City's biggest development plan in a decade collapses

The site is expected to remain derelict for the foreseeable future

The biggest development project in Edinburgh in a decade has collapsed, it has emerged.

The £300m Caltongate plans were put on hold last year when the firm behind it, Mountgrange, went into administration.

Now the city council has said it is withdrawing its assets because the new owners, Lloyds Banking Group, have been involved in "protracted negotiations" which were "unlikely to be successful".

The head of economic development at the council said the plans had collapsed.

Councillor Tom Buchanan said: "The council has worked for some time with the bank's administrator in order to assist it in realising the potential of the site, but it is now apparent that the proposed development will not go ahead.

"As a result, we feel it is in the council's best interest to draw a line under this matter and exercise our right to formally terminate the sale agreement."

The development in the Old Town, which included a luxury hotel, an office complex and 200 homes, had attracted hundreds of objections from campaigners and heritage groups.

It also attracted the attention of Unesco, which threatened to launch an inquiry, because it would have been part of Edinburgh's World Heritage Site.

But the biggest project in the city since the construction of the £414m Scottish Parliament had been given planning permission and was expected to take up to five years to complete.

'Toxic asset'

However, last March, Mountgrange Capital went into administration after the Bank of Scotland pulled out its financial support.

The developer said the bank had classified its loan as a "toxic asset".

Now, the council has withdrawn its properties on the site - the old Canongate School, the garage and arches on East Market Street and land off Cranston Street - after Mountgrange failed to "obtain the other necessary consents".

The area, between Waverley railway station and the Royal Mile, is expected to remain derelict for the foreseeable future.

But Mr Buchanan said the council were looking for other developers.

"We continue to believe that Caltongate presents a wonderful opportunity as an investment prospect and that it will improve our historic Old Town," he said.

"We will therefore continue to work with potential investors to promote the site to developers."