House not compliant due to builder error. What to do?

Hi,

I have recently signed an a contract here in Sydney with a builder. At the time of the choosing the house we gave them the land survey along with covenants in the estate. One of the covenants in the state was that the liveable area be 250m2 or greater. The house design that they came up with had the alfresco as part of the liveable area. I informed them a friend of mine had built in the estate where we are building and they ran into problems with this at certification. They told me that as long as it was under the one truss it would be classed as liveable. It has now gone to certification and come back non-compliant because of the house not being big enough. The builder has tried to get it approved by going to direct to the developer but have been unsuccessful.
The only option it appears is to close in the alfresco, making it waterproof so it can be classed as liveable and getting the house made compliant.
This is obviously going to cost to do but we are also going to lose the alfresco which was specifically put there to overlook the pool. We dont feel confident in progressing any further with project with the builder. Are we able to break the contract or do we have to continue on? No construction work has begun just plans drawn and we have selected all colours and materials etc.

Any help would be appreciated.

Thank you,