Copyright Aid

I'm looking at opening a costume rental/hire company with costumes made by us. Amongst a basic timeline and themes I'd like to include a range of 'Disney' Princesses, 'Assassin's Creed' robes, 'Avatar: The Last Airbender' nation colours for example.

Now I'm aware of the Copyright, Designs and Patents Act 1988, Section 17 (3) which says 'In relation to an artistic work copying includes the making of a copy in three dimensions of a two-dimensional work and the making of a copy in two dimensions of a three-dimensional work.'

I'm aware for at least some Disney costumes and certainly for Dreamwork's Shrek you can buy official pieces but usually the quality is lacking.

So I suppose the question is how different do the pieces need to look and if I don't advertise them as being specific characters then am I still liable?

However I was hoping to provide a higher quality of costume than I've seen thus far with a higher level of detailing. So I suppose one cancels out the other?

And I'm unlikely to be able to afford to buy licensees from the holders in question am I?

Hi Freesia,
This is a really hard issue on which to give comprehensive advice, because the subject matter can involve four separate areas of intellectual property law: copyright, design right, trade mark and passing-off. Since this forum principally about copyright, as was your question, I'll spend more time on that aspect. For an introduction to the possible issues under the other three headings, see this article (pdf).
You are right that copying a two dimensional work in three dimensions might infringe, but only if copyright existed in the item being copied. I have my doubts that a British court would invariably hold that a cartoon character's costume was necessarily a copyrightable work. It would depend on whether the costume could be considered a substantial part of the artistic work itself. So for instance most super heros seem to wear boots and often have capes and maybe some emblem on their chest. But these generic features alone could hardly be argued to form a substantial and original part of the character when they are commonplace amongst such characters. I think one has to look at much more specific features, such as Superman's 'S' or Batman's headgear, and possibly the exact colour combinations before a costume in 2D becomes truly eligible for copyright. The problem is that the UK courts have not really had to decide on this particular issue. There was a case back in 1991 known as the Mutant Ninja Tyrtles case (mentioned in the article referred to above), but that was more about drawings which were found to have been copied, and so this infringed the copyright in the original Ninja Turtle cartoon strip. However the facts in that case did not really concentrate on specific details such as costumes. Most of the other cases (such as the Kojack lolly case or the Holly Hobbie case) related to this kind of infringement have tended to rely on either registered trade marks or passing-off as the thing complained about.
The situation in the USA is more developed, with even the Batmobile having been found to be a protectable 'character'. That might not appear relevant here, but since most of the rights owners will be American comic publishers or film studios, they tend to conduct their IP protection strategies based on US law (as for instance in the Star Wars Stormtrooper helmet case). So although UK law might offer you some protection, that doesn't mean that the rights owners won't bring significant pressure to bear if they think you are likely to damage their franchising operations through your business.
We may have a clearer idea of the UK court's views on this after next January when the High Court is due to hear the copyright case concerning the use of the cartoon figure of Betty Boop on merchandise.