HINDMARSH Shire will withdraw its legal case against Dimboola Hotel owner Paul Rintel if demolition works continue as planned.
Mr Rintel bought the pub's freehold for $1 in October 2004 one year after it was gutted by fire.
Mr Rintel started demolishing the pub this month after he was threatened with jail time.
Hindmarsh chief executive Tony Doyle said the matter had been adjourned until October.
"We wanted to give the property owner a reasonable amount of time to clean up the site," he said.
"In October, if the site has been cleaned up to council's satisfaction, we will withdraw the issue from court."
Mr Doyle said council was pleased with the progress so far.
"The site has been made fundamentally safe, which was also our sole driver and what we were seeking," he said.
Mr Doyle said Mr Rintel still owned the land, so the future use of the site would be up to him.
Dimboola Town Committee president Phil Colquhoun said he would like to see a restaurant built where the pub was.
"We push hard in Dimboola to get our tourism up," he said.
"We've done a lot of work around town with barbecues and walking tracks and things are looking pretty good.
"Now we just have to get our main street into line.
"Unfortunately there isn't much we can do about it because we don't own the property it's up to Paul Rintel to decide."
Mr Colquhoun said the pub was an eyesore in town.
"I'm not sure what's worse, a burnt-out pub or an empty block," he said.
Dimboola IGA owner Tim Crowhurst said good progress was being made at the site.
"We needed something to happen it couldn't stay that way forever," he said.
Mr Crowhurst said he would like to see some sort of development at the site to improve the town's main street.