On Wednesday the council confirmed it was readvertising for developers to take on the project, despite Queenstown Marina Developments spending four years and more than $2 million securing resource consents for the project.
Council project manager Ken Gousmett said council was driven by legal agreements and was sympathetic to Queenstown Marina Developments Ltd.
He said the issue was discussed at a public-excluded council meeting in April this year.
The company had a chance to address council and put its case forward.
However, councillors decided to terminate the agreement because the company had failed to meet a number of key requirements within the agreed 12 months.
After council had extended the deadline to two and a-half years, the company had still not managed to finalise its resource consent and had not secured a lease of the lakebed from LINZ.
It also had not given council sufficient information on how it would fund the project, he said.
The company was informed about the termination in May and had been invited and encouraged to submit a new expression of interest, Mr Gousmett said.
The council was legally entitled to terminate the agreement if requirements were not met.
"Council was not in mind to continue rolling the agreement on. We had been quite lenient in terms of timing, but council felt it necessary to negotiate with the party, but to allow other parties with bona fide proposals to come forward," he said.
He was not aware of any interested developer yet, but the original call for expressions of interest had attracted five submissions, he said.
The council is calling for a staged, 200-berth, offshore marina and onshore support facilities such as buildings and carparks at the council-administered Frankton Marina Reserve.
Queenstown Marina Developments finalised its resource consent for the 3870sq m onshore development and the 240-berth marina after lengthy Environment Court appeals were settled last week.
One appellant, Ross Wensley said his minor objections regarding car parking at his Frankton Rd development were "long resolved".
He encouraged Queenstown Marina Developments to "get organised and get the marina developed because so many people in Queenstown are looking forward to it".
He was disappointed in the council's decision.
"I don't want the process to start all over again. It would take any other person years and millions to try to get the project organised," he said.
Frankton Marina user Owen Fallow, of Water Sport World, said council's decision was ridiculous.
"It seems ridiculous that the council can go and get out of an agreement when the guy has consent. It's hard to believe," he said.
Quality marina facilities were badly needed in the district.
Queenstown Marina Developments director Buzz March said he hoped to negotiate with council to reinstate the agreement.
He had not decided whether he would submit a new expression of interest by the October 2 deadline.
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