A can of worms Zumba :o(
Yes, the sizing and dimensions may well be within PD Rights. (Permitted Development). NellieMay has given excellent chapter and verse on this.
The "remote" building seems to be the issue.
An extension may be up to 8 metres measured from the original building. But... how far is the "bungalow" from the building?
Perhaps he's classing it as a "Granny Annex". An important court case decided that a Granny Annex can be built, BUT... it must be "incidental" to the use of the main house. In short, it can be lived in, but only by family members.
The case of HMOs is not mentioned, but it would seem that an HMO would not be in order in that case.
Anyway, to help you.
None of us know the actual details "on the ground".
I would strongly recommend you hire a Planning consultant. They are often ex-planning officers.
I've used them several times. Think of it as trying to run a fair sized business without an accountant........ you could miss out on so much.
There will be expense, but a decent Consultant would give you an initial assessment for a fee (or maybe free), then they could give you some idea of likely costs.
This, as you say, could affect you greatly. The value of a house is considerable. It would be money well spent, if only to remove doubts.
I'm sorry I can't make it all go away for you, but who knows, there may be a solution.