Yes you do - you need planning permission to turn a normal dwelling into a house of multiple occupancy. This happened in my road last year - we are 4-storey terraced houses, and a neighbour wanted to make the top 2 floors self-contained for his daughter. He had to apply for planning permission in the normal way - building inspector and fire regs will be round to make sure that the division is robust, fire-safe, in accordance with regs etc. She can't just do it.