In a bid to correct a zoning error, Palo Alto's planning commissioners endorsed an ordinance on Wednesday that will restore the right of owners of downtown buildings that are out of compliance with city code to use the building for different purposes.

However, they made an exception when it comes to residential buildings converting to non-residential use -- a provision that creates a fresh legal hurdle for the owner of the President Hotel Apartments and that is almost certain to invite a lawsuit.

The Planning and Transportation Commission voted unanimously on Wednesday to scrap a zoning restriction for "grandfathered facilities" -- buildings that were built before the current development standards were created and that don't comply with these standards. The provision, which was inadvertently inserted into the code in 2016 as part of a broader "code cleanup," states that the usage of grandfathered facilities cannot change, even to uses that are otherwise allowed under city zoning.

In explaining the impacts of this error, interim Planning Director Jonathan Lait pointed to several redevelopment projects that have been stymied by this administrative error -- including the former Cheesecake Factory building on University Avenue that owner Roxy Rapp is trying to convert to retail space and the former North Face building on Alma Street that the owner has been trying to turn into "personal services" from retail.

"This ordinance isn't about one particular property; it's about policy direction that affects downtown properties as a whole," Lait emphasized at the meeting.

Even so, most of the debate and all public comments focused on the proposed conversion of the 75-unit, six-story President Hotel Apartments, a project that has generated significant community opposition and that cast a large shadow over Wednesday's zoning debate.

David Lanferman, an attorney representing the building owner, Adventurous Journeys Capital Partners, argued that the restriction is inconsistent with both the city's Comprehensive Plan and with the state's Ellis Act, which empowers landlords to get out of the rental business.

In a further blow to AJ Capital's project, the commission voted not to include in the ordinance a newly proposed waiver process for developers who want to exempt their projects from the restriction on residential conversions. The wording, which was recommended by both the city's legal counsel and the City Council, was crafted for applicants who would assert that the restriction "is pre-empted by state or federal law."

Lanferman, however, opposes the waiver idea. He claimed it is pointless because the restriction itself is illegal.

"If a property owner is making residential use of it and wants to change the use, the statute says you can't unless you apply for waiver. The state says you have to grant the waiver. It is a pointless exercise," Lanferman said.

The President Hotel project's critics, meanwhile -- some of whom attended the commission meeting -- called the waiver clause "unfairness and subterfuge" on the part of city staff on behalf of AJ Capital.

"This waiver smacks of the promotion of AJ's interest without ever designating them by name," Palo Alto resident Beth Rosenthal said

Jeff Levinsky, a resident who discovered that the 2016 addition of the "grandfathered facilities" applied to the President Hotel conversion, argued that if the waiver process were to be implemented, it should be as transparent as possible.

"The tenants of the building shouldn't wake up and discover that the waiver has been granted and their residential use has been wiped out or something like that," Levinsky said.

But Lanferman argued in a letter that the new restriction is "very problematic," creating "unacceptable inconsistencies between the zoning ordinance and the city's Comprehensive Plan." The Comprehensive Plan, he wrote, specifically states that sites "within the existing commercial areas and corridors are suitable for hotels." The restriction, he argued, would "frustrate or obstruct the attainment of the fundamental policies of the Comprehensive Plan."

Lanferman also argued in his letter that the prohibition would constitute "spot zoning" (despite the fact that it would apply to every grandfathered property in the downtown area, where there are at least 13 such multifamily residential properties, according to Lait).

"Here, every property owner that exercises rights under the Ellis Act to withdraw from the residential market would be confronted by a new legal barrier to any lawful use," Lanferman wrote. "Forcing a property owner to seek a waiver would unlawfully impose a 'prohibitive price' on the exercise of Ellis Act rights."

Lanferman's argument did not sway the commission, which voted to keep the restriction on conversions from residential to non-residential use but eliminated the waiver process. The action means that anyone seeking an exemption would have to rely on the usual recourse -- a lawsuit.

Commissioner Doria Summa, who led the effort to delete the "waiver" process from the draft ordinance, took issue with city staff's assertion that the ordinance may not be legal. When she pressed Deputy City Attorney Albert Yang about the applicability of the Ellis Act to this ordinance, he declined to answer, citing "attorney-client privilege." Yang said he would be willing to offer the commission "confidential advice" about this topic.

"Why wouldn't we just use the same process that we generally use for any applicant that feels we're not treating them fairly in respect with the laws?" Summa asked.

Others also took issue with the proposed ordinance, even as they had acknowledged that the commission needs to correct the city's error from 2016. Commissioner Michael Alcheck said the zoning effort, which is being driven by the President Hotel "fiasco," feels like "partly damage control and part of an effort to course-correct."

"I don't think it's tenable to be in a land-use environment where the Cheesecake Factory cannot be a retail shop. ... The challenge here is how to facilitate these non-controversial changes without opening the doors too wide (to where) our housing stock is depleted.

"We're in a scenario now where the determination by staff has changed so much in seven months that we're losing credibility," Alcheck said.

Alcheck also made a motion to recommend the city hire an outside attorney to consider the Ellis Act issues Lanferman had cited, which passed 5-1-1, with Summa dissenting and Commissioner Asher Waldfogel abstaining.

Some in the community and on the commission pushed back against Lanferman's argument. Levinsky said that while the state law gives property owners the right to stop renting, it "does not give them the right to change to a different use."

"The Ellis Act does not present the threat that you've heard," Levinsky said.

While the city is debating the zoning change, residents of the President Hotel have been moving out, faced with a Jan. 31 deadline to vacate the building. Most have already left, although two of the building's disabled residents have secured the help of a local nonprofit that focuses on fair-housing services to request they be granted a temporary reprieve. Project Sentinel, the nonprofit that provides housing mediation services, urged AJ Capital in a letter on Jan. 25 to provide "reasonable accommodations" for the two.

On Jan. 29, the city of Palo Alto formally notified AJ Capital about the city's requirement that tenants be offered a one-year lease agreement -- a rule that has not been followed or enforced at the historic apartment building. The provision may give the building's few remaining tenants some leverage in a potential legal battle against AJ Capital.

Iqbal Serang, a President Hotel tenant, urged the commission Wednesday to do what it could to protect the residents.

"It's unbelievable that we can forward this idea where 75 units of housing that is compact can be eliminated forever," Serang said. "I strongly feel it is a responsibility for you the commissioners and our representatives on the council to help protect us individuals who are in dire need."