Maybe this is just the NY'er in me....but I think,
1) given the neighbor actually did not approach you directly and instead whined to the council
2) afterwards decided to pull the 'crank up the stereo' thing....
...this, mates, is war now.
I appreciate those who are suggesting or searching for more moderate resolutions (although I gotta say 'find a separate practice space' isn't one of 'em unless one wishes to set a nice precedent which said neighbor will likely gladly exploit in future).
But sometimes a spade is a spade.
The situation is OP is within his tenant rights, this was confirmed by council. As noted by others, I am pretty certain the neighbor is NOT within the tenant rules with what he is doing. So, time to raise it with council.
Reasoning is not something which interests him, or perhaps something which he is incapable of. Although the latter may elicit some sympathy, it doesn't change the likely fact that he is 'breaking the rules', and those rules do have a regulatory body in this instance.
The 'we don't want this to escalate' argument, while valid in many cirucmstances...is also water under the bridge at this point. It already has escalated.
Again, not to be cold, but....