St Mark's Anglican Church has been running three unauthorised boarding houses at its West Wollongong premises for at least two years without development consent.
The church is now seeking retrospective approval from Wollongong City Council to allow three cottages to officially become a boarding house for University of Wollongong students.
St Mark's last month lodged a development application (DA) with the council, seeking to formally change the use of two houses and a marriage guidance counselling centre which it says are "now used as boarding house[s]".
The cottages have been known as Uni House and hosted boarders since at least February 2012.
According to the Uni House handbooks for 2013 and 2014, the cottages cater for up to 17 students at three adjoining properties at 49 and 51 Staff Street and 429a Crown Street.
With the houses at maximum capacity, the church would collect more than $10,000 a month in boarding fees.
According to the council's 2009 development control policy, a boarding house is a building that is "wholly or partly let in lodgings, provides lodgers with a principal place of residence for three months or more, generally has shared facilities such as a common bathroom, kitchen or laundry, and has rooms that accommodate one or more lodgers."
The St Mark's boarding houses would be permissible under land zoning rules with council consent, however there is no DA approving this use.
According to documents lodged with the council, the church made several modifications to the counselling centre when it "decided that the best use for the building was as managed accommodation for university students".
These included converting a lounge room into a bedroom by the construction of an interior wall, adding an extra bathroom and removing a wall in a former counselling room to provide a communal living area.
When asked why the church ran the boarding houses without approval, St Mark's minister Reverend Peter Hutchinson said the definition of a boarding house was inconsistent at different levels of government.
He said the church had "just tipped over" the number of lodgers which would be classified as a boarding house and was applying to have the properties reclassified so it could increase the number of lodgers.
"Currently we're working in good faith with the council and they've given us a process to work through, where we've been given some time to apply for a development application and that's under way," he said.
"We're in the hands of the council on this and it's up to them to determine if we've broken the rules and what the consequences will be."
The Mercury submitted questions to the council, asking what action it would take against the church for operating the boarding houses without consent.
However, a council spokesman said it would be inappropriate to comment on the merits of the church's proposal while it was under assessment.
The council jumped on a boarding house venture in Keiraville last year, where a couple were fined $30,000 for converting a home into a boarding house.