A group of downtown business leaders is suing the city of Menlo Park in an effort to block a proposed redevelopment of three parking lots into at least 345 units of affordable housing.

The alliance, Save Downtown Menlo Park, filed a lawsuit against the city Monday to stop its request for developer qualifications for the parking lots and to cancel that process. The lawsuit seeks to compel the city to follow the state’s Surplus Land Act, arguing the land must be declared surplus before development proposals can be considered. The group also is requesting the city pay their legal fees.

City officials confirmed Wednesday that they are aware of the lawsuit, but had not yet been formally served.

“The city is releasing this information for transparency while it reviews the filing,” Menlo Park said in an email Wednesday.

The complaint centers on whether the city has the legal authority to redevelop parking plazas 1, 2 and 3, located off Santa Cruz Avenue at Maloney Lane, Chestnut Street and Crane Street. Opponents of the potential project argue that the redevelopment will remove more than 500 parking spaces, which they say will severely impact small business revenues, even if the removal is temporary.

However, proponents and affordable housing advocates stress the urgency of building housing quickly on all available sites as the region grapples with a worsening housing crisis.

Save Downtown Menlo Park argues the lots were acquired, at least in part, through eminent domain in the 1950s and that the city holds them in a “fiduciary capacity” — essentially acting as a trustee for public use, not for private development. The group points out that downtown property owners continue to pay special assessments to fund and maintain the parking, reinforcing their claim.

The city disputes that interpretation.

In a previous email to this news organization, Assistant City Manager Stephen Stolte said he was not aware of any law “that grants assessment payers a vested right in the assessment district improvements, provides that improvements shall perpetually remain in the same form, or provides that improvements may not later be changed or abandoned in the public interest.”

The lawsuit also claims the city violated the Surplus Land Act by deferring a formal declaration that the land was surplus earlier this year — a legal step required before publicly owned land can be sold or leased — while still advancing the request for qualifications process.

The city has not responded to that allegation as it continues to review the complaint.

Seven developers already have submitted proposals, including Alliant Communities, Eden Housing, MidPen Housing, Path Ventures, Presidio Bay Ventures, Related California and Alta Housing, Pacific Cos. and West Development Partners. All proposals include plans to replace or address parking and signal a willingness to collaborate with local stakeholders.

Save Menlo Park’s lawyers have not responded to requests for comment. Since launching its campaign earlier this year, Save Downtown Menlo Park has collected more than 3,585 petition signatures and raised more than $146,000 — mostly for legal expenses.

Kevin Cunningham, a downtown property owner and one of the group’s lead organizers, previously said the city’s decision to move forward with the proposals has deepened frustration among business owners already uneasy about the city’s economic climate.

The group, which maintains it is not anti-housing, has suggested that the city consider alternative sites — such as the Civic Center, two blocks away — to avoid disrupting downtown parking.

Housing advocates argue that all viable sites must be considered to meet urgent demand.

In addition to opposition from project critics, Menlo Park faces pressure from both state officials and local advocates to increase housing production, particularly in one of the region’s most expensive cities, home to tech giant Meta and several major venture capital firms.

Amid a severe housing crisis, state regulators have in recent years been closely monitoring cities’ compliance with housing laws.

Failure to follow through on approved housing plans — officially known as housing elements — can lead to decertification, exposing cities to the “builder’s remedy,” a legal tool that allows developers to bypass local zoning if 20% of the proposed units are affordable.

Noncompliant cities also risk losing access to state and federal grants.

Menlo Park’s state-approved housing element outlines plans for nearly 3,000 new homes by 2031. Across the Bay Area, cities are collectively targeting the construction of 442,000 units during the same period, according to the Association of Bay Area Governments.