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The City Council voted Tuesday to postpone approval of a development agreement for the east end of Downtown around the Rialto Theatre, prompting the developers to say they're pulling out.

Developers Scott Stiteler and Don Martin said they would no longer negotiate with the city after the unanimous 7-0 vote to delay an agreement to give them $4 million in city land as an incentive to speed retail development of several properties they own Downtown.

In addition to completing 20,000 square feet of retail development in five years, the developers would have had to give $1.7 million to Downtown cultural organizations.

The council wanted more time to consider changes in the proposed 46-page agreement, which was just delivered to them late Friday. They voted to bring the agreement back for a vote on July 7.

If the developers follow through on their threat to pull out of negotiations, the city could owe them up to $950,000 in damages, based on a previous agreement approved by the council last December that gave the two sides six months to make a deal.

If there is an impasse, the two sides would likely head to arbitration, although Stiteler declined to comment on what the next steps would be.

City Attorney Mike Rankin warned the council that it could be in breach of the December agreement by delaying approval, and that it could have exposure to up to $950,000 in damages.

"We can offer to the developers to extend but they're not bound to accept," Rankin said.

Councilwoman Shirley Scott asked how the city could be in default, considering two of the other partners in the December agreement have withdrawn. Besides Stiteler and Martin, who make up Downtown Tucson Development Co., the other original partners were Portland, Ore., developers Williams and Dame, and Tucson developer Jim Campbell.

Rankin said he didn't want to announce publicly what the city's legal defense would be but said the change in the development team would be at the core of his negotiating position.

Rialto Theatre Foundation Board President Michael Crawford, who opposed the deal during his testimony to the council, said the developers' threat to walk rather than negotiate for three more weeks means the deal was not a good one for the city.

He said the agreement the council was considering could have been a repeat of past instances where developers got cheap city land and did little or nothing with it, citing a 2004 deal in which the city tore down a 100-year-old building and gave land to developer Don Bourn for $100 — and Bourn never built on the site.

Stiteler said a "no" vote by the council would show it does not value restaurateur Janos Wilder — who Stiteler said would go into the Rialto Theatre block — and show the city does not value private investment Downtown.

He said the deal has been steadily chipped away at and that he was ready to build as soon as the council gave approval.

The council raised several questions about the terms, including questions about the deal's impact on the Rialto Theatre, the 20,000 square feet in commercial leases that Stiteler would have to open to claim the city land, and the land Stiteler would be receiving, including the front 35,000 square feet of the Ronstadt Transit Center and the former Broadway Volvo site on East Broadway.

Still, council members said they wanted to strike a deal if it comes back in three weeks.

"I think we can get there," Councilwoman Karin Uhlich said. "I hope everyone stays at the table."

Only Councilwoman Nina Trasoff expressed reservations about the delay.

"My concerns are that we losing private sector partners" as the outcome of the vote, Trasoff said before joining the majority. "The delay concerns me."