A Supreme Court ruling means that the fees levied by Councils for sexual entertainment licences are not limited to the administration of the applications but may include the costs for enforcing licences.
Sex shop owner Timothy Hemming had argued that Westminster City Council's attempts to charge for the cost of enforcement went against European law and in May 2013, the Court of Appeal backed this view.
The Authority subsequently appealed and the Supreme Court has now overturned the original ruling. As a result, a precedent for allowing Councils to impose fees to cover administering and enforcing licensing costs has now been set.
In its judgment, the Supreme Court said there is no reason why a licensing fee "should not be set at a level enabling the authority to recover from licensed operators the full cost of running and enforcing the licensing scheme, including the costs of enforcement and proceedings against those operating sex establishments without licences".
Nickie Aiken, cabinet member for public protection at Westminster City Council, has welcomed the court's decision, saying "it is only right that a council should be given the freedom, authority and tools to keep illegal activity off of our streets".
Nevertheless, the question of whether a charge should be made on application remains unresolved and has been referred to the European Court of Justice (ECJ). Mr Hemming had been charged £29,435 in 2011-12, of which more than £26,000 would have been refundable if the application had been turned down.
Westminster City Council has confirmed it will await the European court ruling on how it collects fees and adjust its practices "wherever we need to do so".
Kate Nicholls, chief executive of the Association of Licensed Multiple Retailers, believes this could be some way off, telling the Publican's Morning Advertiser it could be up to 18 months until the ECJ rules on this particular issue.