The Saudi-backed company JJW Hotels & Resorts had been negotiating to buy the Crillon but has now said it is preparing to sue Starwood, after a French court refused to deliver a summary judgment on Starwood's claim that it was owed €100m (£88m) by JJW - a delay that may keep the overhaul of the Crillon on hold for weeks or months.
The stand-off follows an agreement by the investment group to enter exclusive talks with Mohamed bin Issa al-Jaber, JJW's chairman, over the sale of nine celebrated French hotels for a reported €1.5b (£1.31b) last year.
Along with the Crillon, the deal concerned the Lutetia, Hotel du Louvre and two Concorde hotels in Paris, Hôtel de la Paix in Geneva, the Martinez in Cannes, the Massalia in Marseilles and the Palais de la Méditerranée in Nice.
But after claiming that JJW had paid only a third of the agreed €150m (£132m) deposit, Starwood instructed property advisers Jones Lang LaSalle, CB Richard Ellis and Eastdil Secured to look for other potential buyers.
The luxury hotel is currently lacking a chef for its Michelin-starred restaurant and awaiting a renovation.
By Gemma Sharkey
E-mail your comments to Gemma Sharkey here.
If you have something to say on this story or anything else join the debate at Table Talk - Caterer's new networking forum. Go to www.caterersearch.com/tabletalk
Looking for a new job? Find your next hotel job here with Caterersearch.com jobs