Rough-sleepers face being turfed out of their shelter in Brighton after magistrates handed the building's owner a possession order on Thursday.
Activists at Brighton's Autonomous Homeless Shelter (AHS) had slept in front of the town hall overnight to draw attention to the amount of homeless people in the city.
The rough-sleepers affected by the court ruling had been sleeping at a building in Providence Place since mid-February, with volunteers helping people get back on their feet.
The project, which AHS says has helped support 35 people, was set up after the closure in January of St Patrick's Night Shelter, a former church converted into a charity-run men's hostel in 1985 to provide accommodation to 43 rough-sleepers.
But Brighton magistrates' court granted a possession order to the building's owners.
Its sixteen residents now have just a couple of weeks to find somewhere else or face sleeping on the streets.
George Dowswell, who attended court on behalf of AHS, said: "We will be appealing against the decision on the grounds of morality.
"We intend to contact the owner of the property before his solicitors send the bailiffs round to turf us out onto the streets.
"While the current government has committed to the criminalisation of squatting, projects such as this one show that it is a vital tool for groups and individuals - especially in the face of an economic downturn, rising homelessness and cuts to key services."
He added that the decision would do nothing to reduce homelessness.
AHS claims that Brighton and Hove has among the highest rates of rough sleeping in Britain, while official government figures show that nationally homelessness rose by 23 per cent between 2010 and 2011.
Homeless charity Crisis said 40 per cent of homeless people squat as a last resort for accommodation.
A spokesman for Brighton & Hove City Council said: "Homelessness remains a significant problem in Brighton and Hove.
"High property prices and low average income have resulted in high levels of homelessness and demand for affordable homes in the city far exceeds supply."
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