RED tape could stand in the way of a major food retail franchise setting up shop in the Rose City.

The Ranbuild site on the corner of Albion and Percy Sts has been lying empty since last October.

Owner Carole Tozer thought she'd secured a long-term lessee for the prime spot, which would add to the growing eatery options on the main route through Warwick.

"It's probably the best site in town," Mrs Tozer said.

However, Southern Downs Regional Council planning officers flagged to the local town planner, acting as a consultant for the franchisee, the development application for former service station would need to go before State Government to assess it against contamination legislation.

Fuel tanks lie dormant under the site, which means to open an eatery there, it needs to firstly be assessed by the Department of Resource Management (DERM).

Richard Thew from Warwick's Harcourts Rural has been the agent looking after the negotiations.

He claimed the applicants, who do not wish to be named, said they had spoken with council planning officers before submitting the development application and they indicated there wouldn't be a problem with approval.

However, planning director Ken Harris disputes this claim.

"They've spent thousands and thousands on this," Mr Thew said.

"The franchisee planned to spend $500,000 on improvements and $300,000 was budgeted for marketing."

Mr Thew said the franchisee had a wealth of experience setting up establishments at former service station sites across the state.

"This reflects badly on the whole area," Mr Thew said.

Mr Harris said the application was halted after council advised the developer it would need to be referred to DERM.

"I see the site as being a reasonable site," Mr Harris said.

"We're disappointed too but it's all part of the application process."

Mr Harris said if there is a level of contamination, under the Sustainable Planning Act, council is required to refer it to DERM.

"It's the same for all sites.

"What conditions DERM would have applied, I don't know.

"The impression I had from the consultant was they didn't want to get involved with costs associated with what may or may not be required."

An engineer the developers consulted said it would cost $30,000 for a report to be done on the potential contamination and, if it was deemed necessary, removing the tanks would cost another $50-60,000.

It's now unclear whether the franchisee will look elsewhere or forget the idea of setting up in Warwick altogether.

For Ms Tozer, who's owned the site since 1985 when it was Warwick Automatic Transmission Service, it's a long and drawn out process, which she said has cost her thousands.