Negotiations between the city of Monterey and Safeway appear to have broken down earlier this year because the grocery giant initially balked at paying the city more rent in a renegotiated lease.

“I don’t want to get into the details,” says Monterey City Manager Fred Meurer. “But one of the stumbling blocks has been when do the new payments start and what are they? And that’s just one subset. There’s a whole range of issues that we have been negotiating for years.”

Safeway officials did not return several calls for comment.

Safeway has done business at the location since 1951, but its lease will run out in April 2006.

Although details of the proposed lease were not available at press time, city officials confirmed that Safeway has only been paying $265 a month for the 21,500-foot structure and underlying property at 570 Munras Ave.—a staggeringly low rent for the downtown site, totaling a mere $3,180 annually.

“You know, it would have been nice if some of that money had been re-invested in that store or property,” Meurer says. “Walk down there today and look at that property and tell me it’s what the citizens of Monterey deserve. It’s not.”

According to Assistant City Manager Fred Cohn, the rent was so low because the city inherited a “very, very old” lease when it bought the property from Mutual Life Insurance in 1981.

“The way the lease was transferred,” he explains, “we didn’t have the ability to change any lease terms or reset the rent, and that’s very common when you purchase a property subject to an incumbent lease. So we didn’t get a chance to put in place our normal protocols for achieving market rent.”

The new lease, which would take effect in May 2006, re-establishes something close to fair market value for the property, and includes standard city charter provisions such as regular five-year rent reviews. City officials would not put a price tag on “fair market value” for the property.

According to city officials, Safeway representatives dragged their feet during negotiations and complained that they couldn’t afford the rent increase until after the proposed remodels were complete.

“There were a number of deal points involved in the negotiation where Safeway didn’t want to meet our expectations and we didn’t think those expectations were unreasonable,” Cohn says.

As a result, city officials announced they would once again consider other development proposals—a decision which has resulted in the review of new proposals from both Safeway and a competitor, Trader Joe’s.

“We want to make sure that our future relationship with [Safeway], if it even happens, assures what the public deserves,” Meurer says. “We also want to make sure the new Safeway doesn’t look like one lifted out of strip mall USA, either. The citizens of Monterey deserve better. That’s supposed to be the gateway to Monterey.”

Adds Meurer: “It’s also common knowledge that Safeway has closed a lot of stores. We want to make sure that if that was ever to happen in downtown Monterey, the City has control over what would go in there.”

Safeway representatives have said that they want to add an additional 10,000 feet to the existing building, and renovate it into a “Safeway Lifestyle,” store, featuring a larger deli, more organic foods, a sushi bar, a full-service bakery and upscale wines.

The Trader Joe’s proposal, on the other hand, includes a 12,000-square-foot, full-service Trader Joe’s, and small stores—most likely cafés with sidewalk dining, coffee stores and specialty retailers—lining the sidewalk frontage along Munras Avenue.

Last week, the City convened a special closed session conference with real estate negotiators from Safeway and Trader Joe’s developers. Another closed session is scheduled for the Oct. 4 City Council meeting, but according to officials, there is no timetable for when a decision will be made.