One of Scotland's leading contemporary art galleries has taken the first step in a major £11m redevelopment which will see it expand into a neighbouring building.

The Fruitmarket Gallery in Edinburgh, which stands on Market Street next to Waverley Station, is one of the leading contemporary art galleries in the country, which has held shows by artists such as Martin Creed, Phylidda Barlow, Jim Lambie, Louise Bourgeois, Christine Borland and Nathan Coley among others.

It has now been given the green light by the City of Edinburgh Council, which owns its property and that next door, currently the Electric Circus bar and club, to take over that building when the Electric Circus closes.

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The owners of the Electric Circus, who are planning to close the club, have been in talks with the Fruitmarket for two years over the future of the site and its attendant lease.

Now the council, which discussed the issue at the Finance and Resources Committee on Thursday, has given the all clear to the Fruitmarket taking over 36-39 Market Street lease when that business eventually closes.

This plan is expected to take place in the next two years while the Fruitmarket begins its revamp, which is dependent upon significant funding from the Heritage Lottery Fund.

The expanded site will allow the Fruitmarket to expand its galleries, retain its natural light on its upper floor, and create a new project room for artists and curators.

Fiona Bradley, director of The Fruitmarket Gallery said: "We have been in discussions with the proprietor of Electric Circus for maybe two years, as we have been discussing various options for the improvement of the Fruitmarket,

"These have involved going up [adding a floor], going down, going into the gap between us and the station, and we started looking into the gap between our two buildings, and during those discussions, the proprietor said why don't we see if we can do something clever, and take on their lease?

"It's the Holy Grail, really, to expand next door."

She said: "It means we can retain natural light in the upper galleries, and it gives us more space...and in terms of working within the World Heritage site, which we do, we won't be impacting on the skyline."

The council committee approved the report which in principle, agreed to assign the existing leases on 36-39 Market Street to Fruitmarket Gallery and, after that, vary the cost of the lease "to provide the Gallery with a

single lease to allow the development to proceed."

The report said it would create a "premiere cultural space."

"There is a long way to go but this is the first proper step to creating something rather exciting for Edinburgh and Scotland," Ms Bradley said.

The Fruitmarket already has secured £1.4m from Creative Scotland in its last round of capital grants.

The next step is an application from the Heritage Lottery Fund.

The gallery made an application to the lottery in February this year - but was unsuccessful.

The gallery has been invited to re-apply which it will in March next year, and will hear whether it has been successful in June 2017.

If HLF funding is given, between £2m and £5m, then other donors are more likely to also fund the project.

The Fruitmarket would begin building its extension in 2019.

Plant and offices would move to the new building, and provide room for extended galleries, and a new project room, where artists and curators could display new works or works in progress.

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The popular cafe and bookshop would remain in place, Ms Bradley said.

A council spokeswoman said: "As a Council we are committed to improving the city’s cultural infrastructure and supportive of the Fruitmarket Gallery’s exciting plans.

"The development of the venue’s presence and profile in the city centre will be enhanced by partnership working and will build on the Fruitmarket’s success as one of Europe’s foremost contemporary visual arts galleries."

Ms Bradley said the gallery was on "extremely cordial terms" with Electric Circus.

The report notes that the existing Fruitmarket building is "no longer fit for purpose and the building is a key risk threatening the gallery’s continued existence.

"The gallery requires urgent attention in at least three areas: the quality of the gallery spaces; access and facilities for audience; artworks and staff; and environmental sustainability.

The HLF funding would depend on the Fruitmarket Gallery having a long lease and the council report advises extending it to 49 years from this year.

It adds: "The tenant of the nightclub has indicated that they wish to cease trading at the facility and has been offering a proposed assignation.

"Consequently, both tenants have been in discussion regarding a proposed assignation and have reached in principle agreement, subject to Council approval."