When Fresh Market closed shop at Edgewood Plaza in March, the move not only dimmed the hopes of area residents but also reopened Palo Alto's long-simmering debate about zoning rules and public benefits.

Now, with the market site still vacant, residents are calling for the city to take action against a developer who they believe is flagrantly violating the rules. On Monday, a group of residents and land-use watchdogs from the nearby neighborhoods of Crescent Park and Duveneck/St. Francis submitted a letter calling for the city to impose a financial penalty against the developer, Sand Hill Property Company, and to prevent Sand Hill from selling the new homes at Edgewood until a new grocer is found.

The grocery store is a key component of a "planned community" zone change that the city initially granted to Sand Hill in 2012. The zone change allowed the developer to construct a development that, in addition to the grocery store, includes two commercial buildings and 10 homes.

The project at 2080 Channing Ave. generated some controversy in 2013, after Sand Hill's contractors demolished a historical Eicher building that it was required to disassemble and restore. The company was fined $94,200 for the violation but received a fresh approval from the city for the project.

Despite the various setbacks and zoning disputes, the new development also brought hope to a site that has been largely destitute since 2006, when Albertson's departed. Today, newcomers include House of Bagels, the fitness center Orangetheory, Starbucks and Supercuts. Now, residents are arguing that Sand Hill's failure to find a replacement is threatening the other businesses at the recently renovated plaza.

A letter from Norm Beamer, Lenore Cymes, Jinny Henke, Jeff Levinsky, Jill Passalacqua and Michal Shalon urges the city to put pressure on Sand Hill to find a new grocer sooner rather than later.

"The project would never have been supported by us and our neighbors had we been told no functioning grocery store would actually exist," the letter from the residents states. "Furthermore, the lack of a grocery means fewer customers may frequent other stores in the center as well, undercutting the goal of revitalizing the center, half of which is the grocery space."

Sand Hill did not respond to a request for comment on Monday. But Planning Director Hillary Gitelman told the Weekly that the city has explored its options for requiring compliance and that it plans to "take enforcement action if a new grocery tenant is not found within a reasonable period of time."

City planners have already reached out to John Tze of Sand Hill on several occasions to ask for updates and express their concerns about the vacancy. In April, Assistant Planning Director Jonathan Lait notified Sand Hill that the company is out of compliance with the "planned community" ordinance, which specifically states that "the commercial property owner shall ensure the continued use of the 20,6000-square-foot building as a grocery store for the life of the project."

"Please provide staff with the actions that are being taken to rectify this non-compliance; continued code violations may be subject to daily monetary fines," Lait wrote.

In late June, with the grocery store still vacant, Lait followed up with another letter, stating that the city staff "remains concerned about the loss of the grocery tenant and appreciates your efforts to find an appropriate replacement tenant."

"While it is understood that it will take time to find a new grocery tenant, it is also important that one be found to avoid the daily penalties referenced in my April 15 letter," Lait wrote.

In an update to the city, Sand Hill's John Tze provided a list of 14 different grocers his company has reached out to, Gitelman said. He requested that the list be kept confidential and the city is honoring that request, she said.

Tze also wrote to the city that his company "continue(s) to contact perspective grocers for Edgewood but have not yet secured one."

"Most of the national grocers are already in the area or desire a larger space, so we are focusing on others including local grocers," Tze wrote, according to Gitelman.

Disputes over grocery stores and public benefits aren't unique to Edgewood Plaza. Last year, the council faced a similar debate at College Terrace Centre, a recently approved development at 2180 El Camino Real where a key public benefit was the preservation of the beloved grocer, JJ&F Market. Shortly after the large commercial development was approved, JJ&F announced that it's leaving. In December, after months of agonizing rejecting several other options, the council approved Miki Werness as the new operator of the market at the El Camino Real development.

Now, residents around Edgewood Plaza hope they're not heading into yet another long period of market vacancy. Residents are calling for the city to both fine the developer and prevent him from selling homes, arguing that these measures will "have a financial impact and can thus encourage the developer to adjust rent and subsidies to make the grocery space more attractive."

"We are already hearing concerns that the developer is not motivated to bring in a replacement grocer but instead is preparing to argue it must convert the store to some other purpose," the letter states. "We hope such concerns prove wrong."

While the city is limited in its ability to prevent home occupancy, financial penalties are a possibility, according to Gitelman. The city has a penalty schedule that includes a fine of $500 per day for zoning violations. In a letter to Henke, Gitelman noted that there is a precedent (at College Terrace) for "allowing six months for re-tenanting a grocery space" and noted that staff had met with the developer to inform him of this.

Gitelman also noted that that staff has explored whether the city can hold up sale or occupancy of the new homes until a new market tenant is found. Under the "planned community" ordinance that the council approved, the only conditions that Sand Hill was required to meet were a grocery lease and the occupancy of the grocery store before the final inspection and occupancy of the last five homes. Both have occurred, she said.