If I am reading this correctly, the structure has been there over 10 years solely as a detached garage with little use. But now it’s being restructured as a home gym, perhaps as a selling point for AirBNB or some other form of paying guests. It’s only a few feet from OP’s house and will likely have considerably more traffic and noise; possibly the construction is what’s causing flooding concerns.
I have no knowledge of the legal situation but would think repurposing an unpermitted structure should have ramifications.