Car Park Super's refusal to sell the land to Creative Holdings as part of a $90 million creative precinct proposal ended up in the Federal Court, where a decision is being appealed on June 24.

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In the meantime, Car Park Super's attempt to have a multi-storey car park built on the site was rejected by the council this week, and will likely be appealed in the planning tribunal.

The council has long backed plans for a creative precinct alongside the Birchall's site, and had plans to convert the car park into a bus mall.

The City of Launceston received a $10 million grant from the federal government for the creative precinct as part of Build Better Regions Round 4 ,and paid a $1.2 million bank cheque, or 10 per cent deposit, on the car park in July 2020.

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Yet since then, the proposal has significantly dragged out, with the latest problem for the council being another looming legal challenge following its decision to reject a multi-storey car park on Thursday.

Landowner and Car Park Super developer Don Allen said the council had completely missed the point in rejecting the proposal for a multi-storey car park on the site.

The council on Thursday voted down a planning application for a multi-storey, multi-use development in Launceston's Paterson Street based on the fact it featured too many car park spaces.

Councillors mostly supported the recommendation to refuse the permit.

Councillors Tim Walker and Paul Spencer voted against the recommendation.

They argued that the council had to follow guidelines when sitting as a planning authority and agreed there were too many car parks in the designs and did not support the future of Launceston as a sustainable, pedestrian-friendly city that didn't have "cars circling the block for parks".

"It is not just a building for what we need now, it is a building that can be converted into what we need for the future," Mr Allan said.

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This is in relation to the solution given by ARTAS to have higher floors for one of the car park stories so it could be converted in the future if no longer necessary.

Principal architect Scott Curran spoke for the permit at the council meeting and his words were reiterated in a statement from ARTAS Architects.

ARTAS was advised that this would result in a recommendation to refuse the application which Mr Curran said during the council meeting.

The solution they provided was to reduce the number of car parks to 124, however, ARTAS was advised the procedure would not allow the amendment and that ARTAS and Mr Allan would need to resubmit the plans with the new number of car parks.

During the council meeting, Councillor Rob Soward wanted to focus the debate on following the strict procedure they are adhered to when sitting as the city's planning authority.

"If we walked around and spoke to people about this and increased parking, there would be a perception that that's a good thing," he said.

"There is a bit of a Bermuda Triangle around that because when you drill down into the dark, it's a myth."

Cr Soward said emotion doesn't come into this and that council must follow the rules.

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Mr Allan said they are considering appealing to the Tasmanian Civil and Administrative Tribunal, the state's newly renamed planning appeal authority, who they believe is likely to overturn the council's decision.

Previously Car Park Super was taken to Federal Court by Creative Holdings in 2021 over a sales contract for the car park on 41-43 Paterson Street, also known as the Birchalls car park.

A Federal Court found in favour of Car Park Super over the failed contract.

At the time, Federal Court of Australia Justice David said that "both the applicant and the respondent at various different times seemed to have lacked enthusiasm to complete the transaction".

Car Park Super stated it had never intended to sell the car park.

The Australian government had committed $7.5 million under the Community Development Grants Programme towards the precinct as well.

Under the BBRF Round 4 grant opportunity guidelines, funded projects must be completed by December 31, 2022, with all funding expended before June 2023. Extensions may be considered on a case-by-case basis.

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