HUNDREDS of council house tenants will have to wait at least a year for much-needed improvements after a management company failed to come up to scratch in an Audit Commission report.

The Arm's Length Management Organisation (ALMO), set up by Easington District Council to maintain and revamp its 10,000 housing stock, was this week only awarded a minimum one-star rating by the commission.

East Durham Homes (EDH) was established a year ago and was allocated more than £117m by the Deputy Prime Minister's Office to improve run-down council properties by the year 2010.

But the Government cash was only available if the ALMO achieved at least a two-star rating by Audit Commission inspectors.

Yesterday, EDH learned it had only been granted one-star status, which means it will not be eligible for a first phase funding of £23.6m until it is inspected again next year.

In a statement from the Audit Commission, head of housing for the North, Nick Atkin, said: "Clearly this is a disappointing outcome for East Durham Homes and its customers.

"Failure to improve services sufficiently to achieve a two-star rating means additional funding to improve homes, which are in need of improvement, is not currently accessible."

He said: "East Durham Homes need to take on board our recommendations and, providing they can demonstrate sufficient improvement when we re-inspect, a future two-star rating could still release additional funds."

The loss of the £23.6m this year will mean EDH will have to use £10m of its resources, which will result in a watering down of its improvement programme by two thirds.

In a statement, Alan Caygill, chief executive of EDH, said staff were disappointed at not achieving two star status. But he added: "We are proud of the work we have done but know there is still more to do."

Mr Caygill said he was confident that by working closely with the commission and Deputy Prime Minister's Office the necessary status would be achieved at the next inspection.