You can sell him that land or you can start legal proceedings to obtain compensation if he refuses to settle. The law makes a distinction here between a construction done in good faith or in bad faith. There is a presumption as to the good faith of the person infringing the law, therefore bad faith would have to be proved.
If he has proceeded in good faith, you have the right to make the ´illegal´construction yours (paying a compensation to the constructor) or force the owner of the work to buy the piece of land.
If he has proceeded in bad faith (knowing he was invading your space), you have the right to request demolishment and payment of damages, if any. You can also keep the construction without having to pay any compensation.
The law states that if both owner and constructor have acted in bad faith, the same consequences where both have acted in good faith apply.
I suggest you approach your neighbour in an amicable way to sort out the dispute and if this fails, then weigh the possibilites open to you.
