NIAGARA FALLS—The company that leases the Rainbow Centre has agreed to drop its lawsuit against the city if a proposed settlement is approved in which the city acknowledges it is not feasible to operate a shopping mall inside the building “in the current business climate.”

The negotiated settlement between a subsidiary of Baltimore- based Cordish Co., Rainbow Square Limited, and the City of Niagara Falls also calls on both sides to cooperate in development plans for downtown Niagara Falls and to consider alternative uses for the former mall.

The proposed settlement will go before the City Council for approval Monday. It comes at a time when the city and state have started demolishing a glass building connected to the Rainbow Centre mall in an attempt to break open a downtown development deadlock.

“I think what we’re trying to do here is we’re trying to clear the air,” Mayor Paul A. Dyster said.

The Rainbow Centre, located inside a city-owned parking ramp, was developed in the 1980s through a partnership between the city and Cordish. But the once-bustling shopping mall has been locked to the public for several years.

Cordish’s long-term lease on the property is now the subject of a review by the office of State Comptroller Thomas P. DiNapoli, along with another city development deal.

That review triggered Cordish Co. to file a lawsuit against the city last year that claimed, among other things, the city violated the lease on the property by failing to repair a leaky roof in the building.

News of the comptroller’s review came after David Cordish met with the mayor last year to discuss the property.

“The message to Cordish was: You came up here, you met with us, and now I’m going to have the comptroller come in and try to break the lease,” said James Roscetti, an attorney for Cordish. “Whether that was the case or not, that was the initial perception.”

Both parties agreed to drop their lawsuits and counter arguments once the proposed settlement is approved.

The settlement, which does not include any payments, “wipes clean any past allegations of violation, and sets the stage for what we hope to be cooperation well into the future,” the city’s corporation counsel, Craig H. Johnson, wrote in a memo to the City Council.

The settlement also reaffirms the city’s responsibility to maintain the parking ramp attached to the mall.

Both sides also would agree to “limit public statements to pure statements of fact, free from disparaging comments or remarks.”

Dyster, when he ran for mayor in 2007, pushed hard against Cordish, saying he was “on record that I believe they’re in violation of their Rainbow Mall contract.”

Since taking office, he has toned down his public stance.

“From my perspective, it doesn’t make sense for me, as mayor, to be pushing someone to do something that it doesn’t make economic sense for them to do, to act against their own interests,” Dyster said Wednesday. “On the other hand, I think it’s also the case that the city had a strong interest in moving forward on this question, recognizing that we have a future obligation here to maintain the parking ramp and roof and so on, but we don’t want to fight about what did or didn’t get done there in the past.”

The settlement also sets out a plan to settle future disputes through arbitration.

Roscetti said Cordish has no plans to leave Niagara Falls. He said the company invests about $500,000 in maintaining the property every year, including about $100,000 in annual lease fees to the city.

“If you look back, Cordish has been here since 1982, and we’ve been through a number of administrations. There’s a lot of documents involved,” Roscetti said. “I think what this all did was it sort of put everybody on the same page at the same time. ”