A HOUSING company may have to pay back thousands of pounds to new tenants after admitting it got its rent rise procedures wrong.

Burnley and Padiham Housing, which took over Burnley Council's entire 5,200-home housing stock early last year, says its procedures were defective because proper Section 13 rent increase notices were not served and that rents to many new tenants were increased within 12 months of them moving in -- contravening the law.

Directors have been warned the cost of the problem could amount to around £60,000.

And today Burnley Council Independent Group leader Harry Brooks described the situation as "a dreadful mess" and questioned the competence of those running the new company.

Now the company, like many other social landlords throughout the country, is awaiting the outcome of a High Court test case in which two registered landlord groups are defending the procedures they employed.

If the case goes against them, about 650 Burnley and Padiham Assured Tenants who took houses after the take-over by the company could get refunds.

The problem does not affect the vast majority of existing tenants, who transferred from the council.

A private report from the Burnley housing company chiefs, leaked to the Lancashire Evening Telegraph, says no cash should be refunded until the outcome of the test case is known and its implications considered.

Furthermore, they are recommending that no notices seeking possession of houses for rent arrears are served or court action taken against tenants affected until the matter is clarified further.

Directors have also been urged to set up a cash reserve to meet possible rent refunds.

The report explains that several social landlords had tried to move away from the "horrendous" wording of statutory Section 13 notices by using simplified rent rise notices. "As a result the increased rent demanded has been collected using defective procedures and is therefore unlawful."

The report states that Burnley and Padiham procedures were defective in that it did not serve a Section 13 notice or arguably one which was not substantially similar.

In addition, new tenants who moved in last year were charged higher rents at this April's annual rent rise round -- mostly within 12 months of them moving in, which was unlawful.

The report adds: "....the potential financial loss arises from a defective Section 13 Notice.

"The fact that rent increases have been applied within 12 months does not represent a financial loss, as the rent increase should not have been collected in the first place."

Coun Brooks, a long-time critic of the housing company said: "There can be no excuse whatever for the company not being aware of the provisions of the Housing Act which became law in 1988."

"Whatever the outcome of the cases before the courts, it is clear some substantial refunds will have to be made and that recovery action against some tenants for arrears cannot be taken because of the possible legal complications.

He added: "The whole thing is a dreadful mess and it is not the way public housing should be run. The competence of the senior officers of the company has to be seriously questioned."

Alan Tyrell, quality and marketing spokesman for Burnley and Padiham Housing, said the test case would probably be heard around Christmas.

"It woud serve no purpose for us to speculate at this stage as we do not know which way the case will go.

"Very many housing associations are affected with some reported to be facing costs of several million pounds. It is likely that a national solution will be found to this issue and representatives of the National Housing Federation or lawyers are meeting with the DTLR to discuss how the problem, which is essentially a technical issue, can be resolved.

"When a decision is made by the court we will be happy to comment on what we may or may not have to do."

He added: "We are already taking action to avoid any further potential problems and any costs which may be incurred by BPCH are small and will be met by our insurance cover."