Barnet Council “considered” terminating its £22.9m loan to redevelop Saracens’ stadium after the club’s relegation but instead have frozen further payments.
Saracens will be relegated from the Premiership in June for persistently breaching salary cap rules.
The council put a “temporary stop” on the loan – to fund a new West Stand at Allianz Park – last month.
It will now demand to see a “robust revised business plan” if Saracens are to access any more of the loan.
Stadium owners Saracens Copthall LLP (SCLLP) have already accessed £3.2m of the loan.
Building work has not yet begun on the West Stand and the report said Premiership champions Saracens and SCLLP are “taking stock” of their plans, which is expected to take until the end of this month.
Council papers show that although terminating the loan was an option, it was not recommended because there was concern that any “conflict with the club” could make it difficult to recover the money already borrowed if required.
A report from Barnet council said: “The agreement allows the council to terminate the loan if ‘any event occurs (or circumstances exist) which, in the opinion of the Lender, has or is likely to have a Material Adverse Effect’.
“However, terminating the loan before the club have had a chance to take stock of the current position could put the council in conflict with the club, which is likely to make it harder to recover the £3.2m already drawn down.
“Putting the council in conflict with the club may also jeopardise any community benefits brought by the development of the West Stand.”
An update for the Financial Performance and Contracts Committee shows that the temporary suspension on drawdowns came immediately after media speculation began about Saracens’ relegation.
The freeze came into force before the relegation was confirmed by Premiership Rugby on 18 January.
The report added: “No further drawdowns will be approved until a way forward has been agreed between the council, SCLLP and the club. Interest will continue to accrue on the £3.2m already drawn down.
“Should SCLLP wish to pursue the development of the West Stand, the council will require a robust revised business plan, subject to independent due diligence, before any further loan drawdowns are made.”
Minutes from the meeting show that a local resident accused the council of entering into a “reckless” agreement and asked if there would be an “independent inquiry” into the loan.
The council said there will not be an inquiry.
Saracens declined to comment when contacted by BBC Sport on Monday.