A few late thoughts. 

The biggest lever you have over Mr. Cook are your future productions.  If he made a lot of money on this show, he will want part of it next time.  You can walk away having lost money you deserved once but he will lose money on every one of your future shows.

Another future problem:  If you incorporate as a non-profit and try to get your 501(c)(3) from the IRS, they will look at you as a for-profit subsidary of the restaurant.  The funds from the city will help but the IRS will say that you are not "publically supported" because your money came from one for-profit entity:  the restaurant.  You will see several threads on this site (and others) telling you not to do dinner theater and this is a big part of the reason.

If you continue to do theater (with Mr. Cook or someone else), make sure that you get paid by the attending public.  You can enter into an agreement with the venue to sell tickets on your behalf but you have to make it clear that they are paying you for tickets sold to the public and it doesn't look like a business expense for entertainment for the venue. 

Haven't read all of the posts but my suggestion: Get a lawyer who's a theatre lover to help you for gratis.

Hey Everyone...sorry for the delay...long story short, we settled for half and moved on. We are open to returning to this place only if we have it all in writing and if it is fair. But, the city is about to let us use an old city gym and may help us repair it through grants...can't wait to check it out.

Originally posted by Kibitzer This forum gave your restaurant "partner" an apt name:  Mr. Crook.  I would urge you to avoid doing any business with him at all in the future.  Getting any more than you did from him was perhaps possible, but probably not worth the agony and aggravation.  If he had a decent reputation before this, he has now sullied it.  Best of luck with your new venture and on working with your city!

I wish you could see the wonderful theatre that we have created from an old gym... It too is owned by the town we are in, but we've been able to work a mutually agreeable deal with them.  Last year we made some huge improvements to the building, including a new roof.  We don't get a lot of grants, but we get some and that helps.  We could probably get more if we wanted to focus on that, but writing them is such a chore and we'd rather be doing theatre.  Good luck on your make over!