The developer looking to renovate the long dilapidated Edgewood Plaza in Palo Alto was supposed to preserve a historic building, not destroy it.

But what's done is done, and on Wednesday night, Palo Alto's Planning and Transportation Commission struggled to determine how to punish the Sand Hill Property Company for its rare and unusual transgression. After some back and forth, commissioners decided by a 4-1 vote, with Michael Alcheck dissenting and Eduardo Martinez and Greg Tanaka absent, to recommend a $94,000 fine – a penalty that was at the high end of the city staff's recommendation.

The decision was tricky for several reasons. For one, everyone agreed that the run-down commercial building that Sand Hill's contractors erroneously demolished last fall wasn't exactly a hot commodity. Its main value lay in the fact that it was a rare example of a commercial building developed by mid-century builder Joseph Eichler.

But the commission Wednesday recognized that if the penalty were too severe, it would be the neighborhood that will bear the brunt of the punishment -- in the form of a delay in the plaza's completion. Edgewood Plaza at 2080 Channing Ave. had been approved with overwhelming neighborhood support after years of negotiations between Sand Hill and the community.

Yet commissioners agreed that Sand Hill should pay for its transgression. Otherwise, as Commissioner Carl King argued, other developers would think it's OK to violate their agreements with the city.

"I don't want to make it an unreasonable burden for the applicant," King said, quickly adding that he also doesn't want violations like this one to be "par for the course."

Commissioner Alex Panelli agreed.

"We've got to provide some kind of disincentive to the old adage that it's easier to ask for forgiveness afterward than to ask for permission beforehand," Panelli sad.

Alcheck, the sole dissenter, agreed that some penalty should be imposed but preferred to leave the exact amount to the City Council.

Staff had proposed a range of potential penalties, from about $9,000 to roughly $94,000, depending on whether the commission prefers to base its fine on costs of permits or of construction. Vice Chair Arthur Keller proposed to go with the latter and recommended that the council impose a fine in the range of $91,200 and $94,200, which amounts to roughly 20 percent of the project's construction cost.

In keeping with the spirit of historic preservation, the funds could be used for rehabilitation of another historic building under the commission's recommendation. The council can also direct that the funds be spent in other ways. One proposal floated by staff would be to create a new sidewalk along West Bayshore Road, from Edgewood Plaza to the East Palo Alto border.

The commission debated whether the funds should be used for historical rehabilitation or for the new sidewalk. Ultimately, commissioners recommended that the city survey the plaza's neighbors to see if they want the new sidewalk and then submit the survey results to the City Council for consideration.

Sand Hill last month already agreed to build a new structure in the same style as the demolished one but with new materials and greater compliance with modern building codes, alleviating any concerns about the plaza's historic character being preserved.

In considering the penalty, the commissioners were wading in uncharted waters. Though illegal demolitions aren't new to the city, no developer has ever destroyed a building that was supposed to be a component of a "public benefit" package, planner Elena Lee said. With public cynicism running high about the sufficiency of public benefits that developers offer in exchange for planned-community (PC) zoning, commissioners agreed that it's important for the developer's action to have consequences.

Sand Hill had been authorized by the city to build 10 single-family homes at the site and to provide public benefits that include a new grocery store and rehabilitation of two commercial buildings, one on its existing site and the other at a new location. Instead, construction workers demolished the building that was supposed to be moved.

On Wednesday night, John Tze of Sand Hill offered another mea culpa for the unauthorized demolition. Tze said he was as surprised as the neighbors when he learned about the demolition.

"My construction team and I take responsibility, as they are my team," Tze said. "They came to their own reasoning and jumped the gun."