Melton Borough Council refused the scheme at Penman Spicer Community Hall, in Park Lane, earlier this year partly on the grounds that it would spoil the character of the area, which is close to the town parks.
Councillors also felt it was important to retain the building for community use and that converting it into housing would be an overdevelopment of the site.
But a planning appeal inspector has now overturned that decision and ordered the council to pay the costs of the hearing to the applicant, Hamzah Shalchi, who has owned the building for five years.
Mr Shalchi, who described the value of the costs paid to him as ‘excessive’ told the Melton Times: “My solicitor said it was unheard of to be awarded costs and that it just showed how terrible a decision it was by the council to refuse planning permission.
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"I didn’t ask to be paid costs but the inspector made the order.”
The hall has in the past been used for children’s parties and fitness classes but Mr Shalchi said it was becoming redundant due to a dwindling number of bookings. He also said that some people attending the parties had suffered from abuse and threats from people in the area.
Mr Shalchi, who said only internal alterations will be made to the building, predicted the apartments should be ready for people to move into within six to 12 months.
"People were concerned about the traffic but there will be considerably less traffic compared to when the kids parties were held there,” he said.
"There will only be parking space for one car to be parked there, with the rest of it for bicycles.
“When five apartments are occupied there will be a maximum of 10 people going in and out of there.
“They will be ideal for people looking to get on the property ladder, they are right in the centre of town and close to the train station as well.”
A Spokesperson from Melton Borough Council said: “Each application we receive is reviewed and individually assessed against the policies within the Melton Local Plan and material planning considerations, ensuring we can support the growth and development of the area and work with private developers and home owners to offer good quality homes and neighbourhoods to those living in the borough.
"The initial assessment of this planning application led to it being refused by the local planning authority due to concerns about overdevelopment, inadequate provision of facilities for residents and not contributing to the character of the conservation area.
"We support the rights of applicants to explore the appeal process and in this instance the planning inspector did not agree with the council’s assessment, allowed the appeal and granted planning permission.
"In such cases costs may sometimes be awarded to the appellant and where this happens, as in this case, the council always aims to make sure such costs are reasonable and proportionate.”
Melton Council recently approved its own scheme to demolish a redundant toilet block in Park Lane and build two two-bed flats.