Haringey Council in north London has begun a major review of governance and branding for the Alexandra Park and Palace charitable trust, for which it is the sole trustee.
The council has been criticised for its administration of the trust since 1980, in particular over an attempt to make the charity meet a £40m bill for repairs after a fire destroyed large parts of the building, and a court battle it lost in 2007 over its proposal to sell the palace to a hotel developer.
However, the council is preparing to consult on measures to improve the governance of the charity, possibly including the appointment of people from outside the council as trustees. All of the existing board members are Haringey councillors.
A spokeswoman for the charity said the council had carried out a series of interviews with more than 50 local people and community groups, and had held a forum for interested parties at the end of October.
She said the council would develop a strategy for the site and would hold a consultation with the local community in the new year.
She added that local people viewed the building as "a sleeping giant" that was "derelict, underused and unhappy", but they nevertheless felt it could grow into "a world-class site".
Jacob O'Callaghan, a local resident and a member of the Save Ally Pally campaign, which took the council to court over its plans to sell the building, said that only the removal of the council as sole trustee would satisfy him and his organisation.
O'Callaghan said that very little charitable activity was happening on the site, and that the most historic parts of the building were derelict - but he added that some progress was being made.