Seeking to correct what is believed to be a zoning error, the Palo Alto City Council adopted a law on Monday that gives owners of "grandfathered" downtown buildings greater flexibility to switch to other uses — provided this conversion doesn't result in the loss of housing units.

In doing so, however, the council also included in the new ordinance a "waiver" provision that some critics say weakens the new law. The provision allows applicants who want to make the switch from residential to non-residential use to appeal to the council for exceptions. Several residents argued that the waiver clause effectively invites developers to violate the restriction on uses.

The ordinance applies to downtown's "grandfathered" buildings, which are considered structures that were built before the city instituted the current height and density regulations and that exceed these regulations. In January 2016, the council approved a "cleanup" of the zoning code that included, as one of its many components, a new provision that banned grandfathered buildings undergoing renovation to convert from one allowed use to another. Planning Director Jonathan Lait said staff believes the clause was inserted inadvertently in what he described as a "copy and paste" error.

The zone change has put several downtown property owners in a bind. Several downtown retail establishments and restaurants, including the buildings that occupied The North Face and The Cheesecake Factory, have been vacant because owners had not been able to move ahead with planned conversions to other code-conforming uses. The change also created a barrier for Adventurous Journeys Capital Partners (AJ Capital), the Chicago-based real estate investor that is trying to convert the 75-unit President Hotel Apartments building at 488 University Ave. into a 100-room hotel.

The council's Monday vote is largely consistent with the direction that it took last December, when members agreed that the city should fix what appears to have been a planning error. At that time, then-City Manager James Keene compared the process to a surgeon leaving a sponge inside a patient and then having to go in to take it out.

The council also agreed in December not to rush to remove the clause on an "emergency" basis, as staff had recommended. Instead, it directed its Planning and Transportation Commission to review the ordinance before returning it to the council for adoption. At its review on Jan. 30, the commission endorsed the removal of the clause and supported the restriction on converting existing housing units to non-residential uses. The commission did not, however, support adding a "waiver" process that developers can use to get around that restriction.

But the council, heeding the advice of its city attorney, agreed on Monday to include the waiver, which staff argued would strengthen the city's position in a potential legal challenge. A report from the Department of Planning and Community Environment notes that the waiver provision will require the property owner to "present all of its claims and supporting evidence to the City Council first, for the Council's evaluation and consideration, before seeking relief in Superior Court."

"This gives the City Council and the public it serves the opportunity to fully understand the arguments and evidence of a property owner who claims local law violates its rights," the report states. "And if litigation is filed later, the City can seek to limit the scope of the dispute to evidence submitted to the City as part of its administrative hearing."

The waiver provision will also give the council an opportunity to adjust land use regulations as needed to address cases where the restrictions appear to violate state and federal law. The council, rather than the property owner or the court, "should have the first and primary opportunity to fashion a solution, with public interest foremost in mind," the report states.

"The waiver provision gives the Council that opportunity," the report states. "Without the waiver provision, the property owner would skip the Council and go straight to court, where the legal issues and proposed remedies would be framed by the property owner and potentially determined by the court."

Not everyone was thrilled about the waiver provision. Several residents argued during Monday's hearing that the waiver is basically encouraging developers to seek zoning exceptions. Mary Sylvester was one of several residents who argued that the council should instead strengthen its laws to prevent conversions of housing developments into commercial projects. She called the recent displacement of President Hotel tenants to make way for the proposed hotel "an ethical outrage for this community."

"Our city is failing to protect our renters," Sylvester said, "We need a citywide residential protection law. Any waiver that goes into existence must protect renters."

David Lanferman, an attorney for AJ Capital, likewise argued that the waiver process is unnecessary. From his perspective, that's because the entire prohibition on conversions from residential to non-residential uses is illegal. The waiver process, he argued, does not change that.

Lanferman argued that the city's prohibition on conversions from residential to non-residential uses violates the state Ells Act, which grants rights to landlords wishing to exit the rental business. Creating a process that requires applicants to pursue "a burdensome, time-consuming and costly 'waiver' process would unlawfully impose a 'prohibitive price' on the exercise of rights protected by State law."

"Even if well-intentioned, the proposed waiver process would not achieve its stated purpose, but rather would merely create an arbitrary, futile, and pointless obstacle to lawful efforts to repurpose or restore old or possibly blighted properties to otherwise beneficial and conforming uses in this one area of Palo Alto," Lanferman wrote.

The council, however, agreed to include the restriction in the new ordinance, a provision that will almost certainly invite a legal challenge. By a 6-1 vote, with Councilwoman Lydia Kou dissenting, the council adopted the ordinance proposed by staff, including the waiver provision.

Kou cited confidential legal advice that the council had received earlier in the day and said members should schedule a closed-session meeting to consider the legal ramifications of the new ordinance before formally adopting it.

"We're rushing into this on something that has consequences — consequences that we have already seen," Kou said. "The hotel is no longer tenant-occupied and there may be other ramifications. I think rushing through this is not the wise thing to do."

The rest of the council was swayed by staff arguments that the new ordinance, including the waiver provision, should be adopted. Councilwoman Liz Kniss, who supported the staff proposal, called the 2016 code change an "honest mistake" that has hindered some downtown property owners' plans to attract new retailers and restaurants.

"If you can only put in what was there before, in one case a clothing store, in another a restaurant ... if you can't find someone to fill that in, you're really in a difficult situation," Kniss said. "That's what we're looking at changing tonight."