Ansett turned the stately place into a luxury hotel and it was later used for education by the Mount Eliza Business School.
Buildings have been vacant for some time, but the historic Moondah Mansion dominates on the site, which the tribunal said was a large and gracious seaside estate overlooking Moondah Beach.
Last year, Mornington Peninsula Shire Council refused Ryman consent to develop a retirement village there due to lack of compliance with planning policy.
The proposed design and scale of the new village was inconsistent with the context of the site and surrounding character, the council said. Vegetation loss was an issue too.
Ryman's plans would detrimentally affect the coastal character of the site and the visual and scenic qualities of the coastline. There would be an unacceptable loss of habitat, it would adversely affect the significance of the heritage place and the proposed pedestrian network is inadequate, the council ruled.
Nor had Ryman addressed issues with on-site car parking, the council said.
The tribunal has now found the proposed uses would be lawful, although it did say retirement living was not an unsuitable use for the site.
"The siting and scale of two proposed buildings would unreasonably detract from heritage values of the site and from the open landscape setting that reinforces the mansion as a key local landmark," it ruled.
"Although the uses would have the potential to result in community benefit, we consider that priority needs to be given to these site-specific policy directions over more general policy directions such as those favouring increased provision of housing and health facilities including aged care services. This is especially the case where the land is not in a preferred location for such services," it said.
The configuration and consistent three to four-story scale of buildings proposed was not suitable.
"We also consider Ryman has downplayed the impacts of the effects on this bayside estate in its entirety by seeking to place a much higher emphasis on parts of the development visible from the public realm," the tribunal said.
David King, Ryman spokesman, said today it was possible to appeal the ruling.
"We're digesting the decision but we are pleased that the tribunal has approved the site for aged care and retirement living. We're also pleased everyone got to have their say and that we had a good hearing," King said.
Environmentalists have expressed strong concern about Ryman's proposals.
"Time is now, object to council before May 15, protecting our local koalas who live in Mt Eliza at 70 Kunyung Rd. We want to preserve this land. Say no to big business destroying the home of Aussie koalas in Mt Eliza," they said last year.
The objectors' say bushfires have already killed many koalas and their site map shows it next door to Kunyung Primary School and neighbouring entrances to that and the development.
Mary Drost who leads a residents' action group spoke out against the project.
"This an amazing coastal site with threatened species and where I actually saw a koala in the trees," Drost said.
"We will all be affected detrimentally if all these natural sites are decimated with no protection for what little wildlife remains and koalas gone forever," she wrote.
She was voicing her concerns to local state MP David Morris, "urging him to take action in Parliament to have the Government take this land over so that it is permanently protected.
But it would be great if you each just took a couple of minutes to send in an objection, the more the better and they see the objections come from all over Melbourne."
