Manchester-based HIV charity George House Trust is facing a court order from the city council, which is seeking to claw back a£150,000 grant made 12 years ago.
George House Trust director Denise McDowell criticised the demand as 'an outrageous action'.
Drink and drugs charity Turning Point could face eviction because of the move, she added.
The grant was paid to Manchester Aidsline - the charity's former name - and used to build George House in 1989. But when the council cut funding in 1996-97, the charity moved premises and let them to Turning Point in 1998.The rent paid to it on behalf of Turning Point is 'below market value'.
Ms McDowell said: '[The council] gave the money to us as a grant.
They say they want it back. They say We are in breach of an agreement, which we dispute. If we had to pay this back, it would be money that goes on HIV services.'
Manchester city council assistant social services director Paul Cassidy said he had been trying to sort out the dispute 'for three years'. The council was seeking return of the money 'because they've stopped using the building for HIV services'.
Mr Cassidy added: 'The council and the HA gave them this money and that building's now worth about£350,000. There is been a significant capital gain.'