New London — The preferred developer for the Lighthouse Inn rescinded his offer on the historic but deteriorating property on Monday, opening the door to the possibility of a public auction of the city-owned landmark.

A representative for Michael Dattilo, owner of Waters Edge Resort & Spa in Westbrook, sent notice to the city’s Office of Development and Planning Monday to explain that after eight months he had not been able to come to terms with the Guthrie Beach Board of Directors for beach rights at the private beach on Pequot Avenue.

Dattilo from the start had indicated the beach rights were a major component of his $10 million project to restore the century-old inn, a former mansion, and build up to 30 units of housing resembling Victorian row houses.

Monday was the deadline for the second extension of Dattilo’s preferred developer status and pressure from the council was building.

Claudio Marasco, who represents Dattilo, contacted Economic Development Coordinator Ned Hammond on Monday afternoon with the news. He wrote in an email that the terms and conditions proposed by Guthrie Beach were “economically unreasonable and would impose an inordinate level of business risk on our part.”

“As we have discussed on numerous occasions, the beach is the attraction to bring guests to the Inn and buyers to the (to-be) constructed units,” Marasco wrote. “The Mansion, in its current condition, is virtually worthless. To expect a developer to invest millions of dollars to restore the property without the access to the beach as it once had, would be unfathomable.”

Marasco thanked the city for its work on the project and wished the city well in its efforts to find a developer.

Hammond said the property officially lost beach rights in 2013. He did not discuss specific details of the negotiations between Guthrie Beach and Dattilo but said it should not deter negotiations with a new developer. He said there are also other nearby beaches, such as Osprey Beach, that might be willing to work with a developer.

The attention for the council now turns to the future of the property.

The idea with the greatest potential for a quick sale of the property is an auction, Hammond said. He planned to contact developers he thought might be interested.

Finalists for preferred developer status had included certified public accountant Roger Bennett of Lighthouse Inn Investors LLC, Grand Slam Holdings partners Anthony Morascini and Norman Nadeau, and Eric Hamburg, founder and president of Industrial Renaissance. Hamburg recently purchased two buildings on Bank Street, including the former Capitol Theater.

Other options for the property include an auction through a professional auction service, a listing with a commercial real estate broker or a third request for proposals since the city took ownership of the property in 2013.

The city acquired the 4.2-acre property after a tax auction failed to elicit a single bid. The inn, which still evokes fond memories of special events and is on the National Register of Historic Places, closed abruptly in 2008.

Hammond said the property will unfortunately continue to deteriorate without proper maintenance.

City Councilor Don Venditto, chairman of the Economic Development Committee, said the council will discuss getting an appraisal and pursuing the auction option at its next meeting.

“At this point I think we need to get out from under it as quick as possible,” Venditto said.

g.smith@theday.com