In the latest skirmish over downtown development, a Palo Alto neighborhoods group is accusing the city's planning department of violating municipal law in what the residents claim is a "huge giveaway to a developer."

Palo Alto-based Cody Anderson Wasney Architects is petitioning the city to rehabilitate 261 Hamilton Ave., which until recently was the longtime home of University Art. The proposed redevelopment would add to the 41,900-square-foot building a three-story, approximately 6,000-square-foot office wing along Centennial Walk, an alley that runs from Hamilton to the north and parallels Ramona Street. Currently, the 1927 building, designed by architect Birge Clark, consists of a four-story, tile-roofed ″L″ along Hamilton and Ramona and a one-story ″wing″ along Centennial.

The plan has passed review by the city's Architectural Review and Historic Resources boards. The City Council is scheduled to vote on the project on June 23.

But Palo Alto Neighborhoods (PAN), a coalition of neighborhoods leaders, stated in a June 16 press release that Palo Alto's municipal code shouldn't allow for the building's expansion. At 66 feet, 7 inches, the building already exceeds the city's 50-foot height limit and is too massive for its site, PAN leaders said.

Though the historic building is "grandfathered" -- that is, allowed to not be in compliance with city code -- its redevelopment cannot "increase the degree of noncompliance,″ according to city documents presented to the Architectural Review Board on June 5. In other words, additions and changes that make existing zoning violations worse are not allowed.

Section 18.18.120 of the Palo Alto municipal code, "Grandfathered Uses and Facilities," allows a developer to remodel, improve or replace on the same site of grandfathered structures, provided the remodeling does not result in increased floor area and does not shift the building footprint. The remodel "shall not result in an increase of the height, length, building envelope, or any other increase in the size of the improvement," the ordinance notes.

The "building envelope," PAN leaders maintain, is the sticking point. Defined in city code as the three-dimensional spatial configuration of a building's volume and mass, 261 Hamilton's envelope would change with the proposed remodel, they say.

City staff have a different interpretation: Planners say the building envelope is the three-dimensional "building area" of a project site and does not refer to the shape of the building, according to documents provided to the Architectural Review Board.

As long as the proposed additions and renovations conform with city code, the project is allowed, staff said. The new wing would be 49 feet, 8 inches tall -- a hair below the city's 50-foot height limit.

In addition, according to the developer, the wing is not adding square footage to the building. An existing basement, currently used for storage and work space, would be converted to 14 parking spaces, and the rearrangement would result in a net-zero gain in floor area for the building, according to the developer's plans.

Residents brought their concerns regarding staff's interpretation of the "grandfathered" zoning code and building envelope to the Architectural Review Board on April 17. However, zoning regulations are outside the purview of the ARB, and the board could only make recommendations on the character and quality of the project, ARB Vice Chair Randy Popp said. The board voted on June 5 to recommend the project for council review.

"To claim the new wing won't violate the law, city staff opted to ignore the municipal code's definition of 'building envelope,'" PAN members wrote in the press release. "They maintain these words instead refer to the maximum size a building is allowed to be. But since owners can never increase the maximum allowed size of a building ... the staff's interpretation makes the building-envelope clause meaningless."

The municipal code also bans any expansion to the building's floor area, footprint, height and length. It further prohibits any other increase in the size of the building, PAN members said.

"Since the new wing will greatly increase the building's total volume, the proposal will also violate this provision," they said.

In its June 5 report, city staff said there are two interpretations of the grandfathered code: that no more square footage than is currently now on the site can be permitted, and that the proposed addition does not further increase the legal noncomplying conditions of the site.

"Staff is of the opinion that the second interpretation is the better one," staff wrote in the report.

Hillary Gitelman, the city's director of planning and community environment, said the staff report submitted to the council later this week "will be very clear that the proposed project rests on an interpretation of the term 'building envelope.'

"In the staff report, we will present both possible interpretations and explain staff's rationale for the interpretation of 'building envelope' as something akin to 'buildable area' rather than 'building.' We will also describe several downtown projects approved between the years 2001 and 2008 using this interpretation," she wrote in an email to the Weekly.

Land-use attorney and resident Tom Jordan said the law doesn't leave room for interpretation.

"I've never seen such an egregious attempt by city employees to pretend a law doesn't say what it says. Their job is to enforce the law, not redefine it to be meaningless," he said in the PAN press release.

PAN Chairwoman Sheri Furman said, "We call upon every member of the City Council to turn down this project and redirect staff to uphold city laws."

Doria Summa, a PAN member, said she doesn't object to the remodel per se.

But "there's a general feeling that these things should be done legally," she said.

There have been too many "'exceptions to the norm' being the norm -- rather than 'the norm' being the norm," she added. "I think we'll all have a better place to live together if the same rules apply to all of us.″

The city's Historic Resources Board unanimously recommended approval of the project on April 16, finding the revisions comply with the Secretary of the Interior Standards for Rehabilitation.

The building is currently on the city's local historic inventory as a Category 3 historic resource. The developer wants to reclassify the building to the higher Category 2 standard. Following reclassification, the developer can request 15,000 square feet of Transferable Development Rights (TDR) because the building will undergo historic rehabilitation.

TDRs allow a property owner to sell that square footage to another developer to expand a project beyond what is allowed under zoning for the property.