Poolshed for dwelling purpose


I purchased a property with a pool and a poolshed.
The poolshed has a kitchen (without stove), and bathroom.

I rented out to a large family and the adult kid lives in the poolshed.

Someone reported to council and a building surveyor came to inspect the poolshed.

A few days later, I received the following letter

--- BEGIN of letter ---
Dear Sir/Madam,

Unauthorised building works at xxxxxxx

Council records indicated that Development Consent and a Construction Certificate for the works have not been obtained prior to commencement of works. It is an offence under the Environmental Planning & Assessment Act 1979 to carry out development without prior Development Consent and Construction Certificate approval is required,

A council officer has inspected the premises and given consideration to the circumstances of the case.

Council will require the following work to be carried out to rectify the matter:
1. Use of the garage as a habitable structure is to cease.
2. The garage is to be used only for not habitable purposes such as storage.

Alternatively you many wish to make application to regularise the use of the existing structure on the allotment. Advice relating to the various uses that are permissible on your allotment can b obtained by contacting Council Deputy Planner.

--- END of letter ---

In the contract of sale, there is a surveyor report saying that it is for poolshed. Why it suddenly says it is for storage purpose only?
Can I argue based on:
1. I rented out the whole property in a single rental agreement.
2. There is no separate electricity metre and no separate water metre.
3. There is no stove in the poolshed.
4. I cannot control what tenant do. (eg. If I decide to sleep at my own garage, why does council care?)

What else can I do?
Is it difficult and costly to regularise the use of poolshed?
What is the best course of action?

PS. I have 3 weeks to comply.

Please advise.

Thanks in advance.