In addition, if an investigation finds it was an offence that was committed intentionally and caused significant harm to the environment, the developer could face fines of up to $5 million and even a jail sentence from a criminal prosecution.

The facade of the old apartment building Hensley Hall was broken down with sledgehammers - despite a City of Sydney condition of the development being to keep it intact - with only two spindly gables remaining, propped up by metal and timber girders. When council officers investigated, following a tip-off from Fairfax Media, the Singapore-based developer Roxy Pacific said the facade had been rotten and it had no alternative but to demolish the greater part of it.

A City of Sydney council spokesperson said an inspection found that a column, spandrels and parapets, all assessed by a specialist heritage team, had been demolished on Bayswater Road without approval, with only the two gable ends retained.

"The developer has advised that the timber (originally thought to be masonry) spandrels and parapets had become unstable due to rot, and could not be retained," she said. "The developer has committed to reconstructing the demolished elements using brick.

"The demolition ... constitutes unauthorised building work and enforcement action is being considered in accordance with Council's Compliance Policy."

Developer Roxy Pacific refused to comment.

Outraged locals, however, have demanded that the council set a 60-day deadline for the heritage wall to be rebuilt and levy a substantial fine to deter other developers from riding roughshod over development conditions.

"Justice delayed is justice denied," says Potts Point and Kings Cross Heritage Society president Andrew Woodhouse. "Unless the situation is resolved quickly, people will be left with the impression that the council and its mayor Clover Moore don't care about heritage. I think there should be further investigation into whether this was a deliberate or negligent act and if it is found to be deliberate or wilful, then there should be a major fine applied to serve as a deterrent. This alleged offence is of the most serious kind, causing enormous harm to the urban environment and the heritage within it.

"An engineer's report on the structure was done as a part of the development application, so it's too late for a developer to say a wall isn't in a state to be kept once it's already been taken down! This developer has been high-handed and needs to be called to account."

Earlier, before the council investigation, Roxy Pacific development manager John Chagaris had said the demolition was necessary to create openings for the new building, for the entry way and new balconies on the apartments, and that the demolished wall would not be rebuilt.

The foundations have already been laid for the new eight-storey, 44-apartment building to be called The Hensley at the site. A number of apartments have been bought off the plan, with prices starting at $820,000 for a 39-square-metre studio, up to $3.75 million for a top-floor three-bedroom apartment. Designed by architects Woods Bagot, it's supposed to be finished by December.

City of Sydney councillor and former deputy mayor Professor Kerryn Phelps says she is looking forward to finding out the whole story from the investigation.

"I ask the question why a building inspector wasn't called to confirm the timber was rotten before they got rid of it," she says. "If there was an imminent danger of it collapsing into the street, then even more reason council inspectors should have been called to look at it to assess the danger.

"There's a lot of consternation among the community about the loss of a character facade and it's important to maintain the heritage of an important area."

A new three-tier system of penalties came into place in 2015 permitting councils, depending on the severity of the offence, to levy a maximum fine on corporations of $5 million, with a further $50,000 for each day the offence continues, and $1 million on individuals, with a further $10,000 for each day the offence continues.

The developer could also seek to lodge a retrospective amended DA to the council for the building, but locals say they will campaign vigorously against the council accepting that if it is done.