But the airport is hoping the ruling will mark a new start for the relationship after more than five years.

Justice David O'Callaghan this week dismissed the case against Australian Pacific Airports - which included a similar dispute lodged by Clarence City Council regarding Hobart International Airport.

The Northern Midlands was fighting to recoup what it believed to be $1.79 million in unpaid rates under the lease agreement between the airport and the Commonwealth.

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Justice O'Callaghan ultimately sided with the Commonwealth and APA, who argued the council had limited rights to dispute the amount of rates paid as it was not a party to the lease.

Further directions will now be made regarding court costs.

"We are completely disappointed," Northern Midlands Council mayor Mary Knowles said Wednesday. She noted the council now had 28 days to consider if lodging an appeal was a "worthwhile way to go" and hoped not to be fronted with the bill.

"[But] it can't be guaranteed," she said.

Cr Knowles added that the council took legal action as they felt the Commonwealth was "not enforcing" the lease agreement.

"Our understanding of it was that through the areas that were valued by the Valuer-General, that particular areas .... should have had rate equivalents paid on them, and the airport's decided 'no'," she said.

"If a ratepayer chooses to contest the valuation - which anyone has a right to do - they still need to pay their rates and then ... if there is a reimbursement get that.

"We have just felt very strongly that we have to do this on behalf of the ratepayers because it wasn't fair."

Launceston Airport general manager Mr Hodgen welcomed the ruling as a fresh start for the two parties.

"This ruling provides an opportunity for us to work together more constructively in the future, so that our immediate community may continue to benefit from what is a highly successful and growing regional airport situated within the municipality," Mr Hodgen said in a statement.

More on the long-running Northern Midlands v Launceston Airport rates dispute:

"Our hope is that we can put these proceedings behind us and work with Council to do what we're here to do - attracting visitors to Northern Tasmania and dispersing them to some of the world's most pristine destinations."

"By working together to grow visitation to Northern Tasmania we will be delivering the best possible outcome for the region, helping to build thriving local tourism and supporting businesses."

Both councils argued during hearings they had been shortchanged after the value of the airport sites increased in 2013.

The dispute became public in 2015, with the Northern Midlands since taking the issue to senior federal government ministers - including the Prime Minister.

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