A Dunedin landlord says he feels robbed after being ordered to refund more than $10,000 rent to a former tenant because of a legal technicality.

Vic Inglis says he and his wife are feeling "pretty dark and twisted" after the Tenancy Tribunal found Natalie Parry's tenancy was unlawful - and therefore she was entitled to a refund of all rent paid - because unpermitted alterations had been made to the two-storey home's downstairs area.

The couple bought the Luke St house at auction as it now stands. Unbeknown to them alterations had deviated from the plans submitted to the Dunedin City Council during its build.

The couple lived in the home before renting it to Ms Parry between July 30 last year and February 21.

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Inglis conceded some fault lay with him as he had not sought a LIM report and the first time he saw plans for the home was when they were presented to him by Parry, as well as her intention to seek refund of all rent through the Tenancy Tribunal.

In April, the tribunal found Parry had entered into an unlawful tenancy due to the unpermitted work on the home's bottom floor.

Due to that, section 137 (4) of the Residential Tenancies Act came into effect meaning Parry was entitled to a full refund of rent of $10,960.44. It also meant Inglis' counterclaim for $3519 for compensation and exemplary damages could not proceed and was dismissed.

"It's been the darkest six months for a long time," he said.

"It's been a nightmare.

"We have managed to sell the property so we can pay her back. But should we have to? No."

Upon learning of the issues with the house Mr Inglis sought a certificate of acceptance for the work which deviated from the original plans. That was issued on March 28 and stated the work was excellent.

However, that held no sway with the tribunal, and an application for a rehearing had also been dismissed.

The couple had appealed the decision to the district court.

Inglis claims during the tenancy Parry, her partner and her son lived in the two bedrooms upstairs at the house and she sublet the downstairs area for her profit.

"It was leased to her and her son for cheap rent on the premise it was just for them," he said.

"We got word ... she was effectively using it like a boarding house. There were cars for Africa and people came and went."

He carried out a property inspection and found evidence of others living in the property, as well as damage.

After informing Parry she would have to leave the property, he was told about the home's original plans and her intention to take him to the tribunal.

"I didn't give it much credence," Inglis said. "I didn't think she had much of a case.

"The tribunal agreed with her that because part of the property wasn't permitted it was untenantable."

He could not believe she would behave the way she had, especially considering the agreement to rent it at a lower rate.

When contacted by the Otago Daily Times for her side of the story, Parry declined to comment.