An administrative judge on Monday seemed inclined to affirm penalties against Edgewood Plaza Shopping Center owners, which was levied by Palo Alto for failing to maintain a grocery store at the historic center.
Owner Sand Hill Property Company petitioned the hearing before Administrative Judge Lance Bayer, which began on Feb. 13, arguing the City of Palo Alto could not legally fine the company. Sand Hill is not responsible for maintaining an operation at the 2125 St. Francis Drive location, only to keep the building use for a grocery store, attorneys said.
But Bayer said preliminarily he thinks the city's ordinances were properly adopted. Sand Hill's lawyers claimed the city did not give proper notice that fines would be imposed but Bayer rejected that notion. The daily citations Sand Hill has incurred-- from $500 to up to $5,000 a day -- were properly signed by a code enforcement officer. The city had given notice of the violation and had imposed fines for violating the Planned Community (PC) zoning ordinance after an adequate period of time had elapsed, he said.
Sand Hill received a PC zoning approval from the city, which included building 10 homes on the commercial property in exchange for certain "public benefits," the centerpiece of which is maintaining a local grocery store as the anchor enterprise. The Palo Alto City Council approved fining Sand Hill in September 2015 after the company did not replace the departing grocer, The Fresh Market. The grocery chain pulled out of the shopping center in March 2015. The city began fining Sand Hill for violations of the zoning ordinance because the company has not had a replacement operating out of the space, a situation that has lagged on for nearly two years.
Sand Hill has testified that it put out feelers to 65 to 77 potential operators. With the exception of a couple of nibbles, all others have declined. The company says its hands are tied by a 10-year lease with The Fresh Market that allows the former grocer to sublease the property at whatever price they choose.
Sand Hill maintains it has engaged in due diligence. Its lawyers also argued that the city's vague ordinance language contrasts sharply with other PC ordinances for neighborhood shopping centers such as the College Terrace Centre. In the latter case the city required the property owner to maintain an operating grocery store in perpetuity. The City Council made no such requirement for Edgewood, although it understood how to write such an ordinance if it intended to make Sand Hill responsible for an operator, attorney David Lanferman said.
An ordinance requiring the maintenance of a grocery store in perpetuity also could not be valid; it puts an onerous burden on the owner that doesn't take into account changing winds of commerce. If a company such as Google created robotic grocery delivery service making a grocery store obsolete, it would be unreasonable to have to maintain a grocery store, he said.
But Bayer seemed disinclined to buy those arguments. The PC ordinance requiring the property owner to physically maintain a grocery store "is not ambiguous" and is "reasonable," nor is it hypothetical, he said.
In considering the reasonableness of the law, if for some reason grocery stores were a thing of the past it would be unreasonable to have to maintain a grocer at the site, but as long as it is reasonable the requirement remains valid, he said.
PC ordinances also carry with them an additional burden outside of land-use requirements; something is given to the developer that would not normally be received in exchange for the public benefit. In this case, the developer was permitted to build 10 homes on commercial property worth about $3 million each in exchange for public benefits: a pocket park, electric-vehicle charging stations and the operating grocery store, he noted.
"The public benefits provisions are separate and distinct from land-use requirements and a valid exercise of (the city's) police powers," Bayer said.
Regarding the amount of penalty the city can legally impose, state law authorizes cities to fine a violator of its zoning ordinance, but it restricts administrative penalties for infractions. That's not the case for violations that could be misdemeanors, Bayer said.
"I do find the violations could be charged as misdemeanors. The question is what is an appropriate penalty," he said.
Bayer said he would look at whether Sand Hill took appropriate steps to secure a grocery store. One of his concerns is that testimony the company gave indicated that steps Sand Hill took to search for a new tenant were "reactive rather than proactive to get a grocery store," he said.
Neither side provided Bayer with a copy of the lease agreement, so he couldn't examine its contents. But it is significant that the lease didn't address the vacancy of the structure nor that Sand Hill would have the right to terminate the lease if The Fresh Market didn't reasonably find a replacement, he said.
"To 'go dark' ... and leave the building empty without recourse, without action to evict, is telling as well," he said.
But Bayer's decision would be based on what is an appropriate penalty and how it furthers the goal of securing a grocery store, he added.
"What is troubling to me is that going forward there does not appear to be a resolution. I encourage both parties to get together. ... Both sides are facing the likelihood (that) this isn't going to end. Ultimately, that's the resolution; not necessarily penalties or an adversarial relationship," he said.
Bayer said he expects to have a written decision within 30 days. His decision is subject to judicial review in Superior Court, he added.
Matt Larson, director of public affairs at Sand Hill Property Company, reiterated a previous statement regarding the company's intentions:
"No potential outcome could diminish the urgency that Sand Hill feels to get an operating grocery store into Edgewood. Our goal is to get a grocery store in that space ASAP."