No area in Palo Alto has seen as much change during the past few years as California Avenue, which has just undergone a full-scale makeover and which remains at the epicenter of the local construction boom.

Yet there's one thing that city officials and residents are hoping to preserve about the city's "second downtown": the eclectic, independent and neighborhood-serving vibe.

To that end, the City Council on Monday unanimously passed a law that would regulate chain stores on the bustling strip — an idea that was sparked by a grassroots effort from California Avenue merchants last year.

The law would apply to "formula retail," businesses with 10 or more locations in the United States with standardized characteristics, including "merchandise, menu, services, décor, uniforms, architecture, facade, color scheme, signs, trademark or servicemark," according to the ordinance.

Such businesses would be required to obtain conditional-use permits from the city before they could open on California Avenue. Residents would also have the ability to appeal the approval of the permit.

The new law would not apply to California Avenue's existing chain-store tenants, including Benjamin Moore Paints, The Counter, FedEx, Starbucks and Subway.

In supporting the new law, council members emphasized that they're not trying to solve an existing problem but preventing a potential one. With property values skyrocketing and rents increasing, many long-standing mom-and-pop operations have left California Avenue in recent years. This includes Avenue Florist, Bargain Box, Club Illusions and Cho's Mandarin Dim Sum.

"We don't want retail and personal services to have to compete with today's office rates and get driven out," Councilman Pat Burt said during Monday's discussion. "That's really what has been a big concern."

He noted that offices on California Avenue are now reaching rates of $5 per square foot and "small retail folks who've been there a long time can't compete."

Burt also stressed that the goal isn't to rid California Avenue of chain stores but to "prevent formula retail from overwhelming California Avenue — to have the right balance between formula and local retails."

The council's action has plenty of precedent across the state with a long list of cities that currently regulate chain stores, including Calistoga, Los Gatos and San Francisco. Each city has its own definition of formula retail and a mechanism for regulating such stores.

Jessica Roth, owner of The Cobblery on California Avenue and a leading proponent of limiting formula retail (Roth submitted a petition with more than 700 signatures from people supporting a ban on chain stores last year), was present at Monday night's meeting.

"I hope we can continue the success of something like this (chain-store regulation) in Palo Alto," Roth told the council.

In addition to regulating chain stores on California Avenue, the ordinance would also extend to Cambridge Avenue, effectively requiring redeveloped properties on the street to include ground-floor retail.

This provision proved to be among the most controversial and debated. Council members struggled to determine whether the extension to Cambridge would produce the desired results of producing more retail.

While agreeing to extend the retail district, the council directed staff to return at a future meeting with more information about the "depth of retail" that should be required on Cambridge to make businesses viable.

Steve Pierce, the applicant behind a proposed development at 380 Cambridge Ave., was among the skeptics.

Pierce said while he supports the general drive to support independent businesses and limit chain stores, he opposes the extension of the retail zone to Cambridge Avenue, which he said is ill-suited for shopping. Most potential retailers, he argued, will look at the "retail on one side and parking lots across the street ... and say, this is not where we can survive."

"Retail is kind of a unique use and it's not one of those things where you can say zone it and they shall come," Pierce said. "Retail needs a lot of nuanced things to be able to locate."

But Larry Skarset, who owns Cambridge Barber and Beauty Salon at 382 Cambridge Ave., disagreed. His business is one of three that currently operates at the site of the proposed development by Pierce.

"Maybe it's not great retail, but it's been good to me," Skarset said.

The area, he said, is "changing too fast."

"It affects me and I hate to see some of the small businesses being taken out," Skarset said.

Several council members said they were cautious about bringing new rules to Cambridge Avenue, including Councilwoman Liz Kniss who said the proposed ordinance "isn't fully cooked yet."

The council, Kniss said, is "indicating that retail has to go in there and yet we're really not providing for the parking" in the congested business area.

Councilman Burt was more confident about the move, though he also acknowledged his "sense of caution."

"I just don't want to be overconfident that just because we desire an outcome, we can mandate it," he said.

Vice Mayor Greg Schmid acknowledged that the city is "experimenting" with new things and suggested that the council revisit the ordinance in two years, a recommendation that the rest of the council accepted.

Mayor Karen Holman, meanwhile, was among the most enthusiastic proponents of the new law and argued that after many months of discussion, the time has come to move forward. Kicking the can down the road, she said, would be "inviting more intrusion."

"I think we have promised the community and the California Avenue merchants and businesses along there that we'd take actions," Holman said.