A plan that would have saved the iconic but derelict Piccadilly Theatre from ruin was killed off by Perth City Council at the 11th hour after complaints from a rival venue.

Piccadilly Theatre in the city would have been saved if the council had gone ahead with a $1.7 million sponsorship deal with Mellen Events to host 1300 live performances at the venue over a decade.

If it had gone ahead, the Asia-based owners would have spent about $3.5 million restoring the theatre to its former glory.

The theatre is in disrepair, and is beset with asbestos, water damage and a crumbling roof.

Sources claim it has occasionally been used by squatters since closing three years ago.

We see that as a potential risk of making sure that there is less money available for other arts groups

The sponsorship deal initially had unanimous support from the Lord Mayor Lisa Scaffidi and councillors and was widely praised as a way to stimulate the struggling mall, with projections it would lure nearly one million visitors over the next decade.

Even if only 10 per cent of the visitors used council carparks, they would have more than repaid the sponsorship cost.

The council’s economic development and activation directorate labelled the sponsorship deal the most sensible and logical opportunity presented to the city.

However, the proposal was rejected by six of the nine councillors, including Ms Scaffidi, when it went to council this week.

Mellen Events has had to shelve the plan because it is unable to make ends meet on the project without the sponsorship.

Camera Icon Inside the theatre today. Credit: Michael Wilson

The owners are likely to revert to a previous plan to convert it to a big floorplan retail outlet.

Cr Reece Harley told council it may spell the end for the entertainment venue.

“If we’re not to support this then I fear that the Piccadilly cinema will be no more,” he said.

Cr James Limnios said it was a massive loss for struggling city retailers who are reeling under unprecedented 25 per cent vacancy rates in offices and some malls.

“The retailers I speak to, the tenants I speak to, the businesses I speak to, are screaming for help — they are asking us to give them some support,” he told council.

The council’s U-turn came after submissions from Miles Hull, the secretary of Happy Heart, which is restoring Rechabites Hall in Northbridge as a performance and hospitality venue.

If we’re not to support this then I fear that the Piccadilly cinema will be no more

Mr Hull sent questions and comments to the council that it was essentially underwriting the establishment of a commercial entertainment venue that would compete with other venues that do not receive the same benefit.

Happy Heart director Adrian Fini said the sponsorship deal was unfair for other arts groups.

“We see that as a potential risk of making sure that there is less money available for other arts groups,” he said.

Mr Fini conceded he received a benefit for his rival Happy Heart project, with three years free rent on the Northbridge Hall, with rent to increase gradually to $200,000 a year by the fifth or sixth year.

But he said the incentive was not unusual in the current market, and the group would spend $3 million to renovate it as a performance space and bar.

He said he did not meet Ms Scaffidi over the matter.

Camera Icon Shoppers in Piccadilly Arcade. Credit: The West Australian

Ms Scaffidi this week claimed the deal involved using public money to help a private lessee.

“I met with a very significant property owner and lessee, a highly regarded person in this city, who simply said to my face, I can’t believe the city is even considering this,” Ms Scaffidi told council.

“That just confirmed to me that it is what I said — it is underwriting of a business.”

The issue has privately raised concerns among stakeholders, with some complaining Ms Scaffidi was happy to support Mariella Harvey-Hanrahan to run Perth Fashion Festival as a private business. The council has given PFF $275,000 to $330,000 a year since 2010.

Ms Scaffidi would not respond to questions from The Weekend West but instead issued a short statement explaining the decision-making process.

“The item before council regarding the Piccadilly Theatre sponsorship was considered by the full council in line with a democratic process,” she said.