The Catholic diocese will not be allowed to demolish heritage-listed St Columban's Church at Mayfield after a ruling in the Land and Environment Court.
Commissioner Tim Horton found Maitland-Newcastle diocese's $5.5 million cost estimate for repairing the structure was "excessive".
The diocese took City of Newcastle to court last year after the council refused a development application to demolish the 1940 red-brick building.
It was the second time the council had knocked back the demolition. It rejected a 2018 application on heritage grounds.
The new application attempted to show that the building was unsafe, it was not financially viable to repair it or adapt it for reuse and the diocese had no choice but to demolish it.
A quantity surveyor acting for the council estimated the cost of making the building safe at $1.6 million, less than a third of the diocese's estimate.
"The scale of the Church is significant and so it is not unsurprising that the cost of the rectification is in the ballpark of that range," Mr Horton wrote in his judgment.
"Whether that range of costs is an unacceptable or unreasonable burden on the Applicant cannot be ascertained on the basis of the evidence before the Court."
The church, which adjoins St Columban's primary school and San Clemente high school, is listed as an item of local significance on the council's Local Environment Plan.
It has been unused since 2017 after an initial structural report by Burke Engineering found its footings were in a dangerous state of disrepair and could fail in an earthquake.
The diocese argued in court that the Mayfield parish could not afford to repair St Columban's, but Mr Horton noted that the diocese, not the parish, owned the building and the land on which it stood.
"It is the Applicant's financial position that is pertinent to the Court's consideration, and not that of the Parish," he wrote.
He also concluded that the church building's location on a large school campus meant that its reuse was not constrained.
"It would appear that the future of the Church, whatever that may be, is or perhaps should be, considered in conjunction with the two schools that comprise the campus.
"To do otherwise, as appears to have been the case prior to now, would appear a failure of strategic foresight and basic master planning."
Mayfield parish priest Father Andrew Doohan described the legal outcome as "disappointing and surprising".
"As noted in the findings, the costs involved in rectifying and rendering the church as structurally sound and safe are significant, and we will now review and assess options for the future of the site," he said.
"We will continue to ensure the area is safe whilst the future of the building is determined."
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