A plan to convert a former church school in the Yorkshire dales into affordable housing has been scuppered by a legal requirement to accept the highest bid for the property in a row that has drawn in the chancellor of the exchequer and the archbishop of Canterbury. Rishi Sunak has urged church leaders to reconsider the sale of Arkengarthdale Church of England primary school, and members of the community have demanded the intervention of Justin Welby. But the diocese of Leeds and the parish vicar say their hands are legally tied, even though a C of E commission is investigating ways the church can help tackle the housing crisis – including by building affordable housing on its surplus land. The school closed a year ago after the number of pupils fell to five, a consequence of a declining and ageing population. The building’s owners, Swaledale with Arkengarthdale parochial church council (PCC), put it up for sale with an asking price of £185,000. The school was bought in 1933 for £325. The Upper Dales Community Land Trust, a not-for-profit company that develops and manages homes and other community assets, put forward a plan to convert the single-storey building into three two-bedroom homes and one one-bedroom home. The proposal was backed by the parish council, Richmondshire district council and the Yorkshire Dales National Park Authority. The trust put in a bid for the property of £150,000 but found itself up against seven other interested parties that offered the asking price. Under charities law, the PCC was obliged to accept the highest bid. “We went back to the trust and gave them the opportunity to raise their offer,” said Caroline Hewlett, the vicar of Swaledale. “We went round and round to see if we could sell it to them, but we had to keep to the law. We are legally bound to take the higher price.” Stephen Stubbs, the trust’s chair and a former pupil at the school, said: “The church has taken a legal view but not considered its moral obligation to the people of Arkengarthdale. The school was bought through local people for the benefit of local people. “The school building is the last chance to provide affordable housing to secure a more sustainable and brighter future for the community of Arkengarthdale.” Sunak, the MP for Richmond, said he was disappointed by the sale to a higher bidder. In a letter to the PCC asking it to reconsider the trust’s offer, he said: “The trust’s mission to provide affordable homes for rent in the Yorkshire dales is an important one for the future sustainability of these rural communities which we are all proud to serve.” Last year, Welby set up a commission on housing, church and community to identify ways the C of E could help tackle the housing crisis. It said the church had “a significant contribution to make in this area. We have land and resources that can be used to help meet the need for more affordable housing.” According to Stubbs, “in this case, it appears his vision to encourage and actively help affordable housing to be created from [the church’s] estate is not borne out by reality as the exact opposite is happening, with his prophecy being sacrificed in the interests of short-term profit”. On Wednesday, the trust released Lambeth Palace’s response to its call for Welby to step in, which said the archbishop was powerless to intervene in a diocese and parish matter. The trust is now in the process of applying for charitable status with the Charity Commission in the hope of making it eligible to buy the school at below the asking price.