Ben - who did not want his surname published - suspected the charge was a letting fee in disguise for his niece's new tenancy.
His property managers Impression Real Estate have since dropped the fee.
But they initially argued they needed to change Ben's tenancy into his niece's name to ensure she was successful in taking over the rental and that - in such circumstances - they are allowed to charge a fee to cover their costs.
However, Jonathan Wood - a property law specialist from Rainey Law - said it was not necessary to do a name transfer and Ben's niece should always have been treated like a new tenant, who was exempt from letting fees.
He said he was concerned that following the ban on letting fees other property managers might also try to charge illegal fees.
He urged tenants with similar complaints to go to the Tenancy Tribunal, which has the power to award damages up to $1000.
The incident comes as property management companies are still trying to find new ways to balance their books following recent regulation changes.
They had previously been allowed to charge letting fees to new renters as a way to recover the costs involved in looking for tenants on behalf of landlords.
But these fees were banned last month as part of a raft of Government measures designed to strengthen the rights of renters and keep costs down at a time when home ownership is out of the reach of many.
Despite this, property managers were still allowed to "recover reasonable expenses" in certain cases, a Ministry of Business, Innovation and Employment spokeswoman said.
This included cases when a landlord agreed to allow a tenant to "assign" a tenancy into another person's name.
However, in such cases, the tenancy agreement should remain largely the same.
If significant changes are made to the cost of the rent or duration of the tenancy - for instance - this may be considered a new tenancy and the tenant could go to the Tenancy Tribunal to seek damages, the spokeswoman said.
Impression Real Estate manager Aaron Tunstall said he supported the ban on letting fees and had not been trying to find a "loophole" in Ben's case.
His team had initially tried to change the tenancy from Ben's name into his niece's because that was Ben's request, he said.
But after further discussions with Ben's niece, "we believed a completely new tenancy agreement was necessary", Tunstall said.
When the Herald earlier spoke with the company's business development manager Helena Waldron, however, she said she told Ben that a transfer into his niece's name was the best way to ensure she was successful in taking over the property.
Waldron said if they treated his niece like a new tenant, then they would legally be required to advertise the rental to give other people the chance to apply as well.
However, lawyer Wood said this was not true. So long as the landlord agreed to give the rental to Ben's niece, then there was no legal obligation to advertise the property, he said.
Wood also said it was illegal for property management companies to charge "set fees" to transfer or "assign" properties into another tenant's name.
Instead, they were only allowed to recover the "actual" expenses involved in the transfer and needed to be able to prove what those costs were.
Former tenant Ben told the Herald that when he requested an itemised breakdown of the $250 fee he was initially charged, Impression Real Estate did not give it to him and instead said it was standard across the industry to charge set fees to cover their costs.
