A property developer has been blocked from converting a Sydney boarding house into luxury apartments in what some say could be a precedent-setting legal ruling.

LFD Developments took the City of Sydney to court after the council rejected its proposal to convert the 32-room boarding house in Paddington, which once provided sanctuary to vulnerable residents, into four luxury homes.

The developer lost its appeal on the rejected application in the NSW Land and Environment Court on Thursday on the grounds of social impact and the loss of affordable housing.

It is believed to be one of the first times a developer has lost a case on these grounds in New South Wales.

Residents at the Selwyn Street property were served eviction notices last October. (ABC News: Keana Naughton)

However, the legal win has come too late for a group of about 30 mostly elderly men, who have already been forced out of the Selwyn Street boarding house.

The site, which became a refuge for low income earners after World War II, was purchased by LFD Developments who then served the residents with eviction orders last October.

All but one resident has now vacated the house, with the others — some of whom had lived at the property for more than half a century — scattered into a mix of social and private housing.

Jeff Elliott lived at the property for more than 20 years but packed up his belongings and left only two weeks ago.

Former resident of the Paddington boarding house, Jeff Elliott, said the ruling on Thursday was a win. (ABC News: Ethan Rix)

Mr Elliott said the legal battle was still a “win for the people”.

“Boarding houses are important to the community; it keeps people off the streets,” he said.

The Paddington boarding house did just that for Mr Elliott, who spent years sleeping rough after his mother died when he was just 14.

He has since been able to secure accommodation with a family member but said he could never replace what has been lost.

“I’m really pissed off with what happened because all my mates are gone,” he said.

“We had a bond it was like a family.“

Court ruling a ‘bittersweet’ decision

An offer to purchase the property by the City of Sydney and the state government was previously rejected by the developer.

The developer has the option to appeal against the failed bid. LFD Developments has been contacted for comment.

In a statement, Sydney Lord Mayor Clover Moore said she was reviewing the judgement “in detail” and called on the state government to review planning legislation to “avoid this devastation in the future”. 

“Today the court decision was in our favour but ultimately, Councils should not be the sole protectors of housing for our most vulnerable residents,” Cr Moore said.

‘I don’t want to go’: Tenants forced to leave Sydney boarding house

The last two residents of a Paddington boarding house have been given until Monday to vacate or face eviction, forcing them to leave what has been home for a number of years.

The court’s decision does not force the developer to keep the boarding house operating and only rejects the specific proposal to build four apartments.

In the inner-city alone, an estimated 4,000 people rely on boarding properties for housing.

Mike Mannix, a neighbour who rallied the local community to help save residents from eviction, said it was unlikely the men would ever be reconnected.

But Mr Mannix hoped if the boarding house was to be saved, it could help others who may need it.

“There are thousands of other people out there that can fill those rooms tomorrow,” he said.

“So maybe not those men but there are other men and women just like them who desperately need housing that’s affordable and safe.”

Sydney Greens councillor Sylvie Ellsmore (left) with neighbour and community campaigner Mike Mannix. (ABC News: Ethan Rix)

Sydney Greens councillor Sylvie Ellsmore said she was hopeful the “bittersweet” decision would set a valuable precedent for the city.

“The court ruled that the boarding house needed to be protected because it provided really important low income housing in the inner-city, housing that were losing, that’s increasingly rare,” she said.

“There’s not many councils who have taken on developers in this way [and won] and it’s a really great outcome.”

Ned Cooke, team leader of the Inner Sydney Tenants Advice and Advocacy Service, said the court’s ruling was a “huge win for diverse, vibrant, and inclusive communities”.

“This ruling goes some way to balance the systemic lack of investment in affordable housing and the insufficient protections for marginalised renters,” Mr Cooke said.