HomeMy WebLinkAboutStaff Report 2605-6412CITY OF PALO ALTO
Retail Committee
Regular Meeting
Wednesday, June 03, 2026
5:30 PM
Agenda Item
2.Recommendation to the City Council on an Ordinance to Amend Palo Alto Municipal
Code Title 18 (Zoning) Section 18.18.120 (Noncomplying Uses and Facilities) to Allow
Existing Floor Area to be Replaced in New Buildings Without Increasing the Degree of
Existing Non-Compliance. CEQA Status: Exempt from CEQA per Section 15061(b)(3)
(Common Sense) Late Packet Report Added, Staff Presentation, Applicant Presentation
Economic Development Committee
Staff Report
Report Type: ACTION ITEMS
Lead Department: City Clerk
Meeting Date: June 3, 2026
Report #:2605-6412
TITLE
Recommendation to the City Council on an Ordinance to Amend Palo Alto Municipal Code Title
18 (Zoning) Section 18.18.120 (Noncomplying Uses and Facilities) to Allow Existing Floor Area to
be Replaced in New Buildings Without Increasing the Degree of Existing Non-Compliance. CEQA
Status: Exempt from CEQA per Section 15061(b)(3) (Common Sense).
This item will be a late packet publication released on 5/28/26.
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Economic Development Committee
Staff Report
From: City Manager
Report Type: ACTION ITEMS
Lead Department: Planning and Development Services
Meeting Date: June 3, 2026
Report #: 2603-6068
TITLE
Recommendation to the City Council on an Ordinance to Amend Palo Alto Municipal Code Title
18 (Zoning) Section 18.18.120 (Noncomplying Uses and Facilities) to Allow Existing Floor Area to
be Replaced in New Buildings Without Increasing the Degree of Existing Non-Compliance. CEQA
Status: Exempt from CEQA per Section 15061(b)(3) (Common Sense).
RECOMMENDATION
Staff recommends that the Economic Development Committee recommend that the City
Council adopt an ordinance to modify Palo Alto Municipal Code (PAMC) Section 18.18.120
consistent with the applicant’s request. A unanimous decision from the Committee would
result in the ordinance being placed on the City Council consent calendar for adoption.
EXECUTIVE SUMMARY
On August 15, 2022,1 City Council held a prescreening for an applicant proposed text
amendment to PAMC Section 18.18.120 to allow modifications to the City’s requirements for
non-complying uses and facilities in the Commercial Downtown (CD) District. Although the
applicant chose not to pursue the code change at that time, a formal application for that text
amendment has since been filed.
On October 8, 2025, the Planning and Transportation Commission (PTC) held a study session
and provided feedback on the proposed code change.2 On February 25, 2026, the PTC voted
unanimously to recommend Council approval of the applicant’s proposed text amendment
(Attachment A).
The proposed amendment removes PAMC Section 18.18.120(a)(2)(C) and (b)(2)(C), allowing
replacement of existing noncomplying floor area through renovation or new construction
1 Link to the August 15, 2022, City Council Meeting Study Session (Agenda Item 3):
https://cityofpaloalto.primegov.com/Public/CompiledDocument?meetingTemplateId=9028&compileOutputType=1
2 Link to the October 8, 2025, PTC Staff Report (Agenda Item 3):
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without restriction to the existing building envelope (the three-dimensional shape and size
occupied by an existing building), currently referred to as the “shrink wrap rule.”
BACKGROUND
5 which established the CD District and codified its respective
development standards. Notably, parcels within the newly created CD district had their
allowable floor areas significantly reduced, resulting in many existing buildings exceeding newly
established gross floor area standards. Understanding this, Council adopted amendments to the
PAMC to include a provision allowing for the replacement of noncomplying floor area.
Consistent with a 1988 informational report to Council, buildings were historically permitted to
be remodeled or replaced, even in a manner that modified the building length, height, or width,
provided there was no increase in the building’s non-complying floor area or other non-
complying feature (e.g. height).
However, in 2015 Council raised concerns with how the code was being interpreted and
amended the code through adoption of Ordinance 5373 to better define “building envelope”
and to more clearly specify that noncomplying floor area may not be demolished and replaced
in a manner that results in a change to the three-dimensional shape of the existing building.6
This code was adopted in January 2016. Staff understands that the most recent code
amendments were generally intended to clarify the code, rather than to further specific
policies. The project that precipitated the change was relocating below grade floor area to
above grade locations creating greater building mass and expanding the existing building’s
building envelope.
Prescreening Application
On August 15, 2022, City Council held a prescreening for an applicant proposed text
amendment to PAMC Section 18.18.120. At the time, the applicant requested the change as a
means of allowing modifications to the building envelope at 616 Ramona Street. Although the
current proposal is not tied to a specific development application, the proposed code
amendments are consistent with the broader text amendment proposed at that time. Council
5 Ordinance 3696 is available online at:
6 Ordinance 5737 is available online at:
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provided the following high-level feedback that they would be seeking if the proposed text
amendment returned as a formal application:
Provide the number of properties potentially impacted by a code change.
Highlight the pros and cons of a code change (e.g., Historic impacts, Seismic and ADA
improvements, additional open spaces/roof top terraces, etc.).
Opportunities for Council to incentivize the rebuilding of these noncomplying structures
to include housing.
Relationship with Transfer of Development Rights program, and how they would relate
to this change.
9 the PTC held a study session on the proposed code amendment and
provided general feedback supporting efforts to clarify the Zoning Code and reduce barriers to
reinvestment in existing buildings, while noting concerns about avoiding unintended increases
in redevelopment flexibility beyond pre-2016 standards. The Commission did not take formal
action and continued the item to allow additional staff analysis and coordination with other
ongoing policy initiatives.
10 the PTC considered the revised Zoning Text Amendment in the context
of broader downtown planning efforts, including the Downtown Housing Plan, Senate Bill (SB)
79 implementation, and the Housing Element update. Discussion focused on the implications of
modifying the “shrink wrap rule” on redevelopment feasibility, including effects on
noncomplying buildings, potential housing production, mixed-use redevelopment, and
commercial reinvestment, as well as related considerations around seismic safety and building
modernization. Commissioners also discussed uncertainty regarding the scale of potential
redevelopment and housing outcomes, and the appropriate timing of advancing the
amendment relative to other City initiatives.
Downtown Housing Plan
The City initiated the Downtown Housing Plan to accelerate housing production and expand
9 October 8, 2025, PTC Meeting Agenda Item 3:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=16596
10 February 25, 2026, PTC Meeting Agenda Item 3:
https://cityofpaloalto.primegov.com/Portal/Meeting?meetingTemplateId=19288
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opportunities at all income levels pursuant to the adopted Housing Element 2023 to 2031
Program 1.4. The Downtown Housing Plan focuses on identifying strategies to facilitate new
housing in approximately 90 acres of downtown, generally encompassing properties along
Lytton Avenue, University Avenue, and Hamilton Avenue between Alma Street and Cowper
Street.
13 This report identifies several market and regulatory conditions that have
contributed to limited housing production in the downtown area. Despite its proximity to
employment centers, transit, and services, downtown has produced very little new residential
development in recent years. The few projects that were built largely consisted of high-end
ownership units delivered as part of office development. The assessment explains that high
land values, rising construction costs, and relatively small parcel sizes create significant
feasibility challenges for standalone residential projects. Moreover, commercial office uses
have historically remained financially feasible, contributing to the limited supply of new
residential units downtown. The “shrink wrap rule”, which limits the opportunity to redevelop a
parcel as mixed use, was identified as a challenge to increased housing production downtown.
Senate Bill (SB) 79
This bill, which will become effective on July 1, 2026, allows taller and denser multi-family
housing within one-half mile of major transit stops, that are currently zoned residential,
commercial, and/ or mixed-use. The City Council will consider SB 79 implementation options
affecting policy planning on June 1, 2026.
Housing Element Program 3.9
To implement Housing Element Program 3.9, staff is exploring options to amend the Municipal
Code to create incentives at strategic locations which would shift the economic benefit of
redevelopment toward housing. On March 10, 2026, The Policy and Services Committee
considered policy options14 and recommended the following items be forwarded to City Council
for consideration:
13 The Downtown Housing Plan Community Assessment Report is available online at:
https://www.paloalto.gov/files/assets/public/v/1/planning-amp-development-services/long-range-planning/area-
plans-and-studies/downtown-housing/padhp_community-assessment-report_no-appendix_20250605.pdf
14 Link to the March 10, 2026, Policy and Services Committee Staff Report (Agenda Item 2):
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=86692&dbid=0&repo=PaloAlto&searchid=5bb2015
e-ca14-41e6-907d-cca2f80d801e
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Project Description
The applicant requests approval of a Zoning Text Amendment, which would amend PAMC
Section 18.18.120 [Noncomplying (Grandfathered) Uses and Facilities] by removing subsections
18.18.120(a)(2)(C) and 18.18.120(b)(2)(C). While PAMC 18.18.120 currently allows
noncomplying uses and facilities to be repaired, renovated, or rebuilt, it requires that any
reconstructed noncomplying floor area remain within the original building envelope. The
proposed amendment would allow greater flexibility in how noncomplying floor area is
replaced. Specifically, buildings could maintain their respective non-complying floor areas, but
could have differing heights, footprints, and building envelopes when redeveloped. However,
below-grade floor area still cannot be moved above grade. These building changes would still
be subject to the governing CD District regulations and would not increase the degree of
existing non-complying floor area.
ANALYSIS
302 total parcels zoned CD (228 Property Parcels and 74 airspace subdivisions)
66 parcels with historic resources (Not subject to text amendment)
66 parcels with more than 1:1 FAR (Subject to text amendment)
87 parcels with commercial remodels/additions from building permits from 2011-2025
35 parcels built within the last 30 years (unlikely to rebuild soon), 19 of which are over
1:1 FAR
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Policy Considerations
Historically, Council has taken a conservative approach to noncomplying structures, balancing
the preservation of existing development patterns with opportunities for reinvestment and
modernization. From 1988 to 2016, the City allowed noncomplying buildings to be remodeled
or replaced provided that noncomplying floor area or other noncomplying features did not
increase. Ordinance 537317 in 2016, added more specificity and defined “Building Envelope”,
which had the effect of limiting redevelopment. Staff anticipates the applicant’s proposed
amendment would restore redevelopment flexibility that existed prior to 2016, rather than
introduce new development potential beyond what was historically allowed.
FISCAL/RESOURCE IMPACT
STAKEHOLDER ENGAGEMENT
17 Ordinance 5373 is available online at:
https://recordsportal.paloalto.gov/WebLink/DocView.aspx?id=47244&dbid=0&repo=PaloAlto
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ENVIRONMENTAL REVIEW
ALTERNATIVE ACTIONS
The Committee may also:
ATTACHMENTS
APPROVED BY:
APPLICANT PROPOSED TEXT AMENDMENT
18.18.120 Noncomplying (Grandfathered) Uses and Facilities
(a) Noncomplying (Grandfathered) Uses
(1) The following uses and facilities may remain as legal noncomplying
(grandfathered) uses, and shall not require a conditional use permit or be subject to the
provisions of Chapter 18.70:
(A) Any use which was being conducted on August 28, 1986; or
(B) A use not being conducted on August 28, 1986, if the use was temporarily
discontinued due to a vacancy of 6 months or less before August 28, 1986; or
(C) Any office use existing on April 16, 1990 on a property zoned CD and GF
combining, which also existed as a lawful conforming use prior to August 28, 1986,
notwithstanding any intervening conforming use.
(2) The legal noncomplying uses in subsection (1) shall be permitted to remodel,
improve, or replace site improvements on the same site, for continual use and
occupancy by the same use, provided such remodeling, improvement, or replacement
complies with all of the following:
A) shall not result in increased floor area;
B) shall not relocate below grade floor area to above grade portions of the
building;
C) shall not result in an increase of the height, length, building envelope, building
footprint or any other increase in the size of the improvement. For purposes of
this section, “building envelope” shall mean the three dimensional shape and
size occupied by an existing building. It is not the maximum, buildable
potential of the site;
D)C)shall not increase the degree of noncompliance, except pursuant to the
exceptions to floor area ratio regulations set forth in Section 18.18.070; or
E)D)in the case of medical, professional, general business or administrative
office uses of a size exceeding 5,000 square feet in the CD-S or CD-N district
that are deemed legal noncomplying pursuant to subsection (1), such
remodeling, improvement, or replacement shall not result in increased floor
area devoted to such office uses.
F)E)The Director may approve minor changes to the building’s footprint,
height, length, and the building envelope through Architectural Review of
minor aesthetic architectural improvements and to improve pedestrian-
orientation provided there is no increase to the degree of any non- complying
feature.
APPLICANT PROPOSED TEXT AMENDMENT
(3) If a legal noncomplying use deemed existing pursuant to subsection (1) ceases
and thereafter remains discontinued for 12 consecutive months, it shall be considered
abandoned and may be replaced only by a conforming use.
APPLICANT PROPOSED TEXT AMENDMENT
additional information including, without limitation, third party peer review paid for
at the applicant’s expense.
November 18, 2024
Mr. Jonathan Lait
Director Planning & Development
City of Palo Alto
250 Hamilton Avenue, 5th floor
Palo Alto, CA 94303
Re: Proposed text Amendment to PAMC §18.18.120
Noncomplying (Grandfathered) Facilities
Dear Mr. Lait,
Hayes Group Architects has been working for building owners in the Palo Alto community since 1989.
During this time, I have witnessed a natural evolution of Palo Alto’s downtown with new buildings
replacing older buildings unable to support the requirements of our modern lifestyle and workstyle. Even
old buildings that were rendered non-complying because of Floor Area Ratio limits changing over time,
were allowed to be replaced in newly configured buildings without losing floor area -- until 2016, when the
City’s 25-year old interpretation of the zoning ordinance was abruptly changed, without adequate analysis
or public input.
It is respectfully submitted that it is time to reconsider that poorly-conceived 2016 action and move
forward with a corrective text amendment to the Palo Alto Municipal Code, particularly § 18.18.120.
History
In 1986, the City Council adopted Ordinance 3696, put in place as a reaction to the intensification of
development and traffic congestion in Palo Alto’s downtown. The ordinance reduced the amount of floor
area allowed on a parcel in the CD-C, CD-N and CD-C zoning districts from what had previously been
allowed. It also prudently made provisions for buildings which were rendered “non-conforming” as a
result of the changes in the zoning ordinance, because those buildings now exceeded the newly-reduced
floor area allowed on a parcel. Ordinance 3696 provided that those buildings should be deemed to be
“compliant facilities” and allowed their owners to remodel and replace their floor area in new or renovated
buildings that better served the community and the built environment.
Ordinance 3696 as adopted 1986:
(c) Noncomplying Facilities. Chapter 18.94 notwithstanding, a noncomplying facility existing on
the effective date of this chapter and which, when built, was a complying facility, shall be deemed
to be complying. Such a facility shall be permitted to be remodeled, improved or replaced without
necessity to comply with site development regulations. Any such remodeling, improvement or
replacement shall result in increased floor area, height, length or any other increase in the size of
the facility only pursuant to the exceptions to floor area ratio regulations set forth in section
18.48.060.
The text of the Ordinance written above could have been clearer with regards to the restrictions for
remodeling, improvement or replacement, as its interpretation initially led to some confusion in the
Planning Department. In March 1988, to mitigate this lack of clarity, staff prepared a formal interpretation
of Ordinance 3696 and issued CMR185:8 for review by city council. The CMR reasonably concluded that
buildings could be reconfigured in terms of length, height and width so long as the existing floor area was
not increased. One benefit of this interpretation, among others listed in the CMR, was that it will:
“Permit reasonable flexibility for buildings undergoing remodeling and/or replacement so that improved
building design, that the City has identified over time as contributing to the enhancement of Downtown
Palo Alto, will be encouraged.”
Staff also concluded that such an interpretation would not result in increased non-conformity or non-
compliance in terms of floor area permitted in the rezoned areas, since floor area would not be allowed to
increase- it would only be replaced. And staff further explained that the interpretation adopted in CMR
185.5 would not result in increased non-compliance in terms of building height since any size building
(floor area) is limited to 50 feet in height.
For more than 25 years the City followed the interpretation set out in the CMR above (according to a 2022
staff report) and the City repeatedly approved projects in the CD Districts consistent with this
interpretation until 2015. A partial list of pre 2015 projects (just by Hayes Group Architects) approved by
the City using this interpretation includes the following:
171 University 1996
100 Forest (705 Alma) 1998
317-323 University 2002
101 Forest (657-663Alma) 2004
270 University 2005
278 University 2006
265 Lytton 2006
248 Hamilton 2012
301 High 2012
611 Cowper 2012
There were other projects, in addition to those listed above, that the City approved during this period
designed and built by others. All these City approved projects had at least two things in common: 1) they
all replaced existing non-complying floor area in the replacement building and, 2) they all increased the
height of the building over the building that had previously existed. And, consistent with staff’s rationale
for issuing the CMR in 1988, these new buildings were better buildings contributing to the enhancement
of the Downtown.
However, on January 11, 2016, the City Council adopted Ordinance 5373 that changed the long-standing
interpretation afforded by CMR 185:8 and inserted new language in PAMC §18.18.120. Below is an
excerpt from the January 11, 2016, staff report indicating the changed text: of the ordinance:
18.18.120
(a) Noncomplying (Grandfathered) Uses
(1) The following uses and facilities may remain as legal noncomplying (grandfathered)
uses, and shall not require a conditional use permit or be subject to the provisions
of Chapter 18.70:
(A) Any use which was being conducted on August 28, 1986; or
(B) A use not being conducted on August 28, 1986, if the use was temporarily
discontinued due to a vacancy of 6 months or less before August 28, 1986; or
(C) Any office use existing on April 16, 1990 on a property zoned CD and GF
combining, which also existed as a lawful conforming use prior to August 28, 1986,
notwithstanding any intervening conforming use.
(2) The grandfathered use in subsection (1) shall be permitted to remodel, improve, or
replace site improvements on the same site, for continual use and occupancy by the
same use, provided such remodeling, improvement, or replacement complies with all of
the following:
(A) shall not result in increased floor area:
(B) shall not relocate below grade floor area to above grade portions of the
building shift the building footprint;
(C) shall not result in an increase in the height, length, building envelope, building
footprint or any other increase in the size of the improvement. For purposes of
this section, “building envelope” shall mean the three-dimensional shape and
size occupied by an existing building. It is not the maximum, buildable potential
of the site;
(D) shall not increase the degree of noncompliance, except pursuant to the
exceptions to floor area ratio regulations set forth in Section 18.18.070; or
(E ) in the case of medical, professional, general business or administrative office
uses of a size exceeding 5,000 sf in the CD-S or CD-N district that are deemed
grandfathered pursuant to subsection (1), such remodeling, improvement, or
replacement shall not result in increased floor area devoted to such office uses.
(F) The Director may approve minor changes to the building’s footprint, height,
length, and the building envelope through Architectural Review of minor
aesthetic architectural improvements and to improve pedestrian orientation
provided there is no increase to the degree of any non-complying feature.
(b) Grandfathered Facilities:
(1) Any noncomplying (grandfathered) facility existing on August 28, 1986 and which, when built,
was a complying facility, may remain as a grandfathered facility and shall not be subject to
the provisions of Chapter 18.70.
(2) The Grandfathered facilities in subsection (1) shall be permitted to remodel, improve, or
replace site improvements on the same site, for continual use and occupancy by the same
use, provided such remodeling, improvement, or replacement complies with all of the
following:
(A) shall not result in increased floor area;
(B) shall not shift the relocate below grade floor area to above grade portions of the building;
(C) shall not result in an increase of the height, length, building envelope, building footprint,
or any other increase in the size of the improvement;
(D) shall not increase the degree of noncompliance, except pursuant to the exceptions to
floor area ratio regulations set forth in Section 18.18.070;
(E) The Director may approve minor changes to the building’s footprint, height, length, and
the building envelope through Architectural Review of minor aesthetic architectural
improvements and to improve pedestrian-orientation provided there is no increase to the
degree of any non- complying feature.
The addition of a new and more restrictive definition of the “building envelop” and the addition of a new
limitation to the existing “building footprint” (highlighted in red) in the 2016 Ordinance severely and
unreasonably constrain the potential options for replacing floor area that previously had been allowed to
be replaced in a new, modern building. That new text virtually locks in the existing three dimensional
structure, regardless of how out-of-date or in need of replacement it may be.
The current version of the Ordinance has become colloquially (and not admiringly) known as Palo Alto’s
“shrink wrap” rule because the only building that can replace the existing building with the same floor area
is one that matches the existing building’s envelop as though covered by a thin layer of plastic shrink
wrap. The current ordinance impairs the vested rights of the owners of lawful non-conforming buildings,
and essentially takes a building owner’s previously recognized right to replace their floor area in a new,
modern building, something they had enjoyed since 1986 when the city made the deal with them. As
noted above the 1986 ordinance states that they were still “Complying Facilities” despite their floor area
exceeding the new floor area limits enacted in the 1986 ordinance.
The impact of the ill-considered amendment in 2016 (Ordinance 5373) on the natural evolution of the
Downtown is clear. Since 2016, there has only been one new commercial building approved and built
under the new rules: Design within Reach. The Mills Florist building was approved under the new rules,
but because existing floor area had to be forfeited in the new building, it could not pencil and was
abandoned.
We have seen other buildings constructed since 2016, but they had been approved under the old rules or
the existing floor area did not exceed the allowable 1:1 so no floor area had to be forfeited to build the
new building. It is highly unlikely that an owner would choose to demolish an old building (even if no
longer functional) in order to construct the same building in its place, or to erect a smaller building,
forfeiting floor area of the existing building. The effect of the 2016 amendment has been paralyzing on
our building stock and the natural evolution of the downtown.
Downtowns need to be alive and change for the better. As staff reasoned 1988 in their CMR, buildings
that exceeded the floor area limits were still “complying facilities” allowing them to remodel and replace
their floor area in new buildings that better serve the community and the built environment.
PROPOSED TEXT AMENDMENT
To restore the rights of owners of buildings that exceed the floor area limits of the current site
development regulations in PAMC §18.18.060, we respectfully suggest a minor, but effective, amendment
to the zoning ordinance: subsections 18.18.120(a)(2)(C) and 18.18.120(b)(2)(C) should be removed.
Removing these two sections will allow existing floor area to be replaced in new buildings that better
respond to the natural and built environment. These new buildings may have different footprints, heights
and envelops but they will be able to maintain their existing floor area without increasing the degree of
existing non-compliance.
BENEFITS
The benefits to the downtown are new buildings that respond to the needs of the community, that connect
with the street and sidewalk, that are consistent with the environmental and community initiatives of our
time, and that can provide housing on upper floors. There is no downside. The commercial floor area
exists. There is no increase in the amount of office space, just better buildings, fit for our time. Here are
some additional benefits that will result from this text amendment:
• Incentivize the building of housing in mixed-use buildings. If an owner can replace their existing
commercial floor area, they are more likely to think about building a new building with housing on
upper floors. If commercial floor area cannot be replaced this eliminates many, many, properties
from redevelopment or as potential sites for housing
• No increase in office space
• Access for all those with disabilities
• Meet all current building and life safety codes
• Increased property taxes
• Better buildings with daylighting and highly efficient HVAC systems and solar arrays
• Better pedestrian experience and relationships to the public realm
We are seeking a zoning code text amendment that addresses the benefits of retiring outdated,
noncomplying buildings and encourages building owners to consider new opportunities for their properties
without losing the existing floor area.
We look forward to continuing this discussion.
Please call me at (650) 365-0600x15 if you have any questions.
Sincerely,
Ken Hayes, AIA
Principal
cc: Steve Reller, R&M Properties
Mark Moragne, R&M Properties
*NOT YET APPROVED*
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0160189_20260528_ay16
Ordinance No. _____
Ordinance of the Council of the City of Palo Alto Amending Section 18.18.120 of
Title 18 (Zoning) of the Palo Alto Municipal Code to Allow Greater Flexibility for
Noncomplying Facilities in the Commercial Downtown District
The Council of the City of Palo Alto ORDAINS as follows:
SECTION 1. Section 18.18.120 (Noncomplying (Grandfathered) Uses and Facilities) of
Chapter 18.18 (Downtown Commercial (CD) District) of Title 18 (Zoning) of the Palo Alto
Municipal Code is amended as follows (additions underlined; deletions struck-through):
18.18.120 Noncomplying (Grandfathered) Uses and Facilities
(a) Noncomplying (Grandfathered) Uses
(1) The following uses and facilities may remain as legal noncomplying (grandfathered) uses,
and shall not require a conditional use permit or be subject to the provisions of Chapter 18.70:
(A) Any use which was being conducted on August 28, 1986; or
(B) A use not being conducted on August 28, 1986, if the use was temporarily discontinued
due to a vacancy of 6 months or less before August 28, 1986; or
(C) Any office use existing on April 16, 1990 on a property zoned CD and GF combining,
which also existed as a lawful conforming use prior to August 28, 1986, notwithstanding
any intervening conforming use.
(2) The legal noncomplying uses in subsection (1) shall be permitted to remodel, improve, or
replace site improvements on the same site, for continual use and occupancy by the same
use, provided such remodeling, improvement, or replacement complies with all of the
following:
(A) shall not result in increased floor area;
(B) shall not relocate below grade floor area to above grade portions of the building;
(C) shall not result in an increase of the height, length, building envelope, building
footprint or any other increase in the size of the improvement. For purposes of this
section, “building envelope” shall mean the three dimensional shape and size occupied
by an existing building. It is not the maximum, buildable potential of the site;
(D)(C) shall not increase the degree of noncompliance, except pursuant to the exceptions
to floor area ratio regulations set forth in Section 18.18.070; or
*NOT YET APPROVED*
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0160189_20260528_ay16
(E)(D) in the case of medical, professional, general business or administrative office uses
of a size exceeding 5,000 square feet in the CD-S or CD-N district that are deemed legal
noncomplying pursuant to subsection (1), such remodeling, improvement, or
replacement shall not result in increased floor area devoted to such office uses.
(F)(E) The Director may approve minor changes to the building’s footprint, height, length,
and the building envelope through Architectural Review of minor aesthetic architectural
improvements and to improve pedestrian orientation provided there is no increase to the
degree of any non- complying feature.
(3) If a legal noncomplying use deemed existing pursuant to subsection (1) ceases and
thereafter remains discontinued for 12 consecutive months, it shall be considered abandoned
and may be replaced only by a conforming use.
(4) A use deemed legal noncomplying pursuant to subsection (1) which is changed to or
replaced by a conforming use shall not be reestablished, and any portion of a site or any
portion of a building, the use of which changes from a legal noncomplying use to a conforming
use, shall not thereafter be used except to accommodate a conforming use.
(b) Noncomplying (Grandfathered) Facilities
(1) Any noncomplying (grandfathered) facility existing on August 28, 1986 and which, when
built, was a complying facility, may remain as a legal noncomplying facility and shall not be
subject to the provisions of Chapter 18.70.
(2) The legal noncomplying facilities in subsection (1) shall be permitted to remodel, improve,
or replace site improvements on the same site, provided such remodeling, improvement, or
replacement complies with all of the following:
(A) shall not result in increased floor area;
(B) shall not relocate below grade floor area to above grade portions of the building;
(C) shall not result in an increase of the height, length, building envelope, building
footprint, or any other increase in the size of the improvement;
(D)(C) shall not increase the degree of noncompliance, except pursuant to the exceptions
to floor area ratio regulations set forth in Section 18.18.070;
(E)(D) The Director may approve minor changes to the building’s footprint, height, length,
and the building envelope through Architectural Review of minor aesthetic architectural
improvements and to improve pedestrian-orientation provided there is no increase to the
degree of any non- complying feature, except as provided for rooftop access and
amenities in Section 18.18.060(e).
(F)(E) The residential portion of any legal noncomplying facility shall not be converted to
a non- residential land use or reduced in gross floor area or number of units. An applicant
asserting that the operation of this subsection (F) is preempted by state or federal law
*NOT YET APPROVED*
3
0160189_20260528_ay16
shall submit a statement of its position with all claims and all supporting documentary
evidence at the time it applies for a change of use. The City Council shall hold at least one
noticed public hearing in accordance with the procedures set forth in PAMC 18.77.080 to
consider whether to waive or adjust the requirements of one or more provisions of Titles
18 or 21. The City Council may seek additional information including, without limitation,
third party peer review paid for at the applicant’s expense.
SECTION 2. The Council finds that this Ordinance is exempt from the California
Environmental Quality Act (CEQA) pursuant to CEQA Guidelines Section 15061(b)(3) because it
can be seen with certainty that there is no possibility that it will have a significant effect on the
environment.
SECTION 3. This Ordinance shall be effective on the thirty-first date after the date of
its adoption.
INTRODUCED:
PASSED:
AYES:
NOES:
ABSENT:
ABSTENTIONS:
ATTEST:
____________________________ ____________________________
City Clerk Mayor
APPROVED AS TO FORM: APPROVED:
____________________________ ____________________________
Assistant City Attorney City Manager
____________________________
Director of Planning and
Development Services
Text Amendment
“Shrink Wrap” PAMC Section 18.18.120
Economic Development Committee
June 3, 2026 www.PaloAlto.gov
Presenter:
Steven Switzer, Senior Planner
Shrink Wrap Text Amendment
BACKGROUND
www.PaloAlto.gov
Legislative History
•CD District established in
1986 (Ordinance 3696)
•1988 report concluding
buildings can be
remodeled or replaced
if no increase in
noncompliance
•27 years of consistent
staff interpretation
3
Legislative History
•2013: Proposal to relocate 5,910 square feet
from the basement of 261 Hamilton to a rear
addition.
•2014: Council clarified that Section 18.18.120
prohibits shifting “Noncomplying” building
area in Downtown, including from below
grade to above grade.
•2015: Council directed staff to prepare a code
amendment to reinforce this provision.
4
Legislative History 2022 Prescreening Direction:
•Number of properties potentially impacted
•Highlight the pros and cons of a code change
(e.g., Historic impacts, Seismic and ADA
improvements, additional open spaces/roof top
terraces, etc.)
•Opportunities for Council to incentivize the
rebuilding of these noncomplying structures to
include housing.
•Relationship with Transfer of Development
Rights program.
•2017: Ordinance 5373 clarified
the definition of “building
envelope” and prohibited
replacing noncomplying floor
area in a way that alters a
building’s three-dimensional
shape.
•2022: Prescreening to allow the
replacement of noncomplying
floor area at 616 Ramona Street.
5
Shrink Wrap Text Amendment
PROPOSED
TEXT AMENDMENT
www.PaloAlto.gov
•Remove Subsections 18.18.120(a)(2)(C)
and 18.18.120(b)(2)(C)and references
to “Grandfathered”
•This would allow existing noncomplying
floor area to be demolished and
replaced (renovations/new
construction) with differing heights,
footprints, and building envelopes.
•Attachments A & D
Draft Amendment
7
Text Amendment
CONSIDERATIONS
www.PaloAlto.gov
KEY CONSIDERATIONS
•PTC Feedback:
•Support for reducing
development barriers and
recommendation of approval
•City-Led Initiatives Downtown
•Downtown Housing Plan
•Senate Bill (SB) 79
•Housing Element Program 3.9
•Properties potentially affected
(Attachment C)
•Council Priorities of Housing &
Economic Vitality
9
•302 total parcels zoned CD
•87 parcels with remodels/additions
from 2011-2025 building permit data
(unlikely to rebuild soon);
•19 of the 87 have more than 1:1 FAR
•66 parcels with more than 1:1 FAR
(47 parcels likely affected)
Properties Affected
RECOMMENDATION
Recommend that the City Council adopt an ordinance to
modify Palo Alto Municipal Code (PAMC) Section 18.18.120
consistent with the applicant’s request.
A unanimous Committee decision would result in the ordinance
being placed on the City Council consent calendar for adoption.
11
STEVEN SWITZER
Senior Planner
Steven.Switzer@PaloAlto.gov
650-329-2321
TEXT AMENDMENT
DOWNTOWN PALO ALTO PROJECTS
1986 -2016
This could mean that a two-story 10,000 sf building could
become a three-story 10,000 square foot building with a reduced
building footprint so long as the height limits were not exceeded.
Such an interpretation permits “reasonable flexibility for buildings undergoing remodeling and / or
replacement so that improved building design, that the city has identified over time as contributing
to the enhancement of Downtown Palo Alto, will be encouraged”.
10,000 SF
10,000 SF50 feet
MARCH 10,1988 CITY MANAGER’S REPORT TO COUNCIL
Council adopts Ordinance 5373 during controversy on 261 Hamilton
PAMC 18.18.120 (a)2(C) and (b)(2)(C) … grandfathered uses and facilities are permitted to remodel,
improve or replace site improvements on the same site for continued use and occupancy provided
such remodeling, improvement or replacement complies with all the following:
(A)Shall not result in increased floor area
(B) Shall not relocate below grade floor area above grade
(C) Shall not result in an increase in the height, length, building envelop, building footprint, or any
other increase in the size of the improvement. For purposes of this section, “building
envelop” shall mean the three-dimensional shape and size occupied
by an existing building. It is not the maximum, buildable potential of the site.
BIRTH OF THE SHRINK WRAP RULE
(SWR)
SHRINK WRAP RULE
Shrink Wrap Rule (SWR) renders noncomplying facilities frozen in time unless an owner wants to ELIMINATE EXISTING FLOOR AREA to build a new, better building.
In a CLASS B building, existing commercial floor area is worth at least
$1,200 PSF
•SWR says to replace a building AND existing floor area, the new building must match the existing building’s 3D shape and floor-to-floor and floor-to-roof heights.
No owner is going to tear their building down to build back the same building –existing buildings are paralyzed
•To replace a building with a new, better building with greater floor –to –floor heights and reconfigured footprint, or to provide housing, the new building must eliminate
existing, non-complying, floor area. Therefore, an existing, two-story building (FAR 2:1) must eliminate one story and a three-story building (FAR 3:1)must eliminate two
stories of existing floor area to be compliant. For a 5,000 SF site, common in the downtown, this is at least:
$6M -$12M IN VALUE
No owner is going to tear their building down to lose value –existing buildings are paralyzed
SHRINK WRAP RULE
EXISTING BUILDINGS ARE PARALYZED
NEW BUILDINGS BUILT IN THE DOWNTOWN SUBJECT TO THE SWR SINCE JAN 2016 –10 years
0
In 10 years = PARALYSIS
BENEFITS TO THE DOWNTOWN and BUILDING OWNERS BY ELIMINATING THE SWR
•Better accessible, code-compliant, healthier buildings responding to contemporary needs
•Greener, daylit, energy efficient, all electric buildings with solar arrays offsetting embodied carbon
•More desirable retail spaces with higher ceilings and storefronts to attract retailers to Palo Alto
•Encourages owners to think about building mixed-use housing projects because they can replace their commercial floor
area
•Increased tax base
•No increase in commercial floor area
Restores the natural process of renewal that was interrupted by the SWR in 2016 and it is fair to building owners who
have paid property taxes and parking assessment in-lieu fees for years on the existing floor area and who might soon be
asked to pay assessment fees for the downtown improvement plan.
RENEWAL
Remove Shrink Wrap Rule subsections 18.18.120 a(2)C and 18.18.120 b(2)C
TEXT AMENDMENT
Removing these two sections will allow existing floor area above grade to be replaced in new buildings that better
respond to the natural and built environments. These new buildings will have different footprints, heights and
envelops and they will be able to maintain their existing floor area without increasing the degree of noncompliance
while complying with all other site development requirements.
TEXT AMENDMENT
PTC & CC
2025
MUMFORD
LEWIS MUMFORD urban theorist and historian of cities
“The city must periodically divide and renew itself or risk suffocation”
Mumford warned that cities that refuse to divide and regenerate become stagnant and diseased
Mumford believed that cities should grow like living organisms, shaped by human needs, nature and history
THE SHRINK WRAP RULE HAS LED TO A PARALYSIS ( eventual SUFFOCATION ) OF OUR DOWNTOWN
DOWNTOWN HOUSING PLAN FOCUS AREA PARCEL DISPOSITION
DOWNTOWN HOUSING PLAN FOCUS AREA PARCEL DISPOSITION
According to my plan area, there are approximately 276 parcels in the study area. Subtracting recently
redeveloped parcels, historic properties, public facilities and residential parcels from this leaves
98 properties available for redevelopment.
Of these, 42 (43%) are subject to the SWR and will likely not redevelop.
According to the city’s map the numbers are worse 47/66 = 71% subject to SWR
PAMC 18.49.040 (C) Noncomplying Facilities -Reads facilities that when built were complying
facilities shall be deemed to be complying “such a facility shall be permitted to be remodeled,
improved or replaced without necessity to comply with site development regulations. Any such
remodeling, improvement or replacement shall result in increased floor area, height, length or any
other increase in the size of the facility only pursuant to exceptions to floor area ratio regulations.”
1986. PAMC 18.49.040 (C) Non-complying Facilities
MARCH 10,1988 CITY MANAGER’S REPORT TO COUNCIL
CD District noncomplying buildings
Where existing floor area at or above grade is eliminated (whole building or portion demolished)
Such buildings would be permitted to be remodeled and replaced provided there would be no increase in the
building’s noncompliance, in floor area or in height. However, in remodeling or in replacing, such buildings would
be permitted to be reconfigured in terms of length, width and height so long as existing floor area was not
increased (except for permitted exceptions).Also, in no event would a building’s height be allowed to exceed 50
feet.
MARCH 10,1988 CITY MANAGER’S REPORT TO COUNCIL