PORTLAND — Developers of the Bay House mixed-use condominium buildings planned for Newbury Street have until Sept. 22, 2012, to obtain funding for the project and begin construction.

The City Council on Monday unanimously approved an extension of the Massachusetts-based developer’s conditional zoning agreement, which expired June 2.

Councilors also appointed Assistant Police Chief Michael Sauschuck as acting chief of police.

The $30 million Bay House project, approved in 2006, initially included 176 condominiums and retail space in two construction phases on both sides of Newbury Street. The second phase of construction, on the north side of the street, has now been scrapped, leaving two buildings with a total of 82 condominiums and some first-floor retail space at 112-113 Newbury St.

Developers have blamed the slow start and inability to find financing on the  economy.

“It’s a chicken-and-egg issue,” said attorney Nathan Smith, who represented the developer at Monday night’s meeting. “Now that the city has agreed, the developer will be in a position to be reactive.”

Smith said he does not think scrapping the second phase of the project will reduce the developer’s ability to find financing.

Real estate broker Sandra Johnson, who will be marketing the property, said she is confident the condos will sell.

“This is the one element of the market that’s hot,” she said after the meeting. “We sold the 12 condos at the top of the Hampton Inn (on Fore Street) in two weeks.”

Johnson said the Bay House condos would range from studios to three-bedroom units and cost between $160,000 and $750,000.

The zoning agreement extension was granted with several conditions, including a requirement that the now-vacant property be cleaned up and maintained regularly.

The condition of the property fueled backlash from the India Street Neighborhood Association.

Neighbors say people have dumped old furniture and other trash on the vacant lot, which is surrounded by a chain-link fence and previously housed The Village restaurant.

“We definitely want something done with the property,” said association President Allison Brown of Newbury Street. “It’s a vacant lot, it’s an eyesore.”

Brown said she hopes the developers comply with the conditions the Planning Board set when it initially granted the extension in May. The developers have hired Shinberg Consulting to check the property weekly to ensure any garbage is removed and that erosion control measures have been completed.

The developers have also been required to put up $25,000 to guarantee sidewalks and curbs adjacent to the property are repaired, regardless of whether the project is funded.

“I want something there,” Brown said. “If these people do what they say they can do, that’s fine. What I want them to do is maintain the property.”

Sauschuck, meanwhile, will become acting police chief when Chief James Craig leaves next week to become chief of the Cincinnati Police Department.

Sauschuck indicated he planned to apply for the permanent position, but that he is open to the city conducting a national search for qualified candidates.

“All I care about is that we have the best person for the job,” Sauschuck said. “If that means bringing people from out of state, bring them from outer space if you’d like. I just want what’s best for the department.”

In other business Monday:

• The council unanimously passed an amendment to the personnel policy that allows city employees who wish to run for political office to do so freely. The policy incorporates language used by the School Department to allow city workers to run for any city or school office, but maintains restrictions on use of city facilities, services and equipment for campaigns.

• The council had a first reading of a proposed $1.5 million bond to repair the Kotzschmar Organ in Merrill Auditorium. A public hearing on the borrowing will be held Aug. 1 at 7 p.m..

• The council unanimously approved a collective bargaining agreement with the American Federation of State and County Workers that provides a 1 percent salary increase fiscal 2012, and an agreement to reopen the contract to negotiate health insurance during the year.

• A trail connecting the Eastern Promenade Trail to the downtown district was officially named the Joseph E. Gray Jr. Trail, in honor of the recently retired city manager. A plaque has been installed and dedicated at the trail.

Emily Parkhurst can be reached at 781-3661 ext. 125 or eparkhurst@theforecaster.net. Follow her on Twitter: @emilyparkhurst.