The city and the owner of the Edmonton Oilers are so far apart on the proposed downtown arena, the project may become too expensive to pursue, says The Katz Group's lawyer.

"We remain hopeful that we can break the current impasse and move the project forward as soon as possible, as a failure to do so will expose the project to additional design and construction costs that could make the arena prohibitively expensive," John Karvellas wrote in a letter to the city manager Simon Farbrother Tuesday. 

'I don't know where these things come from. That's frustrating' —Mayor Stephen Mandel

On Wednesday city council rejected a request for more money after The Katz Group said it can no longer build an "iconic" arena, for $450 million.

But the letter from The Katz Group indicates the need for more public money is only one issue separating the city and the Katz Group.

'Significant challenges'

It lists seven items needing to be negotiated before the arena can go ahead, including sharing of cost overuns, maintenance and operating costs and a casino arrangement.

"They present some significant challenges, but also point the way to creative solutions if we can work together to achieve them," Karvellas wrote.

However he also stated the two sides are still a long way from finalizing a master agreement with time running out.

"To be clear, we are advised that any interruption in the design process will result in an inability to complete construction on the arena by the fall of 2015, as contemplated, with the attendant cost increases to follow," Karvellas wrote.

The letter was a surprise, said Mayor Steven Mandel, Thursday.

Some of the issues, such as the casino license and non-compete clause with Northlands, had been dealt with before the summer and he finds it's puzzling they're being raised again.

"I don't know where these things come from," he said. "That's frustrating."

Nonetheless he characterized the issues as "substantial."

Karvellas told CBC News that negotiations with the city are continuing and he was meeting with Farbrother later in the day.