The Headingley Development Trust (HDT), a community group with 600 members, is trying to raise more than £1m to buy the former Headingley Primary School for less than market value and convert it into a business and arts centre.

But the council wants to sell the building in Bennett Road on the open market to get the best possible price and use the money to fund educational improvements.

A report to the council's Executive Board recommended a request from the trust for more time to raise funds be denied and the property be put on the market.

But board members agreed to defer a decision for up to two months to give trust members more time to work on their proposals.

Under the HDT scheme, the building would be converted in to the Headingley Enterprise and Arts Centre (HEART) providing facilities for start-up businesses, cafe, meeting and conference rooms and a hall with a stage.

The trust has so far raised £65,000 and is hoping to win grants from a variety of sources including adventure capital, a community share issue and the EU, although an application to the Big Lottery Fund for £480,000 was turned down.

Councillor Andrew Carter, executive councillor for development, said deferment was the right decision but he warned: "When we forgo a capital receipt from the sale of an asset, someone has to identify what cuts have to be made elsewhere."

Councillor David Morton (Lib Dem, Headingley) welcomed the board's decision.

He said: "Council officers may see it as just another building to be sold. However to Headingley residents Headingley Primary School is a resource at the heart of the community.

"We now have another two months to make the figures add up and make the case for regeneration of the area.

"We suffer from leafy suburb syndrome. Everyone assumes we are an affluent area but in fact we have the highest crime rates in the city, the worst street scene issues and a high population turnover."