Yes. Lots of uk homes have a 3rd bedroom which is a boxroom you can only reach through the back bedroom. One thing you are not allowed to do is to advertise an attic as a living room or bedroom if it hasn't been built up to certain standards, like minimum ceiling height. You have to call it a Playroom/Nursery/Useful Storage Room etc.
People often move rooms around or divide larger rooms into 2.
I think you would find that a surveyor will point out that this house is not a "2-bedroomed" council house as described, but a "one-bedroomed" house with a reception room which could be used as a bedroom. Lots of people sleep in a downstairs room which was not originally intended for use as a bedroom.
No. It's not legal, but they can get away with it by some clever wording such as "box room" when a large cupboard has been converted to a bedroom. Or "walk in bedroom" when a dining room has.
It's sharp practice and the government should clamp down on it - but haven't.
