In an extraordinary letter warning of potential legal action if the axe falls on the council, Aysha Mehajer said family company Sydney Project Group had "significant concerns" the proposed suspension would halt its plans for a multi-storey development.

Ms Mehajer, a director of Sydney Project Group, said she was "perplexed" about how the sale of council-owned land to the company could have been among the factors triggering a public inquiry into the council and the proposed suspension.

The council, led by Cr Mehajer's close ally Ned Attie, voted to sell a car park in John Street, Lidcombe, to another Mehajer company in December last year.

Cr Attie's motion had the council sell the car park at a value of $8.5 million, according to a price recommended to council by one firm of valuers.

But Fairfax Media has previously revealed that the council commissioned a second valuation of the property by property giants CBRE that put its value at a significantly higher price. 

Ms Mehajer said in the letter to Local Government Minister Paul Toole that the sale and purchase of the property was at "arm's length" and "all council protocols and regulations were complied with".

"Indeed, I am unaware as to how this could cause any uncertainty in the minister's mind," she wrote.

The company "did not obtain any improper benefit from the acquisition of 13 John Street and followed the resolutions and directions issued by Council throughout the entire process".

Ms Mehajer said that "any objective view of the surrounding circumstances, I believe that any allegations of impropriety with respect to the purchase of the property are extinguished".

She said the company had "significant concerns" the proposed suspension would result in the company losing "the ability to acquire the property", "together with the opportunity to partake in a multi-storey development".

"Additional to this, there will also be extensive delays to the development undertakings and this will no doubt ensure significant financial loss and subsequent further major delays and impacts being created," Ms Mehajer said.

She also warned of potential legal action if the suspension went ahead.

The Mehajer company which bought the property, Sydney Construction and Development Pty Limited, was "prepared to do all things to protect its rights which arise under existing contracts relating to the property between the council and it, including if the minister interferes with those contracts", she said.

Minister Toole has asked Auburn Council to show cause why it should not be suspended during an inquiry led by Sydney silk Richard Beasley.

Cr Mehajer has already been suspended from council by the NSW Civil and Administrative Tribunal for failing to declare his financial interest in a commercial property when voting on changes adding $1 million to its value. The suspension took effect on January 29.

He appealed against the decision and the Supreme Court heard the case on Friday. Justice Peter Garling reserved his decision.