I do have to stress that I don't know what planning/PD applies to flats, though - eg whether the % applies to the whole building, whether there's a different %, etc.
However, if it is allowed under PD, then you should assume that the impact wouldn't be as great as you fear. I just took a look on the East Dulwich Forum (always loads of useful info, and Southwark), and there are plenty of threads about side returns, height, light, etc.
"My best friend is a residential architect so its something that she deals with a lot and yes, I would say rarely does a single storey infill extension cause a real problem regarding loss of light. Most planning officers assume as standard that if an infill doesn't extend beyond the original bounary of the row of terraces and if the roof eaves are circa 2.2m there won't be loss of light."
Boundaries are permitted to the height of 8ft, so in theory, your neighbours (or you) could erect a solid fence which would have equal or greater impact than a side return of 2.2m. A 3m high extension wall right next to the boundary would obviously be worse case scenario but surely wouldn't make sense for them to try to do anyway, for the reasons stated previously.
So yes, if you currently have a 4ft fence between you, then you will suffer adversely from a side return extension, but on the other hand, the proposal shouldn't leave you any worse off than the max permitted height fence, so actually your son's bedroom could be worse off for the cost of a fence panel... And the neighbours still have to work out whether it's worth it, given that most side returns are done to provide a huge open plan space, a benefit not available to a flat which needs to be subdivided into bedroom/bathroom/kitchen/reception areas. If they do it, and it works out well for them, you'd get a sneak preview of what could be in it for you should you do the same...
Even if it's PD, they'll still need you and your upstairs to sign the party wall agreement - they can't go ahead without your knowledge. If you dissent, they'll need to appoint and pay for a surveyor.
Hope it all goes well for you, but it does sound as though you might suffer less from the lack of light than you fear
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