Hi Soaked, first this definitely sounds like a code violation (being so close to property line). Second, how did your friend get the wall up without taking down the fence? Third, I'd be expecting a nasty visit from the local building inspector, they will eventually notice this or the neighbor with the fence will call them. So expect to be doing major changes, which will then allow the room needed. Anyway, post back up with more info (this sounds VERY unusual and will be interesting to here).