A report prepared for next Wednesday's council meeting recommends the three administrators withdraw the offer for Mr Vellar's company to develop the pavilion on the basis the project "has not progressed within what is considered a more than reasonable time" since a call for expressions of interest was made in 2002.

Pavilion Enterprises was issued a draft agreement for lease in 2004 but the lease was only to begin once a development application was approved.

A development application lodged by Mr Vellar was rejected by the council in January this year. No amended application has been submitted since.

The Mercury reported last week that a decision to axe the lease could lead to legal action by Mr Vellar to recoup almost $200,000 he has already spent on the project.

But the report to next week's meeting says legal advice "states that having validly determined the development application, (the) council would not be subject to any claims by the developer".

As of February 2007, Pavilion Enterprises had spent $194,250.

Mr Vellar was planning to turn the heritage-listed building into a modern glass and steel structure with a restaurant and cafe.

Yesterday, Mr Vellar was not aware of the council's move and declined to comment on the issue.

The council's moves to lease the pavilion drew criticism from activists and some independent councillors.

Eventually the proposal was passed, largely on the votes of Labor councillors.

The recent Independent Commission Against Corruption hearings revealed Mr Vellar had an affair with council town planner Beth Morgan, who was assessing the project.

The council's new draft management plan has allocated resources to investigating redevelopment of the bathers' pavilion between now and the 2009-10 financial year.