The former mayor of the now-defunct Auburn council in Sydney's west has told a public inquiry she only discovered her real estate partner was also in business with former deputy mayor Salim Mehajer when she read about it in the newspaper.

A public inquiry has been examining whether Auburn councillors misused their positions after the council was suspended by the NSW Government in February amid misconduct allegations.

Le Lam's company, which she runs with her brother-in-law and business partner, Minh Hua, was managing developments built by Salim Mehajer's company, Sydney Constructions and Developments, in Lidcombe.

However, Ms Lam repeatedly failed to disclose an interest in another development involving Mr Mehajer: the sale of the council car park in 2011, the inquiry heard.

The council accepted Mr Mehajer's tender to purchase the land on John Street for $6.5 million in 2011, and over the course of four years granted various extensions and variations on the contract.

In 2013, the Auburn council also moved to grant a request by Mr Mehajer that the required 10 per cent deposit for the land be changed to 5 per cent.

Mr Mehajer had already paid $650,000 for the deposit, but in an extraordinary move, he was subsequently refunded $325,000 - against legal advice provided to the council.

At the public inquiry, the former mayor said she never disclosed an interest in the development because she had no idea her business partner was working with Mr Mehajer.

She told the inquiry that despite being in the same office with her brother-in-law at least three times a week, she was entirely unaware their company was managing strata for some of Mr Mehajer's developments.

"I don't discuss what he does in strata," she said.

The council car park has been one of several developments examined by the inquiry.