Fife Council ruled the developer,Edinburgh-based Festival Inns, had not provided enough evidence to back up its claim the Albert Hotel in North Queensferry was no longer viable as a business.
It wanted to turn the 19th-century C-Listed building into residential accommodation.
The company withdrew its original proposal after running into more than 100 objections, and returned with a fresh bid in December 2021 for one two-bedroomed flat and three flats with three bedrooms.
But the proposed development continued to face considerable opposition in the community.
Fife Greens said the council’s refusal was “great news for the village” – and it backed plans to take the building into community ownership.
Ryan Blackadder, West Fife Greens co-convenor, said: “This is tremendous news for a community that repeatedly voiced its disapproval of plans to rip this iconic feature of the main street out in the name of a quick profit.
"Despite having to submit objections multiple times the village has continued to show they desire a place of value where they can meet, eat, drink and connect.
"A working hotel, pub and restaurant only adds to North Queensferry’s value both to locals and to visitors. In the shadow of such an iconic and beautiful structure as the Forth Bridge, it would have been senseless to replace a viable community asset with flats.”
Mr Blackadder said he hoped to see progress made towards a community buyout.
He added: “We remain committed to assisting the process in any way we can. Hopefully the property owner Festival Inns can agree a realistic price for the property and the trust and community council can finally start restoring this important venue.”
The much-photographed Main Street property sits in the centre of North Queensferry’s conservation area, and the community argued strongly it could still have a vibrant future as a tourist attraction, despite being boarded up and closed for the past four years.
The building has declined in recent years and while structurally sound, according to a report to the committee, could be “potentially dangerous”.
The developer argued it was no longer viable to run as a hotel, and needed substantial investment.
Festival Inns’ application was to turn it into four flats with balconies offering spectacular views of the Forth Bridge World Heritage Site.
But its submission was ruled inadequate by officers and councillors.
A report to the committee stated: “It is considered that insufficient evidence has been submitted that demonstrates that the use of the premises as a licensed hotel business is not viable.
“It is also considered that insufficient evidence has been submitted that demonstrates the property and business has been actively marketed for a period of 18 months at a fair market value. The principle of the proposed change of use is therefore not acceptable.”
Officers also told the committee there were no accounts submitted for the former operator, noting: “It was let to various tenants and its use as a hotel has ceased, but that does not evidence the fact the use as a hotel is not viable.
“There are issues around the valuation of the building. It has deteriorated in condition and the valuation is going back to full survey.
“We are not satisfied the evidence is really there that it is not viable.” The committee refused the change of use and an application for internal and external alterations.