Wellington City Council have decided to not go ahead with the $32 million Reading Cinemas deal.
Senior council staff have not been able to reach "the best possible outcomes for Wellingtonians" in negotiations with the company.
Wellington mayor Tory Whanau said the outcome was "disappointing, but the right one".
A press release said Whanau and elected members voted last year in favour of council staff undertaking due-diligence and negotiating the $32m deal that would see a refurbishment of the building, including earthquake strengthening.
The building has been closed since 2019 due to its quake risk.
Council chief executive Barbara McKerrow said staff had worked "extremely hard and endured great pressure in a bid to negotiate an arrangement with Reading".
"We always signalled that we would halt negotiations if we were not able to reach a formal agreement in a timely manner. We've reached that stage."
Whanau said she hoped Reading would look at the cinema site as holding great potential for redevelopment.
"It would be heartbreaking for the site to sit unused for too long so I urge Reading to continue to explore development deals."
RNZ
