The council had been approached by the four families who expressed their interest in late February in taking over the scheme.
But on June 30 the scheme had an $11,605 loan, which the families had also requested be forgiven.
Cr Sarah Greaney said she was concerned if the council forgave the loan on top of gifting the scheme, it could establish a precedent that could negatively affect the council in the future.
"It could be halls or water supplies, it could be anything ... it’s the principle that sits behind it and I don’t feel comfortable looking at a write-off when compensation is just a $1 for an asset that is worth over $400,000."
Cr Julie Keast also said she was uncomfortable about forgiving the loan but comfortable with the water asset being divested to new ownership.
The households on the scheme had formed a new company, Matuku Water Supply Ltd, that would become responsible for the ongoing administration of the scheme. Each family would contribute $10,000 as working capital with further contributions as required.
Cr Matt Wilson said the families had said they believed they could run the scheme more economically.
The council had been funding the annual running costs of the scheme since it was vested to the council about 1970.
Staff recommendations to the council stated it was not considered a strategic asset as the transfer only affected a small number of people.
The council decided to reserve its decision to forgive the loan until further information could be gathered.
By Toni McDonald
