by an unknown architect/builder for original owner Enoch A. Lewis.

A Department of Parks and Recreation (DPR) Form 523A was completed for the property in 2002 by Kent Seavey (Attachment 3, Exhibit B) and the resource was added to the Carmel Inventory on May 25, 2005. A Resolution Designating a Historic Resource for the property at Monte Verde Street 2 northeast of 9 th
Avenue was recorded with the County Recorder on January 4, 2007 (Instrument No.2007001247).

On August 2, 2022, Nancy Strom, one of the property owners, submitted an application for a Mills Act Historical Property Contract. The Mills Act is an incentive program available to owners of historical resources listed on the Carmel Inventory and the local Register of Historic Resources. As noted above, the property was added to the Carmel Inventory in 2005. On August 15, 2022, the Historic Resources Board adopted Resolution 2022-009-HRB (Attachment 5), recommending that the City Council enter into a Mills Act Contract with Nancy Strom and Gavin Miller for the historic “Enoch A. Lewis House.” Contract Value
The Monterey County Assessor’s Office is responsible for determining the value of a property under Mills Act Contract in accordance with sections 439 through 439.4 of the Revenue and Taxation Code. Properties with a Mills Act Contract are not valued based on sales data; rather they are valued by a prescribed income capitalization method (Attachment 6). After a Contract is approved, it is forwarded to the Monterey County Assessor who then determines the Mills Act value.

At previous Mills Act hearings, members of Council requested that staff obtain a preliminary calculation of Mills Act Contract values for the purposes of understanding the potential local tax revenue offset. A request was made to the Assessor’s Office on August 16, 2022, and a response was received on August 17, 2022, informing the City that time constraints and process complexity make preliminary calculations by the Assessor infeasible. There is typically a 40% to 60% tax reduction for Mills Act properties. The 2022 tax bill for this property was $19,977.04, with 6% of that amount going to the City's tax base ($1,198.62); an estimated 50% reduction would lower the amount collected to $9,988.52. Since the City receives 6% of the property tax collected by the County, granting the Mills Act Contract would also reduce the City's annual portion of property tax by an estimated 50% form $1,198.62 to $599.31.

STAFF ANALYSIS:

A Mills Act contract under State law is an agreement between the City of Carmel and a property owner of a historic building listed on the Carmel Register. In exchange for reduced property taxes, the property owner is contractually obligated to perform annual maintenance on the building. The property owner benefits from a reduction in property taxes. The City benefits from assurance, via contract, that the historic building is rehabilitated, maintained, and preserved with a portion of those property taxes that the city is giving up.

The primary purpose for offering Mills Act contracts in the City of Carmel-by-the-Sea is to assist in and ensure the rehabilitation or restoration and long-term maintenance of historic resources. All properties listed on the City’s Historic Register in all districts that have been preserved in their historical size, form, and design without significant alterations are eligible for Mills Act contracts.

All Mills Act contracts have a term of 10 years, and one year is added to this term annually upon each anniversary date of the contract unless one or both parties (City and property owner) have taken action to terminate the contract. The City Administrator is authorized to initiate contract termination on behalf of the City based on recommendations of the Community Planning & Building Department. The contract rights and obligations are binding upon all successive owners of the property during the life of the contract. The property retains the lower Mills Act tax rate when sold. To end a contract, either party may submit a notice of non-renewal to the other party. Such notices shall cause the contract to terminate at the end of the thencurrent 10-year contract period. Cancellation of a contract by the City due to non-compliance requires a public hearing and, if canceled, results in the immediate termination of the contract and a penalty equal to

12.5 percent of the assessed market value of the property.

The contract requires that the historical elements of the property are maintained in good condition. This includes a plan for rehabilitation and maintenance and may include a program to restore deteriorated features. All recipients of Mills Act contracts are required to implement a rehabilitation/restoration and maintenance plan prepared by a qualified professional. An annual report is submitted to the Community Planning & Building Department specifying all work that has been done to maintain and preserve the historic resource over the year in compliance with the approved rehabilitation/restoration and maintenance plan. All rehabilitation/restoration and maintenance work must be completed in conformance with the Secretary of Interior’s Standards for Rehabilitation. All Mills Act contracts must specify that the rehabilitation/restoration and maintenance plan shall be updated at least every ten years by a qualified professional and approved by both parties.

The Historic Resources Board considers each application for a Mills Act contract and provides a recommendation to the City Council to approve, approve with conditions, or deny the application.

The City Council considers the recommendations from the Historic Resources Board at a public hearing and resolves to approve, approve with conditions, or deny the proposed contract with sufficient time for action by the City Clerk so that recordation of approved contracts occurs before December 31st of the year in which the application is received.

Carmel Municipal Code Section 17.32.100.B.6(c) sets forth findings that the Historic Resources Board and City Council shall make in order to grant approval of a Mills Act Contract. The required findings are listed below followed by a staff response on whether the application meets the requirements.

1. The building is designated as a historic resource by the City and is listed on the Carmel Register.

Staff Response: A DPR 523A form was prepared by Kent Seavey in 2002 (Attachment 3, Exhibit B), evaluating the property for historical significance and finding the property meets the criteria for listing as a local historic resource. The City added the property to the Carmel Inventory of Historic Resources on May 25, 2005. A Resolution Designating a Historic Resource for the property at the southeast corner of San Antonio Avenue and 4
th Avenue was recorded with the Monterey County Recorder on January 4, 2007 (Instrument No.2007001247). On August 15, 2022, the Historic Resources Board adopted Resolution 2022-009-HRB adding the property to the Carmel Register. This application meets this finding.

2. The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficient in detail to guide long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property.

Staff Response: The proposed rehabilitation/restoration and maintenance plan (Attachment 4, Exhibit C) includes improvements that will protect the integrity of the resource. The plan covers a period of 10 years from 2023-2032. The plan includes rehabilitation and maintenance work which has been reviewed by Brian Congleton, who meets the Secretary of the Interior’s professional qualification standards for historic architecture, and determined to be consistent with the Secretary of the Interior’s Standards for the Treatment of Historic Properties. The work will include rehabilitation and maintenance projects to include:
front stair; side stair and porch; roof; chimney; drainage; paint and caulking; fenestration repair; roof work; chimney work; and rear shed. All exterior work is subject to Design Study approval and a determination of consistency with the Secretary of the Interior's Standards for Rehabilitation. In total, the applicant estimates spending $182,450 in rehabilitation and maintenance activities over the course of the 10-year contract period. The proposed Plan meets this finding.

3. Alterations to the historic resource have been in the past, and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and (B) Do not significantly alter, damage or diminish any primary elevation or characterdefining feature; and (C) Do not increase floor area on the property by more than 15 percent beyond the amount established in the documented original or historic design of the resource; and (D) Do not result in any second-story addition to a single-story historic resource.

Staff Response: As noted above, rehabilitation/restoration and maintenance work will be performed in conformance with the Secretary of Interior’s Standards for Rehabilitation. Any future alterations are required to be consistent with conditions A-D above. Minor alterations may be approved by staff; however, major alterations would be evaluated by a qualified professional and presented to the Historic Resources Board for review. The application meets this finding.

4. The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.

Staff Response: Approval of the contract would assist in offsetting the rehabilitation/restoration and maintenance costs of preserving the “Enoch A. Lewis House” by reducing the tax liability on the property thereby freeing up funds for the rehabilitation over the next ten years. Some of the more notable work that is proposed to be accomplished within the first few years would include: replace front stair; repair side stair/landing; rehabilitate studio/shed; electrical to shed; water line to potting area; remove soil around shed; door repair; patch and paint; chimney repair; gutter cleaning; and drainage work. The application meets this finding.

5. Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in substantial adverse financial impact on the City.

Staff Response: Approval of the Mills Act Contract would be consistent with Goal 1-5 and Objective 1-16 of the Land Use & Community Character Element of the General Plan, which encourages providing incentives for property owners to preserve and rehabilitate historic resources. Although entering into a Mills Act Contract will decrease property tax revenue to the City, the financial impact would be minimal because:
1) The City Council adopted Resolution 2016-068 on September 13, 2016, limiting the number of Mills Act contracts that can be approved to fifteen (15) in any three-year calendar period. Two Mills Act Contracts have been approved in the last three years; one approval was granted in 2019 and one in 2022. The Council is considering a total of three contracts at this meeting, which, if approved, would increase the total to five in the last three years. 2) Carmel currently has 284 historic resources, and since the adoption of the Mills Act program in 2004, the City has entered into a total of eleven Mills Act Contracts. 3) The City would continue to receive a portion of the property tax revenue, and the investment in rehabilitation and maintenance supports local tourism, which benefits both private and public interests.
4) The value of preserving the historic resource offsets the loss of property tax revenue.

FISCAL IMPACT:

The City will have a diminished tax base from the property at Monte Verde Street 2 northeast of 9 th Avenue
for the term of the contract. The amount is unknown at this point. At previous Mills Act hearings, members of Council requested that staff obtain a preliminary calculation of Mills Act Contract values for the purposes of understanding the potential local tax revenue offset. A request was made to the Assessor’s Office on August 16, 2022, and a response was received on August 17, 2022, informing the City that time constraints and process complexity make preliminary calculations by the Assessor infeasible. There is typically a 40% to 60% tax reduction for Mills Act properties. The 2022 tax bill for this property was $19,977.04, with 6% of that amount going to the City's tax base ($1,198.62); an estimated 50% reduction would lower the amount collected to $9,988.52. Since the City receives 6% of the property tax collected by the County, granting the Mills Act Contract would also reduce the City's annual portion of property tax by an estimated 50% form $1,198.62 to $599.31.

PRIOR CITY COUNCIL ACTION:

On March 3, 2020, the City Council adopted standard contract language for Mills Act Contracts.

ATTACHMENTS:

Attachment 1) Standard Mills Act Contract, with exhibits Attachment 2) Exhibit A - Legal Description
Attachment 3) Exhibit B - DPR 523A Form
Attachment 4) Exhibit C - Maintenance Plan
Attachment 5) Resolution 2022-009-HRB
Attachment 6) Guidelines for the Assessment of Enforceably Restricted Historical Property

RECORDING REQUESTED BY

CITY OF CARMEL-BY-THE-SEA

AND WHEN RECORDED MAIL TO

Carmel City Hall
Attn: Community Planning & Building
P.O. Box CC
Carmel-By-The-Sea, CA 93921 This space reserved for the Recorder’s use only

CITY OF CARMEL-BY-THE-SEA

MILLS ACT HISTORIC PROPERTY PRESERVATION CONTRACT
THIS AGREEMENT is made and entered by and between the CITY OF CARMEL-BY-THE-SEA a municipal corporation (hereinafter referred to as “City”), and Nancy Strom and Gavin Miller (hereinafter referred to as “Owner”).

RECITALS
(i) California Government Code Section 50280, et seq. (known as the Mills Act) authorizes cities to enter into contracts with the owners of qualified historic properties to provide for their appropriate use, maintenance and restoration such that these historic properties retain their historic characteristics;
(ii) The Owner possesses fee title in and to that certain real property, together with associated structures and improvements thereon, located at Monte Verde 2 northeast of 9 th Avenue (APN: 010-193-010), Carmel-By-The-Sea, California, (hereinafter referred to as the “Historic Property”). A legal description of the Historic Property is attached hereto, marked as “Exhibit A” and is incorporated herein by reference; (iii) The property is identified as a historic resource on the City of Carmel-By-The-Sea’s Historic Inventory and Register of Historic Resources and is further described in the DPR 523A Form attached hereto, marked as “Exhibit B” and is incorporated herein by reference;
(iv) City and Owner, for their mutual benefit, now desire to enter into this Agreement both to protect and preserve the characteristics of historical significance of the Historic Property, as it exists at the date of this contract and as described in the City’s Register of Historic Resources and the National Register of Historic Places, and to qualify the Historic Property for an assessment of valuation pursuant to the provisions of Article 1.9 (commencing with section 439) of Chapter 3 of Part 2 of Division 1 of the California Revenue and Taxation Code.

Attachment 1
NOW, THEREFORE, City and Owner, in consideration of the mutual covenants and conditions contained herein, do hereby agree as follows:

1. INCORPORATION OF RECITALS. All recitals are incorporated into this Agreement.

2. EFFECTIVE DATE AND TERM. This Agreement shall be effective and commence on the date the Agreement is signed by the City, unless otherwise indicated by the County of Monterey, and shall remain in effect for a minimum term of ten (10) years thereafter.

3. AUTOMATIC RENEWAL. Each year, upon the anniversary of the effective date of this Agreement (hereinafter referred to as “annual renewal date”), one (1) year shall be added automatically to the term of this Agreement, unless timely notice of nonrenewal is given as provided in paragraph 4 of this Agreement. The total length of the contract shall not exceed twenty (20) years.

4. NOTICE OF NONRENEWAL. If City or Owner desires in any year not to renew this Agreement, that party shall serve written notice of nonrenewal in advance of the annual renewal date of this Agreement as follows: Owner must serve written notice of nonrenewal at least ninety (90) days prior to the annual renewal date; City must serve written notice of the nonrenewal at least sixty (60) days prior to the annual renewal date.

If notice is not received, the Agreement shall automatically be renewed for another year.

Upon receipt by Owner of a notice of nonrenewal from the City, Owner may make a written protest. At any time prior to the annual renewal date, City may withdraw its notice of nonrenewal.

5. EFFECT OF NOTICE OF NONRENEWAL. If either City or Owner serves timely notice of nonrenewal in any year, and this contract is not renewed, this Agreement shall remain in effect shall remain in effect for the balance of the period remaining since the original execution or the last annual renewal date.

6. FEES. The City may require that the Owner(s) of the Historic Property pay a fee that shall not exceed the reasonable cost of providing services, such as inspections, pursuant to Government Code Section 50281.1 (Article 12 of Chapter 1 of Part 1 of Division 1 of Title 5 of the Government Code), for which the fee is charged.

7. VALUATION OF PROPERTY. During the term of this Agreement, Owner is entitled to seek assessment of valuation of the Historic Property pursuant to the provisions of Chapter 3 of Part 2 of Division 1 of the California Revenue and Taxation Code.

8. PRESERVATION OF PROPERTY. Owner shall preserve and maintain the characteristics of historical significance of the Historic Property and agrees to complete rehabilitation and/or maintenance activities as defined in the Rehabilitation/Restoration and Maintenance Plan attached as “Exhibit C”. Requests for revisions to the Maintenance and Attachment 1
Rehabilitation plan shall be reviewed by the Historic Resources Board prior to implementation. In addition, Owner shall comply with the terms of the City’s Historic Preservation Ordinance (CMC 17.32). Owners shall not be permitted to further impede any view corridor with any new structure, including but not limited to walls, fences, or shrubbery, so as to prevent the viewing of the Historic Property from the public right-ofway.

9. RESTORATION OF PROPERTY. Owner shall, where necessary, restore and rehabilitate the Historic Property to conform to the rules and regulations of the Office of Historic Preservation of the State Department of Parks and Recreation, U. S. Secretary of the Interior’s Standards for Rehabilitation, the State Historical Building Code, and the City of Carmel-by-the-Sea, all as amended.

10. INSPECTIONS. Owner shall allow periodic examinations, at least every five (5) years, with reasonable notice thereof, of the interior and exterior of the Historic Property by representatives of the County of Monterey Assessor and the City of Carmel-By-The-Sea as may be necessary to determine Owner’s compliance with the terms and provisions of this Agreement. The City will coordinate inspections by such other agencies that have jurisdiction and will keep them to the minimum necessary to determinate such compliance.

11. PROVISION OF INFORMATION. Owner shall furnish City with any and all information required by City, in order to determine the eligibility of the Historic Property, and that City deems necessary or advisable to determine compliance with the terms and provisions of this Agreement.

12. ANNUAL REPORT. Owner shall submit an annual report at least 90 days prior to each annual renewal date (October 1st) to the Department of Planning and Building specifying all work that has been done to maintain and preserve the historic resource over the preceding year in compliance with the approved maintenance plan.

13. CANCELLATION. The City has the right to cancel the contract if the owner allows the property to deteriorate to the point that it no longer meets the standards for a qualified historical property. The City also has the right to cancel this contract if the owner(s) breaches the provisions of paragraph’s # 8, 9, 10 or 12 of this Agreement after the City has provided reasonable notice of any failure to comply with the agreement, and a public hearing. Notice of the hearing shall be mailed to the last known address of each owner of the property, with the notice conforming to the provisions of Government Code section 6061., If after notice and a hearing, the contract is cancelled, termination of the Agreement is immediate, and the owner shall pay a cancellation fee equal to 12.5 percent of the current fair market value of the property, as determined by the Monterey County Assessor as though the property were free of the contractual restriction. The cancellation fee shall be paid to the Assessor, at the time and in the manner that the Assessor shall prescribe. City’s right to cancel this Agreement pursuant to this paragraph Attachment 1
shall in no way limit or restrict its rights or legal remedies arising from City’s Historic Preservation Ordinance and Municipal Code.

14. ENFORCEMENT OF AGREEMENT. In lieu of and/or in addition to any provisions to cancel this Agreement as referenced herein, City may specifically enforce, or enjoin the breach of, the terms of this Agreement.

15. WAIVER. City does not waive any claim or default by Owner if City does not enforce or cancel this Agreement. All remedies at law or in equity, which are not otherwise provided for this Agreement or in City’s regulations governing historic properties are available to City to pursue in the event there is a breach of this Agreement. No waiver by City of any breach or default under this Agreement shall be deemed to be a waiver of any other subsequent breach thereof or default hereunder.

16. BINDING EFFECT OF AGREEMENT. Owner hereby subjects the Historic Property to the covenants, reservations and restrictions set forth in this Agreement. City and Owner hereby declare their specific intent that the covenants, reservations, and restrictions as set forth herein shall be deemed covenants running with the land and shall pass to and be binding upon Owner’s successors and assigns in title or interest to the Historic Property. A successor in interest shall have the same rights and obligations under this Agreement as the original owner who executed the Agreement.

Each and every contract, deed or other instrument hereinafter executed, governing or conveying the Historic Property, or any portion thereof, shall conclusively be held to have been executed, delivered and accepted subject to the covenants, reservations and restrictions expressed in this Agreement regardless of whether such covenants, reservations and restrictions are set forth in such contract, deed or other instrument.

City and Owner hereby declare their understanding and intent that the burden of the covenants, reservations and restrictions set forth herein touch and concern the land in that it restricts development of the Historic Property. City and Owner hereby further declare their understanding and intent that the benefit of such covenants, reservations and restrictions touch and concern the land by enhancing and maintaining the cultural and historic characteristics and significance of the Historic Property for the benefit of the public and Owner.

17. NOTICE. Any notice required to be given by the terms of this Agreement shall be provided at the address of the respective parties as specified below, by personal delivery or United States mail, postage prepaid, addressed as follows:

City: Carmel-By-The-Sea
Community Planning & Building Department
Attn: Community Planning & Building Director
P.O. Box CC
Carmel-By-The-Sea, CA 93921
Attachment 1
Owner: Nancy Strom and Gavin Miller
980 Russell Avenue
Los Altos, CA, 94024
Notice to successors in interest to either party shall be sent to the appropriate address.

In the case of future Owner(s) of the Historic Property, notice shall be sent to the address on file with the county property tax office in power at the time.

18. RECORDATION. No later than twenty (20) days after the parties execute and enter into this Agreement, the City shall cause this Agreement to be recorded in the Office of the County Recorder of the County of Monterey. From and after the time of the recordation, this Agreement shall impart a notice thereof to all persons as is afforded under state law.

19. STATE LAW. The Owner or agent of Owner shall provide written notice of this Agreement to the State Office of Historic Preservation within six (6) months of the date of this Agreement.

20. GOVERNING LAW; VENUE. This Agreement shall be constructed and governed in accordance with the laws of the State of California. Should either party to this agreement bring legal action against the other, the case shall be handled in Monterey County, California and the party prevailing in such action shall be entitled to a reasonable attorney fee which shall be fixed by the judge hearing the case and such fee shall be included in the judgment together with all costs.

21. AMENDMENTS. This agreement may be amended in whole or in part, only by a writtenrecorded instrument executed by the parties hereto.

22. DESTRUCTION OF PROPERTY; EMINENT DOMAIN; CANCELLATION. If the Historic Property is destroyed by earthquake, fire, flood, or other natural disaster such that in the opinion of the City Building Official more than sixty percent (60%) of the original fabric of the structure must be preplaced, this Agreement shall be cancelled because the historic value of the structure will have been destroyed. If the Historic Property is acquired in whole or in part by eminent domain or other acquisition by any entity authorized to exercise the power of eminent domain, and the acquisition is determined by the City Council to frustrate the purpose of this Agreement, this Agreement shall be cancelled.

No cancellation fee pursuant to Government Code Section 50286 shall be imposed if the Agreement is cancelled pursuant to this paragraph. Such Agreement shall be null and void for all purposes of determining the value of the property so acquired.

23. INDEMNIFICATION. Owner shall defend, indemnify, and hold harmless City and its elected officials, officers, agents and employees from any actual or alleged claims, demands, causes of action, liability, loss, damage, or injury to property or persons, including wrongful death, whether imposed by a court of law or by administrative action of any Attachment 1
federal, state or local government agency, arising out of or incident to the direct or indirect use, operation, or maintenance of the Historic Property by Owner or any contractor, subcontractor, employee, agent, lessee, licensee, invitee, or any other person; (ii) Owner’s activities in connection with the Historic Property; and (iii) any restriction on the use of development of the Historic Property, from application or enforcement of the City’s Municipal Code, or from the enforcement of this Agreement.

This indemnification includes, without limitation, the payment of all penalties, fines, judgments, awards, decrees, attorneys’ fees, and related costs or expenses, and the reimbursement of the City, its elected officials, employees, and/or agents for all legal expenses and costs incurred by each of them. Owner’s obligation to indemnify shall survive the termination, cancellation, or expiration of this Agreement and shall not be restricted to insurance proceeds, if any, received by City, its elected officials, employees, or agents.

24. SEVERABILITY. In the event that any of the provisions of this Agreement are held to be unenforceable or invalid by any court of competent jurisdiction, or by subsequent preemptive legislation, the validity and enforceability of the remaining provisions, or portions thereof, shall not be affected thereby.

IN WITNESS THEREOF, the City and Owners have executed this Agreement on the day and year written above.

CITY OF CARMEL-BY-THE-SEA:

By: _______________________ Date: __________________
Name: Richard L. Rerig (“Chip”)
Title: City Administrator

PROPERTY OWNER(S):

By: __________________________ Date: ___________________ Name: Nancy Strom
Title: Property Owner
By: __________________________ Date: ___________________ Name: Gavin Miller
Title: Property Owner
Attachment 1

EXHIBIT A

LEGAL DESCRIPTION

EXHIBIT B
DPR 523A FORM

EXHIBIT C

REHABILITATION/RESTORATION AND MAINTENANCE PLAN
Attachment 1
Attachment 2
Attachment 3
Attachment 3
Attachment 3
Attachment 3
July 19, 2022
Revised August 8, 2022
Mills Act Rehabilitation & Maintenance Program
Enoch A. Lewis House
Monte Verde Street 2NE Ninth Avenue
Carmel-by-the-Sea California
This report presents proposed rehabilitation and maintenance work to be performed over the next ten years, to comply with requirements of Mills Act Designation.

Property: Enoch A. Lewis House
Monte Verde Street 2 NE Ninth Avenue
Carmel-by-the-Sea California 93921
Block 94, Lot 18 APN 010-193-010-000
Owners: Gavin Miller & Nancy Strom
211 Yerba Buena Avenue
Los Altos, California 94022
The Property
The property (the Enoch A. Lewis House) is a residence in Carmel-by-the-Sea with a detached studio/shed structure in the rear of the lot. The residence was constructed in 1906, and is in overall good condition. The owners, Nancy Strom and Gavin Miller, use the property as a second home. Their only plans for the home are to upgrade existing stairs and landings, and rehabilitate the rear studio building. No additions or moderations are proposed.

Condition of Property
The residence is in overall fair-to-good condition. Significant upgrades and an addition were constructed in 1978, with no major work performed since that time. The roof, windows and exterior siding are in good condition, showing signs of aging with upcoming needed maintenance. The interior elements are in overall very good condition, and in keeping with the historic character of the exterior.

The site is sloping west to Monte Verde Street. Overall surface drainage is good. An area well located at the exterior stair to the lower level is not properly draining, resulting in flooding of the lower level during storm periods. Damaged gutters on the rear (east) side of the house do not drain; the overflow has resulted in damage to a door below. Topsoil buildup around the rear studio/shed has resulted in damage to the bottom of some wall areas.

Brian Congleton Architect
Post Office Box 4116
Office at Eighth & San Carlos
Carmel, California 93921 831
626
1928
WWW.congletonarchitect.com Email: [email protected] Attachment 4
The rear studio/shed is original to the property. Condition is fair-to-poor, but with excellent potential.

Boards are cracked or damaged, needing repair or replacement-in-kind. The hip roof structure is in good condition. The roof needs replacement. The foundation is in poor-to-nonexistent condition, resulting in significant subsidence to the structure above. The building needs to be lifted up, the foundation replaced, and the building refitted to the new base.

Rehabilitation Work Proposed
Plans have been prepared for needed upgrades to the property to stop deterioration and make the property more usable and code compliant. The proposed rehabilitation work includes three components:

1. Replacement of existing exterior front stair, to arrest dry rot damage and make the stair more usable and code-compliant.

2. Repair to existing exterior side stair and porch, to arrest foundation subsidence, make the stair more usable and code-compliant.

3. Rehabilitation of rear studio/shed, including new foundation/floor, repair to board-and-batt siding, new cedar shingle roof, and addition of interior electrical upgrades.

4. Drainage @ exterior stair to lower level. Clear drain. Install gutter/diverter at wall above stairwell to direct storm wall wash away from stairwell. Remove concrete from doorway.

Maintenance Items
Following are maintenance items proposed for immediate or ongoing repair:

A. Drainage: Area well drainage correction, gutter repair or replacement, and removal of soil from around the shed are required immediate and ongoing maintenance items.

B. Paint & Caulking Repair: Areas on the siding, trim, doors and windows are spalling. Prep and painting of these areas should be done immediately, and as they occur, to maintain the waterresistant surface of the building. Areas showing significant or repeated spalling should be investigated to determine if water or moisture is penetrating the wall from within; if so, the origin of the moisture should be identified and eliminated.

C. Door & Window Repair: Dry rot damaged doors on the east side of the residence, plus the door into the shed, need repair to bottom stiles and rails. Window glazing, currently in sound condition, need to be monitored for weathering and repaired as needed.

D. Roof maintenance, repair and replacement: Periodic inspection of existing wood shake roof.

Repair or replacement of damaged or deteriorated areas. If and when roof reaches end of service life, replace roof – apply to City of Carmel Planning & Building Department for approval and permit of proposed replacement roof, to be in compliance with Secretary of Interior Standards.

E. Chimney maintenance and repair: Periodic inspection of chimney. Repair of damaged or deteriorated areas, using materials and methods recommended by Secretary of Interior Standards.

Attachment 4
Task Year
1 Year
2 Year
3 Year
4 Year
5 Year
6 Year
7 Year
8 Year
9 Year
10 Cost
2023 2024 2025 2026 2027 2028 2029 2030 2031 2032
Replace
front stair
X $46,400
Repair side
Stair/landing
X $18,600
Rehabilitate
Studio/Shed
X $56,300
Electrical to
shed
X $4,600
Water line to
potting area
X $1,200
Remove soil
around shed
X $2,100
Door repair X $800
Window
repair
2,600 2,600 2,600 $7,800
Patch &
Paint
1,200 1,200 1,200 1,200 $4,800
Roof repair 1,650 1,650 $3,300
Replace roof 22,400 $22,400
Chimney
repair
350 350 350 350 350 $1,750
Gutter Clean 250 250 250 250 250 250 250 250 250 250 $2,500 Drainage 9,900 $9,900
Total $182,450
This presents the Mills Act Maintenance Plan for the Enoch A. Lewis House.

Sincerely,
Brian T. Congleton, Architect
Attachment 4
Description Amount
Dry Creek Construction Inc will perform work and maintenance for the sum of $182,450.00 Plan 071922Enoch
Total $ 182,450.00
If you have any questions concerning this invoice, contact Vince Dorio 831-320-1221 THANK YOU FOR YOUR BUSINESS!
DRYCREEK CONSTRUCTION, INC.
1110 Sylvan Place
Monterey Ca 93940
INVOICE 0198
Lic#741911 831-320-1221
[email protected]
TO-Enoch H Lewis House
Date 8-7 -2022
Attachment 4
Work Item Descriptions with Photographs

1. Replace front stair.

1. Repair side stair/landing.

2. Rehabilitate Studio/Shed.

3. Electrical to Studio/Shed.

Attachment 4

3. Water line to potting area.

4. Remove soil around shed.

5. Door repair.

Attachment 4

6. Window repair.

7. Patch and paint.

8. Roof repair.

9. Replace roof.

Attachment 4

10. Chimney repair.

11. Gutter cleaning.

12. Drainage.

Attachment 4

CITY OF CARMEL-BY-THE-SEA

HISTORIC RESOURCES BOARD
HISTORIC RESOURCES BOARD RESOLUTION NO. 2022-009-HRB

A RESOLUTION OF THE HISTORIC RESOURCES BOARD OF THE CITY OF CARMEL-BY-THE-SEA

ADDING A HISTORIC RESOURCE TO THE CARMEL REGISTER AND RECOMMENDING THAT THE CITY

COUNCIL ENTER INTO A MILLS ACT CONTRACT WITH NANCY STROM AND GAVIN MILLER FOR THE PROPERTY LOCATED AT MONTE VERDE STREET 2 NORTHEAST OF 9TH AVENUE APN 010-193-010
WHEREAS, Brian Congleton, Architect (“Applicant”) submitted an application on behalf of Nancy Strom and Gavin Miller (“Owners”) requesting to add the historic “Enoch A. Lewis House” to the Carmel Register of Historic Resources and enter into a Mills Act contract (MA 22-254, Strom & Miller) described herein as (“Application”); and
WHEREAS, the Application has been submitted for the property located at Monte Verde Street 2 northeast of 9th Avenue, in the Single Family Residential (R-1) District (Block 94, Lot 18); and
WHEREAS, the Applicant is requesting to add the historic “Enoch A. Lewis House” to the Carmel Register of Historic Resources; and
WHEREAS, in accordance with Carmel Municipal Code (CMC) Section 17.32.090 (Carmel Register of Historic Resources) the City shall maintain a Register of Historic Resources designated by the City for public recognition and benefits; and
WHEREAS, historic resources identified as significant at a local or regional level shall be eligible for listing in the Register at the request of the property owner and upon approval by the Historic Resources Board; and
WHEREAS, one of the benefits of being included on the Register is the ability to enter into a Mills Act Historical Property Contract with the City; and WHEREAS, the Applicant is also requesting to enter into a Mills Act contract with the City and in accordance with Carmel Municipal Code (CMC) Section 17.32.100.B.6 (Review Process), the Historic Resources Board shall consider the application and make a recommendation to the City Council to approve, approve with conditions, or deny the application; and WHEREAS, notice of the August 15, 2022 public hearing was published in the Carmel Pine Cone on August 5, 2022 in compliance with State law (California Government Code 65091), and mailed to owners of real property within a 300-foot radius of the project indicating the date and time of the public hearing; and
Attachment 5
Resolution No. 2022-009-HRB

WHEREAS, on August 5, 2022 the Applicant posted the public notice on the project site and hand-delivered a copy of the public notice to each property within a 100-foot radius of the project site indicating the date and time of the public hearing; and WHEREAS, on August 12, 2022 the meeting agenda was posted in three locations in compliance with State law indicating the date and time of the public hearing; and WHEREAS, on August 15, 2022, the Historic Resources Board held a public meeting to consider adding the historic “Enoch A. Lewis House” to the Carmel Register and to consider the application for a Mills Act contract, including without limitation, information provided to the Historic Resources Board by City staff and through public testimony; and WHEREAS, this Resolution and its findings are made based upon evidence presented to the Historic Resources Board at the August 15, 2022 meeting including, without limitation, the staff report and attachments submitted by the Community Planning and Building Department; and WHEREAS, theHistoric Resources Board did hear and consider all said reports, attachments, recommendations and testimony herein above set forth and used their independent judgement to evaluate the project; and
WHEREAS, the facts set forth in the recitals are true and correct and are incorporated herein by reference.

NOW, THEREFORE, BE IT RESOLVED, that the Historic Resources Board of theCity of CarmelBy-The-Sea does hereby make the following findings and determinations regarding the Mills Act Contract:

FINDINGS REQUIRED FOR A MILLS ACT CONTRACT
For each of the required findings listed below, staff has indicated whether the application supports adoption of the findings. For all findings checked "no" the staff report discusses the issues to facilitate the Historic Resources Board decision-making. Findings checked "yes" may or may not be discussed in the report depending on the issues.

CMC 17.32.100.B.6.c YES NO
i. The building is designated as an historic resource by the City and is listed on the Carmel Register.
✔
ii. The proposed rehabilitation/restoration and maintenance plan is appropriate in scope and sufficient in detail to guide long-term rehabilitation/restoration and maintenance. Required maintenance and rehabilitation should be more significant than just routine maintenance that would be expected for any property. ✔
iii. Alterations to the historic resource have been in the past, and will continue to be in the future, limited to interior work and to exterior rehabilitation and alterations that:
(A) Comply with the Secretary’s Standards (future additions only); and ✔
Attachment 5
Resolution No. 2022-009-HRB

(B) Do not significantly alter, damage or diminish any primary elevation or character-defining feature; and
(C) Do not increase floor area on the property by more than 15 percent beyond the amount established in the documented original or historic design of the resource; and
(D) Do not result in any second-story addition to a single-story historic resource.
iv. The Mills Act contract will aid in offsetting the costs of rehabilitating and maintaining the historic resource.
✔
v. Approval of the Mills Act contract will represent an equitable balance of public and private interests and will not result in substantial adverse financial impact on the City.
✔
BE IT FURTHER RESOLVED that the Historic Resources Board of the City of Carmel-by-theSea does hereby add the historic “Enoch A. Lewis House” to the Carmel Register of Historic Resources and recommend that the City Council enter into a Mills Act Contract (MA 22-254, Strom & Miller) for the property located at Monte Verde Street 2 northeast of 9th Avenue (APN 010-193- 010).

PASSED, APPROVED AND ADOPTED BY THE HISTORIC RESOURCES BOARD OF THE CITY OF CARMEL-BY-THE-SEA this 15th day of August, 2022, by the following vote:

AYES:

NOES:

ABSENT:

ABSTAIN:

APPROVED: ATTEST:
_________________________ _________________________
Erik Dyar Leah Young
Chair Historic Resources Board Secretary
Attachment 5
June 2, 2005
BETTY T. YEE
Acting Member
First District, San Francisco

BILL LEONARD
econd District, Sacramento/Ontario

CLAUDE PARRISH
Third District, Long Beach

JOHN CHIANG
Fourth District, Los Angeles

STEVE WESTLY
State Controller, Sacramento
RAMON J. HIRSIG
Executive Director
No. 2005/035
O COUNTY ASSESSORS AND INTERESTED PARTIES:

NOTICE OF BOARD ACTION

GUIDELINES FOR THE ASSESSMENT OF

ENFORCEABLY RESTRICTED HISTORICALPROPERTY
On May 25, 2005, the Board of Equalization approved the following guidelines pertaining to the assessment of enforceably restricted historical property. These guidelines supersede Letter To Assessors No. 77/174 (dated December 19, 1977).

On June 8, 1976, the voters of California approved Proposition 7 which amended section 8 of article XIII of the California Constitution. This amendment requires that enforceably restricted historical property be valued on a basis that is consistent with its restrictions and uses. Sections 439 through 439.4 were added to the Revenue and Taxation Code to implement Proposition 7.

These statutes, in particular section 439.2, prohibit a valuation of enforceably restricted historical property based on sales data and instead require that such property be valued by a prescribed income capitalization method.

Staff drafted these guidelines in consultation with interested parties and, after discussions, no issues remained unresolved. The guidelines discuss the enforceably restricted historical property requirements, the income to be capitalized, the capitalization rate, the effect of Proposition 13 upon enforceably restricted historical properties that undergo change in ownership or new construction, and the valuation of property under notice of nonrenewal.

The guidelines are posted on the Board's website at www.boe.ca.gov/proptaxes/guideproc.htm.

We hope this information proves useful and promotes uniformity of assessment for these properties. If you have any questions, please contact our Real Property Technical Services Unit at 916-445-4982.

Sincerely,
/s/ David J. Gau
David J. Gau
Deputy Director
Property and Special Taxes Department
DJG:grs
Enclosure

STATE OF CALIFORNIA

STATE BOARD OF EQUALIZATION

PROPERTY AND SPECIAL TAXES DEPARTMENT
450 N STREET, SACRAMENTO, CALIFORNIA
PO BOX 942879, SACRAMENTO, CALIFORNIA 94279-0064
916 445-4982  FAX 916 323-8765
www.boe.ca.gov
Attachment 6
1 GUIDELINES FOR THE ASSESSMENT OF

ENFORCEABLY RESTRICTED HISTORICAL PROPERTY

HISTORY
Effective March 7, 1973, Chapter 1442 of the Statutes of 1972 (also known as the Mills Act) added sections 50280 through 50289 to the Government Code to allow an owner of qualified historical property to enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics.

Prior to the passage of Proposition 7 in 1976, these agreements (i.e., Mills Act contracts) constituted enforceable restrictions on the use of land within the meaning of Revenue and Taxation Code section 402.11 (Property Tax Rule 60, repealed January 10, 1978). However, Proposition 7 added the second paragraph to section 8 of article XIII of the California Constitution:

To promote the preservation of property of historical significance, the Legislature may define such property and shall provide that when it is enforceably restricted, in a manner specified by the Legislature, it shall be valued for property tax purposes only on a basis that is consistent with its restrictions and uses.

To implement Proposition 7, Chapter 1040 of the Statutes of 1977 (Senate Bill 380) added sections 439 through 439.4 to the Revenue and Taxation Code. These statutes, in particular section 439.2, prohibit a valuation of enforceably restricted historical property based on sales data and instead require that such property be valued by a prescribed income capitalization method.

ENFORCEABLY RESTRICTED HISTORICAL PROPERTY
Under section 439, historical property is "enforceably restricted" if it meets the definition of a "qualified historical property" as defined in Government Code section 50280.1 and is subject to a historical property contract executed pursuant to Government Code section 50280 and following.

A qualified historical property includes qualified historical improvements and the land on which the improvements are situated, as specified in the historical property contract. If the contract does not specify the land to be included, the qualified historical property includes only a land area of reasonable size to situate the improvements.

A qualified historical property is privately-owned property that is not exempt from property taxation and that also meets either of the following criteria:
• The property is listed in the National Register of Historic Places, or is located within a registered historic district; or
1 Unless otherwise noted, all statutory references are to the Revenue and Taxation Code.

Attachment 6
2 • The property is listed in any official state, county, city, or city and county official register of historical or architecturally significant sites, places or landmarks, including the California Register of Historical Resources, California Historical Landmarks, State Points of Historical Interest, local landmarks, and local survey listings of historical properties.

The historical property contract must have a minimum term of ten years, and, as applicable, must contain certain other elements, including the following:
• A provision relating to the preservation of the qualified historical property and, when necessary, the restoration and rehabilitation of the property in conformance with state historic preservation guidelines;
• A requirement for the periodic examination of the property to ensure compliance with the agreement;
• A requirement that the historical property agreement be binding upon successor owners of the qualified historical property; and
• A provision for an automatic one-year extension of the contract, with an additional year added to the initial contract term on each anniversary of the contract, unless either party provides notice of nonrenewal. If a notice of nonrenewal is given, the contract runs for its remaining term.

Once a contract is signed, accepted, and recorded, the property subject to the contract must be assessed under section 439.2 on the ensuing lien date. For example, if a contract were recorded in August 2004, the property should have been valued pursuant to section 439.2 for lien date January 1, 2005.

Local authorities may cancel a historical property agreement for breach of contract or failure to protect the historical property. Alternatively, the local entity may take legal action to enforce the contract.

ASSESSMENT
The assessment of an enforceably restricted historical property involves the following aspects:
(1) valuing the restricted historical property; (2) properly applying certain assessment provisions relating to article XIII A of the California Constitution (Prop 13); (3) valuing the restricted historical property following a notice of nonrenewal; and (4) valuing the restricted historical property following cancellation of the contract.

Valuing the Restricted Historical Property
Section 439.2 prohibits the assessor from using sales data relating to similar properties, whether or not enforceably restricted, to value an enforceably restricted historical property. Instead, the assessor must annually value a restricted historical property using an income approach that Attachment 6
3 follows the specific provisions of section 439.2. These provisions explicitly address (1) the determination of the income to be capitalized, (2) the development of the capitalization rate, (3) the capitalization technique to be used, and (4) the determination of the restricted historical property's taxable value on each lien date.

Income to be Capitalized
As provided in section 439.2(a), the income to be capitalized when valuing a restricted historical property is the property's fair rent less allowed expenditures, or allowed expenses. In general, section 439.2(a) follows Property Tax Rule 8(c), with fair rent in section 439.2 corresponding to gross return in Rule 8(c); allowed expenditures, or allowed expenses, in section 439.2 corresponding to gross outgo in Rule 8(c); and the income to be capitalized in section 439.2 corresponding to net return in Rule 8(c). In addition, for the purposes here, "gross income" is synonymous with fair rent, and "net operating income" is synonymous with the income to be capitalized.

The parties to a historical property agreement may stipulate a minimum annual income to be capitalized, in which case the income to be capitalized may not be less than the stipulated amount.

Fair rent, or gross income. The gross income of a restricted historical property is the fair rent for the property considering the restrictions on the property's use. When establishing the fair rent for a restricted historical property, the appraiser should consider the actual rent and typical rents in the area for similar properties in similar use, where the owner pays the property taxes.

The actual rent received by the owner of the subject restricted historical property is relevant to an estimate of fair market rent only if the actual rent is the same rent that would be expected if the existing lease were renegotiated in light of current market conditions, including the subject property's enforceable restrictions on use. With respect to rents from similar, or comparable, properties, if such rents are from properties outside the geographic or market area of the subject property, or from properties that are otherwise dissimilar to the subject property, the rents may not be relevant to an estimate of the subject property's fair rent.

Comparable rental data for single-family residences can be obtained from real estate brokers, rental agencies, and newspaper ads. Many assessors offices maintain rental data for commercial properties, and this data may be helpful when establishing the fair rent for restricted historical property when the contract allows a commercial use. Rental data for commercial property also can be obtained from commercial real estate brokers. For the purpose of estimating anticipated market fair rent and expenditures for use in calculating the subject property's value, rental and expense data for existing restricted historical properties, including the subject historical property, can be obtained through an annual questionnaire sent to property owners.

If sufficient rental data are not available, or such data are unreliable, the appraiser must impute a gross income for the subject restricted historical property. The imputed income should be based on what an informed investor would reasonably expect the property to yield under prudent management, given the provisions under which the property is enforceably restricted.

Attachment 6
4 Allowed expenditures. Section 439.2(a)(3) defines allowed expenditures, or allowed expenses, as expenses necessary for the maintenance of the property's income. Allowed expenses are the same as those permitted in Property Tax Rule 8(c).

Typical expenses include the cost of utilities, maintenance and repair, insurance and property management. Allowed expenses also may include amounts owing for special assessments and special taxes. Expenses related to debt service, general property taxes, and depreciation should not be deducted.

In general, to arrive at the net income to be capitalized, allowed expenses are subtracted from the estimated rental income. However, in order to properly process the income, the appraiser must be aware of the structure of the lease with regard to how expenses are shared between the landlord-owner and the tenant.

The proper perspective from which to view the processing of income and expenses is that of the landlord-owner. The objective is to estimate the net income to the landlord-owner—this is the amount that should be capitalized—and the correct question to ask is the following: What, if any, allowed expenses must the landlord-owner pay out of the rental income that he or she receives?
In a gross lease, almost all of the allowed expenses must be paid out of the gross rent and, therefore, must be subtracted from the gross rent to arrive at the net income to be capitalized. In a net lease, relatively few allowed expenses must be paid by the landlord-owner out of the net rent (because the tenant pays most expenses) and only these expenses should be subtracted from the net rent to arrive at the net income to be capitalized. Frequently, there is a hybrid arrangement—some expenses are paid by the landlord-owner and some by the tenant. How expenses are shared often depends upon the property type together with local conventions.

Income to be capitalized, or net operating income. The income to be capitalized, or net operating income, is simply the fair rent, or gross income, described above less the allowed expenditures described above.

Capitalization Rate
The method of developing the capitalization rate to be used when valuing restricted historical property is prescribed by statute; a capitalization rate derived from sales data or the band of investment is not permitted.

Section 439.2 prescribes two types of capitalization rates for restricted historical property: (1) a capitalization rate to be used when valuing restricted historical property that is an owneroccupied single-family residence and (2) a capitalization rate to be used when valuing all other restricted historical property. Both types of capitalization rates include components for interest (i.e., yield), risk, property taxes, and amortization of improvements; in fact, the two rates are identical except for the amount of the risk component. The capitalization rate contains the following components:

Attachment 6
5 • An interest component annually determined by the State Board of Equalization and based on the effective rate on conventional mortgages as determined by the Federal Housing Finance Board. The interest component is announced annually, in a Letter To Assessors, by October 1 of the preceding assessment year.
• A historical property risk component determined by property type. For owner-occupied single-family residences, the rate is 4 percent; for all other types of restricted historical property, the rate is 2 percent.
• An amortization component for improvements defined as a percentage equal to the reciprocal of the remaining life of the improvements (e.g., if the remaining economic life of the improvements were 20 years, the amortization component would be 5 percent). Since the amortization component applies only to improvements, not to land, which is a nondepreciating asset, it is necessary to adjust the amortization component described in the statute. We recommend the following method of adjustment:

1. Based upon market data, estimate the percentage of total property value attributable to improvements.

2. Multiply this percentage by the amortization component described in the statute (i.e., by the reciprocal of the remaining life of the improvements). For example, if the remaining life of the improvements was 20 years, yielding a reciprocal percentage of 5 percent, and if 70 percent of the total property value was attributable to the improvements, the adjusted amortization factor would be 3.5 percent (0.05 x 0.70 =

0.035).

3. Add the adjusted amortization component to the other capitalization rate components to arrive at the total capitalization rate.
• A property taxes component equal to the percentage of the estimated total tax rate applicable to the property for the assessment year multiplied by the assessment ratio. Typically, the property tax component includes the basic tax rate of 1 percent plus an additional ad valorem rate related to any bonded indebtedness pertaining to the tax rate area in which the property is located. Special district assessments and special taxes are not included in the property tax component. As noted above, they should be treated as allowed expenses.

Capitalization Technique
The capitalization technique to be used when valuing a restricted historical property is prescribed by statute and is formulaic. Section 439.2(e) provides that the restricted value shall be the income to be capitalized, or net operating income, developed as prescribed by statute, divided by one of the two types of capitalization rates prescribed by statute. In other words, the restricted value is the simple quotient of the prescribed income to be capitalized and the prescribed capitalization rate.

Attachment 6
6 Determination of Taxable Value on Each Lien Date
Section 439.2(d) provides that a historical property's restricted value may not be enrolled if it exceeds either (1) the value of the subject property as determined under section 110 (i.e., current market value) or (2) the value of the subject property as determined under section 110.1 (i.e., factored base year value). In other words, section 439.2 states that the taxable value of a restricted historical property on each lien date shall be the lowest of its restricted value, current market value, or factored base year value. The factored base year value for an enforceably restricted historical property is the value that was established for the 1975 lien date2 or as of the date of the most recent change in ownership, whichever is later, adjusted by the annual inflation factor.

Article XIII A (Prop 13) Considerations
This section discusses how three important elements relating to implementation of article XIII A—change in ownership, new construction, and supplemental assessment—relate to the assessment of restricted historical property. Also discussed is the case in which only a portion of a property is subject to the historical property agreement—that is, the case in which a single property unit contains both restricted and unrestricted portions.

Change in Ownership
When a property subject to a historical property contract undergoes a change in ownership, a new base year value should be established for the property as of the date of change in ownership, as provided in section 110.1. Typically, a restricted historical property's base year value will be greater than its restricted value determined under section 439.2 and hence will not be enrolled as the property's taxable value. However, the establishment of a new base year value enables the assessor to perform the three-way value comparison prescribed by section 439.2(d) and described above. The establishment of a base year value is also necessary in order to calculate the assessed values of historical property should the historical property agreement enter nonrenewal status.

New Construction
Section IV of National Register Bulletin #15 defines a "building" as follows:

A building, such as a house, barn, church, hotel, or similar construction, is created principally to shelter any form of human activity. "Building" may also be used to refer to a historically and functionally related unit, such as a courthouse and jail or a house and barn.

Section IV further specifies that "[b]uildings eligible for the National Register must include all of their basic structural elements. Parts of buildings, such as interiors, facades, or wings, are not eligible independent of the rest of the existing building. The whole building must be considered, 2 Sections 110.1(d) and 405.5 do not apply to historical properties under contract as of lien date 1975 because the constitutional amendment which placed the valuation of historical property under article XIII rather than article XIII A had not yet been passed and, thus, was not in effect for the 1975 lien date.

Attachment 6
7 and its significant features must be identified." Thus, eligibility for the National Register is determined by the extent to which the basic structural elements of an existing building are intact.

In general, a newly constructed building would not be eligible because it is not an existing building with basic structural elements.3
Also, a newly constructed building is not a historic resource, and, thus, is not a qualified historical property within the meaning of Government Code section 50280.1. For example, a newly constructed detached garage (assuming it is not a reconstruction of a historical garage) clearly would not be eligible because it has no significance in American history or architecture, nor does it meet any of the other requisite criteria.

Bulletin 15, however, does list one type of newly constructed property that may be eligible for inclusion under the Mills Act. A reconstructed historic building is eligible for the National Register if the reconstruction is "accurately executed in a suitable environment and presented in a dignified manner as part of a restoration master plan, and when no other building or structure with the same association has survived."
The historical property contract typically specifies the scope and type of any work to be performed on the historical improvements. Improvements existing as of the date of the contract would be subject to the provisions of section 439.2 unless specifically excluded by the contract.

Any new construction made to the historical structure after the issuing date of the contract would not be subject to the provisions of section 439.2 unless specifically included in the contract or an amendment to the contract. Any questions regarding new construction to enforceably restricted historical structures should be directed to the counsel of the legislative body of the city, county, or city and county that contracted with the property owner.

Assuming that the newly constructed property is subject to the historical property contract, a base year value should be established for the newly constructed portion and this value added to the factored base year value of the existing restricted property.

In some cases, an existing historical property may include a portion that is restricted (i.e., subject to a historical property contract) and a portion that is unrestricted. In this case, separate factored base year values should be maintained for the restricted and unrestricted portions and the base year value of any newly constructed property added to the appropriate portion. The assessment treatment of this type of property is discussed further below.

Supplemental Assessment
Although the assessor is required to establish a new base year value upon a change in ownership or completed new construction involving restricted historical property, such property is not subject to supplemental assessment. As provided in Revenue and Taxation Code section 75.14:

Supplemental assessment; limitation. A supplemental assessment pursuant to this chapter shall not be made for any property not subject to the assessment 3 National Register Bulletin 15, "How to Apply the National Register Criteria for Evaluation," U.S. Department of the Interior, National Park Service (www.cr.nps.gov/nr/publications/).

Attachment 6
8 limitations of Article XIII A of the California Constitution. All property subject to the assessment limitations of Article XIII A of the California Constitution shall be subject to the provisions of this chapter, except as otherwise provided in this article.

As discussed above, the assessment of enforceably restricted historical property is subject to the provisions of article XIII, section 8 of the California Constitution, not article XIII A. Thus, section 75.14 precludes the assessor from enrolling supplemental assessments for enforceably restricted historical property.

Historical property not yet under contract that undergoes a change in ownership or new construction is subject to supplemental assessment, even if the property owner later executes a historical property contract in the same fiscal year. Also, any new construction involving a historical property that does not come under the existing historical property contract (e.g., a detached garage added to a restricted historical property) would be subject to supplemental assessment.

When a Property Contains Both Restricted and Unrestricted Portions When only a portion of a property that would normally be considered a single appraisal unit is restricted by a historical property contract, the assessed value should be determined by making a comparison of three values, determined as follows. First, the portion under contract should be valued using the capitalization method prescribed by section 439.2. Added to this figure should be the lower of the unrestricted portion's fair market value or factored base year value. The resulting sum should be compared to both the fair market value and the factored base year value of the entire property (i.e., both restricted and unrestricted portions) and the lowest of the three figures should be enrolled.

Valuing Property Under Notice of Nonrenewal
As provided in Government Code section 50282, either the owner of a restricted historical property or the local government entity may serve notice that it does not intend to renew the historical property contract. If such notice is not given, another year is automatically added to the term of the initial contract, thus creating a "rolling" contract term that is always equal to the initial contract term.

Section 439.3 prescribes the valuation method for a restricted historical property in nonrenewal status; this valuation method applies until the end of the restricted period (i.e., until the existing contract expires). In essence, the method results in a restricted value that gradually approaches the historical property's factored base year value as the remaining term under the contract decreases. For a property in nonrenewal status, the assessor must annually value the property as follows:

1. Determine the full cash value (i.e., factored base year value) of the property in accordance with section 110.1. (Alternatively, if the property will not be subject to section 110.1 when the historical property agreement expires, determine its fair market value in accordance with Attachment 6
9 section 110, as if the property were free of the agreement's restrictions; or, if the property will be subject to another type of restricted value standard when the historical property agreement expires, determine the property's value as if it were subject to the new restrictions.)

2. Determine the restricted value of the property by the capitalization of income method provided in section 439.2.

3. Subtract the restricted value determined in Step 2 from the factored base year (or other) value determined in Step 1.

4. Using the amount for the interest rate component (section 439.2(b)(1)) announced by the Board, discount the amount obtained in Step 3 for the number of years remaining until the termination of the contract.

5. Determine the restricted value of the property in nonrenewal status by adding the value determined in Step 2 to the amount obtained in Step 4.

The historical property's restricted value in nonrenewal status—that is, the value determined above, in accordance with section 439.3—should be compared with the historical property's factor base year and current market values, and the lowest of these three values should be enrolled as the property's taxable value.

Cancellation of Contract
The government entity party to a historical property contract may cancel the contract, after notice and a public hearing, if it determines that either the owner has breached the agreement or the property has deteriorated to the extent that it no longer meets the standards of a historical property. If the contract is cancelled, the property owner must pay a cancellation fee equal to 12½ percent of the property's current fair market value as though free of the contractual restriction, such value to be determined by the county assessor. After a contract is cancelled, the lower of the property's factored base year value or current market value should be enrolled for the ensuing lien date.

SUMMARY
The key points contained in these guidelines can be summarized as follows:

1. An owner of qualified historical property may enter into a preservation contract with local government. When property is placed under such a contract, the owner agrees to restore the property if necessary, maintain its historic character, and use it in a manner compatible with its historic characteristics. Such property receives the special valuation treatment prescribed under Revenue and Taxation Code sections 439 through 439.4.

2. Enforceably restricted historical property is to be annually valued by the income capitalization method prescribed in section 439.2, which contains specific instructions with Attachment 6
10 regard to the income to be capitalized, the capitalization rate, and the capitalization technique to be used. The restricted value must be compared to the property's current market value and factored base year value, with the lowest of these three values enrolled as the property's taxable value.

3. When assessing restricted historical property, the appraiser should consider how three important elements of article XIII A—change in ownership, new construction, and supplemental assessment—relate to the assessment. The appraiser should consider how a property should be assessed when only a portion of it is subject to a historical property agreement.

4. Restricted historical property under a notice of nonrenewal should be valued in accordance with section 439.3.

5. The government entity party to a historical property contract may cancel the contract. The cancellation fee is 12½ percent of the property's current fair market value as though free of the contractual restriction, with such value to be determined by the local assessor.

Additional information about Mills Act contracts may be obtained from the state Office of Historic Preservation, either by telephone at 916-653-6624, or from their website (www.ohp.parks.ca.gov).
(Note: Please see the assessment examples following.)
Attachment 6
Historical Property Valuation Examples Page 1
EXAMPLE 1 (OWNER-OCCUPIED SINGLE-FAMILY RESIDENCE)
Subject Restricted Historical Property
Restored, 105-year-old, Victorian single-family residence. Excellent condition. Under Mills Act contract since 1985 and not in nonrenewal status. Owner-occupied.

Determination of Restricted Value (current lien date)
Gross income (Fair rent)
$1,500 per month x 12 months = $18,000
Less: Anticipated vacancy and collection loss
$18,000 x 5% - 900
Effective gross income $17,100
Less: Anticipated operating expenses
Grounds maintenance $600
Fire insurance 400
Management Fee 360
Water and garbage 240
Building maintenance + 500 - 2,100
Net Operating Income $15,000
Restricted Capitalization Rate
Rate Components:

Interest rate .080
Risk (owner-occupied SFR) .040
Property tax (ad valorem) .015
Amortization (50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 – 0.014) + .014 .149
Restricted Value
$15,000 ÷ .149 = $100,671
Taxable Value—Three-Way Value Comparison
Restricted value $100,671
Factored base year value (based on prior change in ownership) $357,000 Current market value (based on comparable sales) $450,000 The lowest of the three possible values is the restricted value. Thus, the net taxable value would be $93,671 ($100,671 restricted value less the homeowners' exemption of $7,000).

Note 1: If this property had been a non-owner-occupied SFR, the only difference in the determination of the restricted value would have been the use of a risk rate component of 2% rather than 4% in the capitalization rate.

Note 2: In this and the following examples, the gross income, or fair rent, is presented on a gross rent basis, that is, under the assumption that the landlord-owner pays all operating expenses out of the gross income.

Attachment 6
Historical Property Valuation Examples Page 2
EXAMPLE 2 (OFFICE USE)
Subject Restricted Historical Property
Multi-tenant, restored historical office building in a downtown commercial district. Under Mills Act contract since 1985 and not in nonrenewal status.

Determination of Restricted Value (current lien date)
Gross Income (Fair rent):

Offices 140,000 sf @ $1.75/sf = $245,000
x 12 months = $2,940,000
Less: Anticipated vacancy and collection loss
$2,940,000 x 5% - 147,000
Effective gross income $2,793,000
Less: Anticipated operating expenses
Management $290,000
Maintenance 95,000
Insurance 75,000
Utilities 360,000
Janitorial + 140,000 - 960,000
Net Operating Income $1,833,000
Restricted Capitalization Rate
Rate Components:

Interest component .08
Risk .02
Property tax (ad valorem) .011
Amortization (50-year remaining life; improvements
constitute 75% of total property market value

0.02 x 0.75 = 0.015) + .015 .126
Restricted Value
($1,833,000 ÷ .126) = $14,547,619
Taxable Value—Three-Way Value Comparison
Restricted value $14,547,619
Factored base year value (based on prior change in ownership) $18,191,077 Current market value (based on comparable sales) $21,000,000 The lowest of the three possible values is the restricted value. Thus, the taxable value would be $14,547,619
Attachment 6
Historical Property Valuation Examples Page 3
EXAMPLE 3 (MIXED USE—RESIDENTIAL AND OFFICE)
Subject Restricted Historical Property
Two-story, restored historical property in a downtown district. Upper level is residential unit occupied by owner. Lower level contains three office spaces subject to short-term rental agreements. The income stream for the upstairs unit must be calculated separately from the downstairs unit because the risk rate is different for the owner-occupied unit.

Determination of Restricted Value
Separate restricted values for the upper-level residence and the lower-level office space must be determined, because the risk components are different for restricted value is sum of these two values.

Upper-Level Unit
Gross income (Fair rent) based upon comparable rent data the two types of use. The total
$975 per month x 12 months = $11,700
Less: Anticipated vacancy and collection loss
$11,700 x 5% - 585
Effective gross income
Less: Anticipated operating expenses
Grounds maintenance $300
$11,115
Fire insurance 200
Management Fee 180
Water and garbage 120
Building maintenance + 250 - 1,050
Upper-Level Net Operating Income $10,065
Restricted Capitalization Rate (owner-occupied SFR)
Rate components:

Interest rate .080
Risk .040
Property tax .010
Amortization ( 50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 = 0.014) + .014 .144
Upper-level Restricted Value ($10,065 ÷ .144) = $69,895 Lower-Level Offices
Gross income (Fair rent)
1000 sf @ $1.60/sf = $1,600 x 12 months $19,200
Less: Anticipated vacancy and collection loss
$19,200 x 5% - 960
Effective gross income $18,240
Attachment 6
Historical Property Valuation Examples Page 4
Less: Anticipated operating expenses
Grounds maintenance $300
Fire insurance 200
Management Fee 180
Water and garbage 120
Building maintenance + 250 - 1,050
Lower-Level Net Operating Income $17,190
Restricted Capitalization Rate
Rate components:

Interest component .080
Risk .020
Property tax .010
Amortization (50-year remaining life; improvements
constitute 70% of total property market value;

0.02 x 0.70 = 0.014) + .014 .124
Lower Level Restricted Value ($17,190 ÷ .124) $138,629
Add: Upper Level Restricted Value + $69,895
Total Restricted Value $208,524
Taxable Value—Three-Way Value Comparison
Restricted Value $208,524
Factored base year value (based upon prior change in ownership) $364,140 Current market value (based upon comparable sales data) $400,000 The lowest of the three possible values is the restricted value. Thus, the net taxable value would be $201,524 ($208,524 less the homeowners' exemption of $7,000).

Attachment 6
Historical Property Valuation Examples Page 5
EXAMPLE 4 (MIXED VALUATION—PART RESTRICTED AND PARTUNRESTRICTED) Description of Subject Property (Comprises Both Restricted and UnrestrictedPortions) The subject property is a 10-acre parcel with a farmhouse and barn situated on 2 acres; the remaining 8 acres are farmland. The farmhouse and barn are used as an owner-occupied singlefamily residence; this portion of the property is restricted remaining 8 acres of farmland are unrestricted.

Value of Restricted Portion (current lien date)
Gross income (Fair rent) for farmhouse and barn
under a Mills Act contract. The
$2,000 per month x 12 months = $24,000
Less: Anticipated vacancy and collection loss
$24,000 x 5% - 1,200
Effective gross income $22,800
Less: Anticipated operating expenses
Grounds maintenance $600
Fire insurance 400
Management Fee 360
Water and garbage 240
Building maintenance + 500 - 2,100
Net Operating Income = $20,700
Restricted Capitalization Rate
Rate components:

Interest component .080
Risk (owner-occupied) .040
Property tax (ad valorem) .010
Amortization (50-year remaining life; improvements
constitute 70% of total property market value

0.02 x 0.70 = 0.014) + .014 .144
Restricted Value ($20,700 ÷ .144) = $143,750
Taxable Value—Three-Way Comparison
Total Property Restricted Value (sum of restricted value above and lower of FBYV or current market value of unrestricted portion)
Restricted Value (portion under contract) $143,750
FBYV (unrestricted portion) + $102,000
Restricted Value (total property) $245,750
Factored base year values (based upon a prior change in ownership of the entire property, allocated between restricted and unrestricted portions):

Farmhouse, barn, and 2 acres (restricted portion) $204,000 8 acres (unrestricted portion) + $102,000
Total FBYV (total property) $306,000
Attachment 6
Historical Property Valuation Examples Page 6
Current market values (based upon comparable sales data):

Farmhouse, barn, and 2 acres (restricted portion) $230,000 8 acres (unrestricted portion) + $120,000
Total Current Market Value (total property) $350,000
The lowest of the three values is the Restricted Value (total property), $245,750. Thus, the net taxable value would be $238,750 ($245,750 less $7,000 homeowners' exemption).

Attachment 6
Historical Property Valuation Examples Page 7
EXAMPLE 5 (PROPERTY IN NONRENEWALSTATUS)
Description of Subject Restricted Historical Property
The same property as in Example 2, except the property owner has served notice of nonrenewal.

The Mills Act contract covering the property was originally executed in September 1995, and the owner served notice of nonrenewal in June 2004. Value the property for the 2005 lien date, reflecting its nonrenewal status. Assume that the property's restricted, current market, and factored base year values from Example 2, provided below, also refer to January 1, 2005.

Restricted value $14,547,619
Current market value $21,000,000
Factored base year value $18,191,077
Restricted Value in Nonrenewal Status
Value as if unrestricted (factored base year value) $18,191,077 Restricted value - 14,547,619
Difference $ 3,643,458
Present worth of difference
PW1 @ 6.00 %, 9 years (interest component for lien date 2005) x .591898 Plus restricted value
= $ 2,156,555
+ $14,547,619
Restricted value in nonrenewal status—lien date January 1, 2005 $16,704,174 Taxable Value
Since the restricted value in nonrenewal status, $16,704,174, is less than either the property's current market value or its factored base year value, this is the taxable value.

Attachment 6