diff --git a/enterprise/storage/saas_settings_store.py b/enterprise/storage/saas_settings_store.py
index 78925a9f72..2853c16d71 100644
--- a/enterprise/storage/saas_settings_store.py
+++ b/enterprise/storage/saas_settings_store.py
@@ -160,17 +160,11 @@ class SaasSettingsStore(SettingsStore):
                 )
                 return None
 
-            llm_base_url = (
-                org_member.llm_base_url
-                if org_member.llm_base_url
-                else org.default_llm_base_url
-            )
-
-            # Check if provider is OpenHands and generate API key if needed
-            if self._is_openhands_provider(item):
-                await self._ensure_api_key(item, str(org_id), openhands_type=True)
-            elif llm_base_url == LITE_LLM_API_URL:
-                await self._ensure_api_key(item, str(org_id))
+            # Check if we need to generate an LLM key.
+            if item.llm_base_url == LITE_LLM_API_URL:
+                await self._ensure_api_key(
+                    item, str(org_id), openhands_type=self._is_openhands_provider(item)
+                )
 
             kwargs = item.model_dump(context={'expose_secrets': True})
             for model in (user, org, org_member):
diff --git a/openhands/server/routes/settings.py b/openhands/server/routes/settings.py
index 6063752dea..2a5d27f83d 100644
--- a/openhands/server/routes/settings.py
+++ b/openhands/server/routes/settings.py
@@ -6,6 +6,8 @@
 # Unless you are working on deprecation, please avoid extending this legacy file and consult the V1 codepaths above.
 # Tag: Legacy-V0
 # This module belongs to the old V0 web server. The V1 application server lives under openhands/app_server/.
+import os
+
 from fastapi import APIRouter, Depends, status
 from fastapi.responses import JSONResponse
 
@@ -30,6 +32,10 @@ from openhands.storage.data_models.settings import Settings
 from openhands.storage.secrets.secrets_store import SecretsStore
 from openhands.storage.settings.settings_store import SettingsStore
 
+LITE_LLM_API_URL = os.environ.get(
+    'LITE_LLM_API_URL', 'https://llm-proxy.app.all-hands.dev'
+)
+
 app = APIRouter(prefix='/api', dependencies=get_dependencies())
 
 
@@ -123,8 +129,9 @@ async def store_llm_settings(
             settings.llm_api_key = existing_settings.llm_api_key
         if settings.llm_model is None:
             settings.llm_model = existing_settings.llm_model
-        if settings.llm_base_url is None:
-            settings.llm_base_url = existing_settings.llm_base_url
+        # if llm_base_url is missing or empty, set to default as this only happens for "basic" settings
+        if not settings.llm_base_url:
+            settings.llm_base_url = LITE_LLM_API_URL
         # Keep search API key if missing or empty
         if not settings.search_api_key:
             settings.search_api_key = existing_settings.search_api_key
diff --git a/tests/unit/server/routes/test_settings_store_functions.py b/tests/unit/server/routes/test_settings_store_functions.py
index 25c23a7daf..78dd3f92f7 100644
--- a/tests/unit/server/routes/test_settings_store_functions.py
+++ b/tests/unit/server/routes/test_settings_store_functions.py
@@ -186,7 +186,12 @@ async def test_store_llm_settings_update_existing():
 
 @pytest.mark.asyncio
 async def test_store_llm_settings_partial_update():
-    """Test store_llm_settings with partial update."""
+    """Test store_llm_settings with partial update.
+
+    Note: When llm_base_url is not provided in the update, it gets set to the default
+    LiteLLM proxy URL. This is intentional behavior for "basic" settings where users
+    don't specify a custom base URL.
+    """
     settings = Settings(
         llm_model='gpt-4'  # Only updating model
     )
@@ -200,11 +205,17 @@ async def test_store_llm_settings_partial_update():
 
     result = await store_llm_settings(settings, existing_settings)
 
-    # Should return settings with updated model but keep other values
+    # Should return settings with updated model but keep API key
     assert result.llm_model == 'gpt-4'
     # For SecretStr objects, we need to compare the secret value
     assert result.llm_api_key.get_secret_value() == 'existing-api-key'
-    assert result.llm_base_url == 'https://existing.example.com'
+    # When llm_base_url is not provided, it defaults to the LiteLLM proxy URL
+    import os
+
+    expected_base_url = os.environ.get(
+        'LITE_LLM_API_URL', 'https://llm-proxy.app.all-hands.dev'
+    )
+    assert result.llm_base_url == expected_base_url
 
 
 # Tests for store_provider_tokens