DEVELOPERS hoping to open the first new hotel on Princes Street for more than 50 years have been told to pay almost half-a-million pounds towards Edinburgh's tram scheme.
Belfast-based firm Deramore, which has run into opposition from heritage groups over its proposals, has been warned it will not receive planning permission unless it agrees the "tram levy".
The news has emerged as council leaders insist funding is
in place for the first phase of the tram scheme, despite fears about the impact of the economic downturn and a series of delays hitting major works.
The city council is relying on developer contributions to make up the bulk of the £45 million it has pledged to commit to the tram scheme.
Although it has only received £3 million, some form of agreement has already been reached over another £9 million.
Deramore is thought to be the first to be asked to contribute to the £512 million trams project for any development on Princes Street. But other developers bringing forward proposals under the city council's "string of pearls" plan to revitalise Princes Street face having to pay similar contributions.
Negotiations are taking place with Henderson, the company planning an £850 million revamp of the St James shopping centre and the neighbouring former Scottish Office.
A £2 million contribution has been agreed with the developers of a £200 million hotel development in the Haymarket area.
City council officials yesterday insisted the authority and its tram firm TIE were not concerned about the level of developer contributions confirmed to date.
The Scottish Government has capped its contribution at £500 million and the council has to come up with any additional funding above that.
Tens of millions are expected to be generated by developments along the city's waterfront, with Forth Ports expected to have to pay some £30 million for the regeneration of Leith docks.
One senior property industry insider warned the amount of money being asked for developments in the city centre risked turning away potential investors, particularly during the credit crunch.
Roy Durie, a director at planning agents Ryden, said: "This does seem quite a lot for a development on Princes Street. The council's demands for a tram tax will put people off and I would imagine the council is going to face a number of legal challenges over the next couple of years."
However, Councillor Phil Wheeler, the capital's transport leader, said: "Developers are well aware of the benefits that being located on a tram line bring and despite economic downturn, sites are still actively being pursued along the route.
"When any new development comes to fruition, a contribution to the transport network is sought, but given the economic impact associated with being adjacent to the tram it's reasonable to expect developers to contribute more."
The last hotel to be built on Princes Street was the Mount Royal in 1955.
