La Conner Weekly News - Your independent hometown award-winning newspaper

People in town were pretty excited to see a “pending” banner over the real estate sign on the side of the old Palmer’s Restaurant building on La Conner’s waterfront.

The 7,300-square-foot building went back to the bank in 2010 and, except for a small art gallery in front, has been sitting vacant ever since.

But the building, which was listed at $449,000, fell out of escrow last week, according to listing agent Dick Nord of Windermere Real Estate. The potential buyer was set to open a new restaurant and had funding all set up with the bank but backed out, fearing uncertainty in state waterfront lease rates.

“It’s really upsetting,” Nord said.

La Conner’s First Street businesses with over-water structures make lease payments to the Washington State Department of Natural Resources for the portions of their buildings that are over the water.

Most of the La Conner leases are for 30-year terms and are set to expire over the next two years, said DNR spokeswoman Toni Droscher. The department will negotiate new lease rates with each individual property owner, she said.

According to an email from Droscher, factors the agency considers when setting lease rates include whether or not the property has public access, whether the business is water dependent, its attention to environmental protection and its use of renewable resources.

The 1916 Palmer’s building appears to fall short on the potentially money-saving considerations. Most of the waterfront structures in La Conner were built in the 1800s, and town officials fear they could all fare poorly under the new lease criteria.

Nord said the lease payment on the Palmer’s building is about $7,000 per year. The potential buyer was worried that amount could double or triple, he said. “He couldn’t estimate how his business would do ...He felt like he had a gun to his head and decided that before they pulled the trigger, he’d get up out of the chair and leave.”

Droscher, in an email, said the town benefits from DNR lease payments. “The state only retains 25 percent of the rents generated by leases in LaConner — the remaining 75 percent is returned directly to the city,” Droscher wrote.

But Town Hall is not going along with that and has been actively lobbying to prevent big increases.

“The amount of revenue from the lease rates is not enough to justify bankrupting businesses,” said Mayor Ramon Hayes. “We’d much rather benefit from sales tax revenue from viable, vibrant healthy businesses,” he said.

Last year the town received about $58,000 as its share of the DNR leases. That may sound like a lot, but Hayes said, “It’s paltry compared to what we would lose when businesses are unable to operate on the waterfront because the leases are too high.”