The council paid almost $14 million for the former Walker property at 516 Ladies Mile in May 2019.
The 14.6ha site comprises a five-bedroom copper-roofed house, 320sq m of vehicle/aircraft garaging and an in-ground swimming pool.
The council had planned to develop the building into a new community facility - a public open day in March was attended by 300 people, many of whom provided suggestions as to how the building could be adapted to meet community needs in the short term.
However, sport and recreation manager Simon Battrick said after engaging an architect during the design stage they discovered the issues with the cladding, "which would not otherwise have been apparent until that point".
The presence of the black mould would mean all the cladding would need to be replaced, along with all windows and interior framing panels.
"This would add a significant remediation cost over and above the $3.66 million budget allocated by councillors in February to retrofit the existing building and create an interim community centre while we developed plans for a brand new multi-purpose facility," Mr Battrick said.
The incoming council would be presented with two options - to install one or more temporary buildings, similar to what was recently used as a short-term community centre in Luggate, or bring forward plans for the new build as part of the next long-term plan.
Mr Battrick said the council purchased the property for the strategic long-term value of the land - at that stage, it did not intend to reuse the existing house.
Subsequently, however, councillors asked staff to investigate retrofitting the former home for use as a community facility.
"Having got this far I naturally share the disappointment of the local community on this temporary setback, but I’m also excited by the site’s future potential," he said.
"We will continue to work closely with local groups including the Lake Hayes and Shotover Community Association on the next steps."
