Converted hotels, training centres and B&Bs could be forced to slash occupancy levels and carry out costly works following a landmark Court of Appeal judgement made against a Welsh Christian hotel and conference centre.
Last week the House of Lords refused a petition to hear the case again.
Conwy Borough Council's interpretation of the 1965 Housing Act led it to reclassify Living Waters, in Dolwen, Clywd, as a House in Multiple Occupation (HMO) in 1996 and landed its director, the Rev David Philpott, with notices for £50,000-worth of fire safety work.
He was also ordered to cut dining room seats from 70 to 27, and the bunk-bed numbers in family rooms. Under the more stringent HMO rules, he could theoretically be told to install catering, washing and laundry facilities on each floor.
The failure of two appeals, said company solicitor Glyn Dale-Jones, has extended the definition of an HMO to any hotel that was once a private dwelling housing a single household, so "two adjoining hotels, both similar in type, can be subject to entirely different legislative regimes if one was built as a dwelling house and the other was purpose-built."
The Court of Appeal felt bound by an earlier judgement but Living Water's barrister, Richard King, said one judge expressed dissatisfaction and disbelief that Parliament intended the HMO definition to extend to hotels.
A Government spokesman conceded that HMO law contained many "grey areas" and had sometimes been applied to premises it was not designed to control.
But in September, proposals for HMO licensing will include an overview of the legislation that "will be relevant to the problem".
However, while the review may amend the current definition of an HMO to "dispel the uncertainty that often surrounds it", Philpott has been warned that any change will not apply retrospectively.
The sale of Thistle Hotels is narrowing down to two bidders with an announcement expected this month.
The 90-strong hotel group, understood to be worth between £1.5b and £1.8b, is expected to spend the next two weeks identifying the best two offers.
Thistle declined to comment on the sale, but speculation has been mounting on whether the group will accept a break-up of the company. Originally, the company said it would prefer to sell the complete group to one buyer, but industry sources have indicated that, if it proved a good deal for the shareholders, a combination deal splitting the group's 24 London hotels from the rest of the group would be considered.
Likely bidders are said to be mainly US real estate investment trusts.