LIVERPOOL Council and developer Downing will abandon plans to create a major new hotel in a derelict city landmark.

It had been hoped Downing – who own the Port of Liverpool building and The Capital – would reopen the former Scandinavian Hotel in time for the city’s 2008 Capital of Culture celebrations.

But now the council and the company are set to agree to tear up the development agreement, and there is no time scale for when the site might be brought back into use.

The local authority will take back the key site in Chinatown which it won the right to compulsorily purchase in 2005.

Last night, opposition councillors hit out at the way the development had been handled, and said there was an urgent need to bring the historic building back into use.

The council said the project was a victim of the recession, but that it was committed to ensuring the former hotel is protected and redeveloped.

It is understood the city will re-market the building, which has been empty since the 1980s, once property conditions have improved.

Downing last night said it would be inappropriate to comment on the negotiations with the council.

It has previously blamed the lack of progress on the site on a row with the previous owners of the building – Frenson Ltd and Chinese businessman Jimmy Wong – over the value of the site.

In the intervening period, more than a dozen hotels have opened in Liverpool, diluting the market, and then the credit crunch hit.

Tomorrow, the council’s ruling executive board is expected to approve a recommendation to tear up the agreement with Downing.

Councillors will also authorise officials to enter into negotiations with Frenson and Mr Wong to agree a settlement over the disputed value for the site.

It is likely that any settlement will end up costing the council considerably more than the £600,000 which has already been paid.

The price was set in June, 2007, when the council took possession of the building – the cash was handed over in May, 2008.

But, in April, 2005, Frenson and Mr Wong were offered £1.55m by surveyors Keppie Massie on behalf of Downing, which was rejected.

Downing have always defended the difference between the two amounts, saying the price was reached by an independent valuation.