The case highlights potential licensing pitfalls facing the growing community of Wollongong creative businesses that host sometimes crowded "pop-up" events involving live music and informal BYO arrangements.

Good Jelly is an art gallery and volunteer-run collective that invites artists to exhibit and sell their work in the city centre.

The Globe Lane site is a disused retail business provided rent-free to the collective as part of Wollongong City Council's efforts to revitalise the city centre.

Police fined Good Jelly principal Dioni Pinilla $1500 after a performance art and music event overflowed into the lane last Friday week.

The fine was issued because the event was not among the permitted uses for the site.

CCTV footage captured a crowd of between 40 and 60 people spilling in and out of the building between 8pm and 10.45pm, when police arrived.

Police say up to 90 people were also inside the venue, which has no toilet and a single exit. Mr Pinilla, a graphic artist, said he later learnt the event could have gone ahead under different circumstances, including with an exhibition licence.

"I would have paid [for a licence] if I was aware," he said.

"There's at least five other arts spaces that may [face similar fines].

"It's scary to think they could face thousands of dollars in fines because they're all small, independent businesses, and that would be the end of the creative side of Wollongong.

"I've learnt a lesson - I have to investigate to make sure I'm legally okay to do what I'm doing."

Wollongong licensing operative Wayne Hadfield said events involving non-acoustic music and alcohol should be arranged in co-operation with police.

He attended the Good Jelly event and said the overcrowding reminded him of video footage from the Rhode Island nightclub The Station, which was about 120 people over capacity when a pyrotechnics display caused a fire in February 2003. One hundred people were killed.

Senior Constable Hadfield said Wollongong's old buildings posed particular safety problems when they were used for events.

"We're not there to stop the music," Snr Const Hadfield said.

"We want people to to put a proposal together, and we'll assess each plan on its merits."

Ventures that have navigated licensing legislation include pop-up bar The Drop, which hopes to re-launch later this month using a "trade fair" licence.

A spokeswoman for Wollongong City Council said the Good Jelly event was at odds with Mr Pinilla's initial plan for the site.

"Under [his] proposal, Mr Pinilla had to sign a casual licence agreement with [building owner] GPT, and he could only use the licensed area for the permitted use, as outlined in his project proposal," he said.

"His proposal was to open a studio exhibition space which showcased his designs and that of other local creative individuals."