The body corporate was asked to show cause by October why it shouldn't be issued with an enforcement notice - however the document containing the response has not been made available to the public.
The body corporate was warned that fines of up to $600,525 were applicable for contravening a development approval, unlawful use of a premise and carrying out assessable development without permit.
Direct Hotels operates several other properties on the Sunshine Coast, in Townsville, central Queensland and in Brisbane.
The company is part of Direct Collective which also includes Direct Rentals and First Home Buyers Academy.
In response to the show cause notice, Direct Rentals has lodged an application with the council to turn 23 units in The Rhythm on Beach into short-term accommodation.