The council’s statement of accounts show it has received no rent payments over the past two years from Benchmark Leisure.
The £770,000, it was owed as of March, would have gone towards repaying a £9m loan made to Benchmark, which was responsible for the £14m Alpamare waterpark built in North Bay.
The accounts also show that the council has a £1 million “parent company bond” in place which can be drawn upon, if payments are not made, which are due under the agreement.
Scarborough Council confirmed it is taking legal action to resolve a “contractual issue” between it, Benchmark and Abbey Commercial Investments, but declined to comment further.
It added: “There is a long-term arrangement in place to ensure the costs of the waterpark are repaid and we retain the freehold interest in the site to mitigate against any chance of default.”
The two companies dispute the council’s claims.
In February the council’s Cabinet decided to end its agreement with Benchmark and find an alternative third party to develop the northern site.
As well as the waterpark, Benchmark also oversaw the building of a pub and hotel on the same site. However plans for a cinema, restaurants and flats on the site of the former Atlantis waterpark nearby have repeatedly stalled.
Abbey Commercial, Benchmark’s parent company, which is the guarantor under the lease, is defending the claim in full.
Benchmark says it is also considering what action to take over the council “reneging on its promises” to allow it to finish off the remaining agreed developments on the North Bay site, which would allow it to recover “substantial costs” from delivering the beach management centre, open air theatre and waterpark.
The council borrowed £4m from the Public Works Loan Board in 2015 to part fund the waterpark. The accounts state it is owed £8.41m.
Audit committee chair Coun Andrew Backhouse, said the waterpark may end up being operated by the council, but they “very rarely make money” and would need subsidising.
He suggested the Cabinet could have taken a different view in the light of the pandemic. He said: “Sometimes they look at things in a very black and white way and commercial viability and deliverability is not always black and white.”
Benchmark described the council’s legal action as “very surprising” given Government guidelines on rent deferrals during the pandemic and its “well publicised deferments of rent” for example with the Travelodge. The hotel was bought by the council in 2018.
A statement said: “The proceedings issued by SBC relate to the recovery of rent due by Benchmark during Covid from Abbey Commercial Investments Limited, Benchmark’s parent company and guarantor under the lease.
"Benchmark and Abbey have contested the claim as Benchmark was assured by the Council that all rent due during Covid would be deferred, to be recovered in full over future years.
"In reliance of these assurances, Benchmark has financially supported the struggling water park to see it through the crisis and even invested more money in improvements to ensure a full re-opening was possible in May this year.
"The Council has repaid this by issuing costly proceedings in court for immediate payment of all the rents due in full."
The statement from Scarborough Council added that they "follow the principles contained within our treasury management strategy to minimise our borrowing costs".