Residents gave a cautious response this week after a hotel they claim has been operating illegally for two years in south Hackney was refused planning permission by the council.

The application to convert the 17th century former convent at 100-102 Hassett Road into a 25 ensuite bedroom hotel was turned down because it was an unsuitable and unsustainable location for a hotel as it is in a residential area, a council spokeswoman said.

Other reasons for refusal included that it is outside any designated town or district centre and is some distance from shops and services.

A spokesman for the E9 Residents’ Association, said: “We are delighted that Hackney Council Planning Sub-Committee listened to us as a community and refused planning permission for the change of use.”

He added: “The community’s objections centre on the unsuitability of any sort of hotel in a street that is entirely residential.”

They said they hoped the hotel owner would enter into formal community consultation to find a use that is appropriate to the building and satisfactory to both the owner and residents.

Association member Paul Herbert said residents complained to the council about high noise levels from the hotel and people drinking and smoking in the street.

An enforcement notice served on June 23 2011 stated the hotel must “completely and permanently cease the unauthorised used of the site as a H.M.O/ hotel”.

Rooms are advertised at Sacred Heart Lodge, also called Silkhouse, for �26 per person per night online.

A council spokeswoman said the applicants have six months to appeal the decision. She added: “This [enforcement] notice is subject to an appeal to the Planning Inspectorate (independent government organisation) and a decision is awaited from the Planning Inspectorate in the next couple of weeks.”

Planning advisor to owner Mr Mir, Mark Thackeray, said: “The decision of the Council to refuse the applications for planning and listed building consent was clearly a disappointment, especially as the application had the full support of the Council’s professional planning and conservation advisers.

“The decision does not mean that the hotel will close, as that issue remains the subject of an outstanding appeal, to be determined by the impartial Planning Inspectorate. If that decision goes against Mr Mir and the Council choose to enforce their Notice, then he will have to seek an alternative use for the property within the confines of legal planning constraints.

“As a former convent, the options may be limited, but possible alternatives would see the building used as a religious retreat, maybe for members of Mr Mir’s own faith. If, as we expect, the appeal succeeds, then Mr Mir will need to go back to Hackney Council to secure the necessary listed building consent for the proposed building improvements.”