The deal means the Hungry Frenchman restaurant - a tenant of the council in the city's Municipal Chambers - will close today, to make way for a new foyer space planned as part of the Town Hall development.
Restaurant owners Grant Walker and Anna Hudson released a brief statement confirming the move after being approached by the Otago Daily Times yesterday, but declined to comment further about the deal's financial details.
The ODT understands the agreement with the council includes an undertaking not to discuss financial arrangements.
Council strategy and development general manager Kate Styles was also not prepared to divulge the cost of the payout yesterday, saying only that staff had reached a "commercial agreement" after negotiations with the restaurant's owners, who had a "reasonably lengthy lease".
"That's a commercial agreement between us as the landlords and them as the tenants," she said.
The payout would come from the project's overall budget, she said.
Detailed talks were also about to begin with a second tenant - Metro Cinema owner John Wilson, who leases a premises in the Town Hall - but it was expected the cinema would remain, albeit with minor modifications, Mrs Styles said.
"At the moment the plans include keeping the Metro," she said.
Mr Wilson said when contacted he was still waiting to hear from council staff, but expected his cinema would survive after "five years of having the axe over my business".
Construction work for the Town Hall redevelopment is expected to begin with the Municipal Chambers upgrade in Sep-tember 2009, followed by the Town Hall and Dunedin Centre upgrades, beginning in February 2010.
The Municipal Chambers upgrade was due to be completed in May 2010, followed by the Town Hall in January 2011 and the Dunedin Centre in January 2012.
Mrs Hudson said talk of redeveloping the Town Hall - initially including a controversial "glass clip-on" atrium - had hurt the business, with some visitors to the city believing it had already closed.
She and Mr Walker - her business partner - had owned the restaurant since 2001, but had no plans to "start all over again" in a new location.
The restaurant's staff - who were largely students working seasonally - had all moved on or found other jobs, with only two remaining on duty yesterday, Mrs Hudson said.
