Tens of thousands of New Zealand landlords may be at risk of having to repay rent to their tenants if a Tenancy Tribunal decision sets a precedent.

A Dunedin landlord was ordered to give $10,000 back to a tenant, Natalie Parry, because she had been living in a property with unpermitted alterations. Parry had stayed for 29 weeks.

Vic Inglis and his wife bought the property as is. They did not realise that the alterations were different from plans submitted to the Dunedin City Council, and did not request a LIM report.

But the tribunal said the tenancy was unlawful because of the unpermitted work and the tenant was entitled to a full refund of all rent paid.

NZ Property Investors Federation executive officer Andrew King said he had been contacted by a Christchurch investor who had the same experience. "It could be becoming more common."

He said many more investors were worried that they could be caught, too. "In the case of leaky apartments they are already up for hundreds of thousands of dollars - they're worried they might have to pay rent back too."

A provision of the new Residential Tenancies Bill is that rent can be ordered to be repaid if a property is deemed to have been unlawful.

But King said how that was defined could be problematic: The Home Improvement Act of 1947 said there could not be mould in any property, owned or rented. That could clear the way for tenants to demand a rent refund any time a property became mouldy, even if they caused it, he said. "I'm hoping common sense will prevail."

King has approached Building and Housing Minister Nick Smith to discuss the issue.

He said there would probably tens of thousands of properties that had been rented with unpermitted work or other legal issues. Many would be minor and landlords might not even realise, King said. Some might have built properties to earlier standards that had since been superseded, he said.

Even builders sometimes advised that it was not worth going through thew rigmarole of applying for consent for minor work, he said.

Property management consultant David Faulkner agreed there could be thousands of landlords in Inglis' position. "It's in the New Zealand psyche to do it themselves but all of a sudden a lot of legislation is coming into effect, and a lot of people are being caught out."

He said 90 per cent of Tenancy Tribunal applications were made by landlords. "If tenants started taking landlords to the tribunal we would find out how many non-compliant landlords there are in New Zealand ... tenants have plenty of rights, they just don't know they exist."

Smith has been approached for comment.