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The decision was made by independent commissioners Trevor Robinson, Jenny Hudson and Ian Munro following a hearing last year.
It rejected Varina Proprietary’s submission asking for the town centre transition overlay zone — that extends along the south side of Brownston St — to become part of the Wanaka town centre zone, which would allow the development of two- and three-storey commercial buildings.
The company is directed by Duffy Krook, and owns land in the overlay zone, including the site now leased to Cinema Paradiso.
While commercial activities are allowed in the overlay zone, they must be "sensitive" to surrounding residents, something that is not required in the town centre zone.
In their decision, the commissioners said there was already enough space within the current town centre zone for commercial development to meet the needs of the community.
They were concerned intensive development on the south side of Brownston St would not fit in with the rest of the town centre zone.
"This would not be a desirable outcome and is also indicative of the extent of development capacity remaining within the town centre zone. It would not in our view be an outcome that enhanced the community’s wellbeing."
In its appeal, the company argued the council did not recognise that there were already many commercial properties on the south side of Brownston St.
The company is continuing to seek to have the overlay area rezoned.
The appeal is likely to be heard late this year.