The developer of Edgewood Plaza will face a fine of $500 per day if the vacant grocery store formerly occupied by Fresh Market isn't filled by the end of September, City Manager James Keene said Monday night.

Keene made the announcement at a City Council meeting that was packed with residents who live near Edgewood Plaza and who came to demand action against Sand Hill Property Company.

In 2012, Sand Hill secured the city's approval to redevelop the once-dilapidated plaza at 2080 Channing Ave. The development included 10 homes, restoration of two commercial buildings and the grocery store, which constituted the main "public benefit" under the "planned-community" zone change granted by the city. That benefit dissolved on March 31, when Fresh Market departed.

Palo Alto's planning department has already send several warnings to Sand Hill, notifying the company of the requirement to keep the grocery store occupied. The planned-community ordinance specifies that the property owner "shall ensure the continued use of the 20,000-square-foot building as a grocery store for the life of the project."

Sand Hill's John Tze did not respond to questions from the Weekly, but in a letter to the city earlier this year, he provided a list of 14 different grocers his company has contacted. Most of the national grocers, Tze wrote, "are already in the area or desire a larger space, so we are focusing on others, including local grocers."

This week, Tze responded to an inquiry from neighborhood resident Diana Nemet by providing a list of 40 grocers that have been contacted to date, a roster that includes Trader Joe's, Mollie Stones, Roberts Market, Piazza's, Sprouts, Whole Foods, Berkeley Bowl, Zanotto's, Country Sun, Bi-Rite and Bristol Farm's. He also noted in his response that of all the grocery chains that were contacted, all but two rejected the site because the store is smaller than their 30,000- to 40,000-square-foot minimum.

Only Target Express and one other prospect have not rejected because of insufficient size, Tze wrote. As for the independent grocers, many liked the space but simply weren't looking to expand at this time, he wrote.

Most of the national chains and a few independent ones were contacted by DTZ, Fresh Market's broker. Tze himself contacted every other grocer on the list (with the exception of Nijiya, which responded by email to a neighbor). DTZ, he said, is "highly motivated to find a replacement grocer."

Tze also noted that rent has not been an issue as "conversations with prospects have generally not gotten far enough along to discuss economics."

"And of the few prospects who asked about rent, they were told that the asking rent was very flexible and should not dissuade any interest," Tze wrote.

By choosing to apply the $500-per-day fine, the city hopes to add more pressure to this search. Keene said staff has received about 150 emails about Edgewood from residents concerned about the vacancy. More than 50 residents also attended Monday's meeting to demand action. Starting on Sept. 30, Keene said, daily fines of $500 will be assessed to the property owner.

"That figure is the fee that is currently set by code," Keene said. "It's the current maximum allowed by the code at this time."

Keene also raised the possibility of further penalties in the future. There are potentially "different remedies and options that the council can pursue," he said, adding that staff will return with these options at a future date, if needed.

The council does have one recent precedent that could guide its decision on Edgewood. Last year, the council responded to the departure of JJ&F Market at the College Terrace Centre development on El Camino Real by approving a new grocer and specifying that the property owner will be charged a daily fine of $2,000 a day if the store becomes vacant.

Many residents argued that a larger penalty is exactly what's needed at Edgewood. Carla Carvalho, who lives on Edgewood Drive, near the plaza, called for "swift action." She called the grocery store formerly occupied by Fresh Market an "important resource to our community."

"Fines need to be increased immediately to be on parity with other projects," Carvalho said.

Deborah Baldwin, who also lives near the plaza, asked the council to institute an "appropriate penalty" for the developer's violation of the agreement with the city.

"I believe the developer has to be held accountable for the contract they signed, even if they have to pay for a grocery store to be there," Baldwin said.

Tze, for his part, disputes the idea that fining the company would speed up the search for the grocer.

"I'm not sure why fining us would motivate us more than we already are," Tze wrote in an email to the Weekly.

Neighbors have also expressed some anxiety over the past week about the prospect of Target Express filling the grocery-store space. Keene clarified that under the city's agreement with Sand Hill, this would not be appropriate.

"That would not be consistent with the requirement for a grocery store and would not be permitted," Keene said.