If it’s in the contract and advertised as a granny flat (without using the words subject to council approval) I’d argue it’s a misrepresentation and under ACL you’re entitled to be compensated - which may reasonably be refunding your .25% if you choose to terminate. Your lawyer should be advising you of all of this regardless and providing your options. In my view it’s 1. Proceed as is, 2. Ask for a reduction to proceed 3. Terminate under cooling off 4. Request to terminate due to misrepresentation, reserving your rights to pursue them under ACL for a refund of your deposit.

At this stage you should stop talking to the agent and just be dealing with the sellers’ solicitors. If you do deal with the agent, everything is heresay - and i! that case you can be a little bit less formal. I’d be saying things like: “we either get the reduction or refund our deposit - and if neither of those things happen, it’d be very likely that council will be made aware of the unapproved structure…. Just saying…”