Edinburgh hotel project for EICC at Haymarket set to be scrapped as council and developers fail to agree

And now the council could end up being sued by its own arms-length company EICC Ltd, which claims it has been left in the dark.

The four-star 350-bedroom Hyatt hotel at Haymarket was due to be operated by the EICC under a franchise agreement. The council agreed in 2021 to enter into a 25-year lease on the hotel, which would then be sub-leased to EICC, with profits from the hotel used to fund ongoing investment in the conference centre.

An artist's impression of the new Haymarket development. The hotel and hotel school are on the left, above and behind the retail units.

The hotel, which was expected to create 200 jobs, would also allow the EICC to guarantee accommodation to delegates booking more than a year ahead for conferences - something many city hotels are reluctant to do.

And there was to be a hotel school attached, training much-needed new recruits for the hospitality and tourism sector.

But now the project is set to be cancelled. The city council's finance committee, meeting in private on August 7, rejected a request from developers M&G for a series of changes to the contract.

The main stumbling block was over a "latent defects insurance" (LDI) policy - which covers defects that come to light after a project is finished - and the policy excess of £250,000 per claim which M&G insisted would be the council's responsibility.

M&G said it was not willing to negotiate further and wanted to "seek a settlement" - in other words, leave the project. And it is understood all sides are now preparing for settlement negotiations.

But the EICC has complained it had no input into the council's decision to reject the proposed contract changes and has not been allowed to see the report considered at the meeting. It says council chief executive Paul Lawrence has refused to meet the board and claims the council has instructed its lawyers not to engage with the EICC’s lawyers.

EICC was to operate the hotel under a franchise agreement with Hyatt

Minutes of the EICC board meeting on August 13 - seen by the Evening News - record discussion about potential damages.

"MD [Marshall Dallas, EICC chief executive] highlighted to the board that the company [EICC] has contractual obligations to Hyatt regarding the building of the hotel and that failure to deliver this could result in Hyatt requesting damages payments from the company. MD believed that this could run to almost £2m a year. It was further highlighted that the council owed the company similar obligations to deliver the hotel."

And at the next board meeting on September 11, Mr Dallas gave an update on legal advice from EICC’s lawyers Pinsent Masons, who said the situation could result in the council being sued by EICC while EICC is being sued by Hyatt.

EICC has already spent £2.19 million on the project, but also argues it should be compensated for lost profits if the project does not proceed, which it has estimated at around £155 million, based on the business case approved by the council, as well as whatever costs are involved in ending its contract with Hyatt.

The August 13 board minutes also show Mr Dallas expressing regret that “a relatively minor point in relation to an LDI poicy was potentially going to prevent the building of the hotel which could, once stable, generate £35m turnover per year.”

At the same meeting, David Cooper, the council’s head of development and regeneration, told the board he understood the project was loss-making for M&G.

The minutes go on: “DC noted that his understanding was that damages in the contract with M&G were largely uncapped.”

EICC chair Councillor Lezley Marion Cameron wrote to council leader Cammy Day on August 20, voicing the board’s concern that despite close working between council officers and the EICC executive on the hotel project, no opportunity was given for EICC input into the report to the finance committee to inform members about the implications of any decision to delay or end the project.

She told him: “EICC directors were also advised at our recent board meeting that the council’s lawyers in this matter have been instructed not to engage with the EICC’s lawyers.”

And at the September 11 board meeting, one board member expressed frustration that EICC was “largely being left in the dark” and not even receiving “basic information” from the council.

In a letter on September 9, Mr Lawrence told Cllr Cameron: “M&G and Hyatt have both indicated a desire to move swiftly to a commercial settlement. It is in both the council and EICC's interests to facilitate this as soon as possible. The council will work closely with you and your team in the course of settlement negotiations to achieve the best possible outcome for all concerned.

“It is important the matters progress quickly in order that litigation is avoided, settlement costs are paid and an alternative use is found for the key development site at Haymarket.”

However, Mr Dallas told Cllr Cameron in an email the same day: "Whilst we appreciate the sentiment of both council and EICC teams working together to achieve the best deal for all concerned, we have very little confidence in this statement given the extreme lack of communication which EICC has experienced over recent months and the fact that senior officers continue to decline all meeting requests."

And he said the EICC board should be “seriously concerned" by Mr Lawrence’s comments about the importance of matters progressing quickly. "Whilst there is no desire for any party to be embroiled in a lengthy legal process, we should be confident in our legal position to demand the best possible outcome from M&G.

"An alternative use for the Haymarket site is absolutely no concern to EICC, but it does raise serious questions as to what information is or is not being shared with the EICC board."

A spokesperson for M&G said they had acquired a dormant site at Haymarket in 2018 and 95,000 sq ft of Grade A offices had already been delivered, with more due to be occupied next year and retail and catering businesses set to join a Black Sheep coffee shop in the coming months.

“Following the decision of the council’s finance committee, M&G agreed with the council to bring the lease agreement for the EICC hotel to an end. In common with many developments following on from the pandemic, there have been construction challenges impacting the timing and cost of delivery of the final scheme.

“With the office works and phase one of the hotel construction (comprising the ground works and sub-structures) completing shortly, a specialist contractor is to be engaged to take forward the remaining contract works to finalise this regeneration project.”

The city council has been approached for comment. EICC declined to say anything. Hyatt were also contacted for comment.