The Dunedin City Council will now reconsider the future of the site, as well as two other community buildings in Ocean Grove, the domain hall and the sports club rooms at the recreational reserve.
Council recreation planning and facilities manager Jendi Paterson said the council had been advised the Andersons Bay Community Kindergarten no longer wanted the site.
In December, the council approved a 20-year lease for the kindergarten, which operated from a building at the Andersons Bay Presbyterian Church, in Silverton St.
Dwindling numbers, finances, and repair costs which could not be covered meant the church closed in 2015, and the kindergarten had been looking for a new home.
Head teacher Lyn Morton said late last year the issue still had to be discussed at a committee meeting, and with parents, before the lease was confirmed.
She said yesterday the decision not to take up the lease had been made partly for financial reasons, and partly because another site in Jeffery St, by Andersons Bay School, had become available.
Last year's decision to give the kindergarten the lease followed almost five years of discussion on the future of the school, which was closed by the Ministry of Education in 2010.
Ngai Tahu bought the land, then sold it to the council in 2012 for $300,000.
Last year the council called for expressions of interest, and applications included proposals to use the site as a motorhome caravan park, a Montessori school, football fields, a transitional home for homeless youth and a freedom camping site.
Councillors voted to give the lease to the kindergarten.
Ms Paterson said the council would now look at other options for the site and buildings.
''Any future option will take into consideration the two existing community buildings in the Ocean Grove area.''
