North Yorkshire education authority now faces a long-term bill of up to Pounds 1 million for a new extension to cope with rapidly-rising pupil numbers. An appeal by the 1,200-pupil school was rejected even though it has had joint use of the property.

The case has caused an outcry from LEAs and colleges over the effects of the 1992 Further and Higher Education Act. Labour’s FHE spokesman Bryan Davies has called for a rules review. “It is absurd that two institutions cannot co-operate because of Treasury rules.”

College principals told The TES that they are forced to put commercial interests before educational priorities. Before the Act, when all the property was owned by the LEA, there would have been no problem transferring the land.

Ruth Gee, chief executive of the Association for Colleges, said: “This case exposes the need to look more carefully and sensitively at the balance of educational and commercial issues.”

Many colleges have continued joint usage with schools since the Act, even though they now own the property. If the college decides to sell, the Government requirements are unequivocal, said a Further Education Funding Council spokeswoman. “Colleges are expected to get the best value for money they can in all transactions, including the disposal of property. A college would have to have a very good reason for not selling to the highest bidder. ”

The college insists that it had a “good case”. Peter Corker, Askham Bryan’s marketing manager, said: “The school was not only our preferred customer, it also ran joint courses with us.”

Easingwold headteacher Peter Fletcher said: “The decision is nonsense. We have five temporary classrooms and must now build a sixth as an interim measure. ”