The District government should cancel many of the permits allowing the owners of about 16,000 rental apartment units to convert their buildings to condominiums or cooperatives, a special citizen's commission urged yesterday.

The commission said that present guidelines on such conversions are ineffective and have had the effect of needlessly fueling the fears of many renters that their apartments will be converted to high-priced condominiums and sold out from under them.

Specifically, the emergency Condominium and Cooperative Conversion Commission told a City Council committee yesterday that:

Rent levels that are supposed to restrict conversions that do not require city approval to high-rent apartments are set low enough to make most middle-income apartments eligible for such conversion as well.

A "speculative market" has developed because the issuance of a permit increases the value of the property and may be transferred when the property is sold. The resulting increased value can also be used to obtain loans.

"The potential for a major conversion problem exists at this time only in Wards 2 and 3 (downtown, near downtown and the area west of Rock Creek Park)."

"The conversion threat is not as bad as some of us have been led to believe, especially as it relates to low income neighborhoods," said James G. Banks, executive vice president of the Washington Board of Realtors and a member of the commission.

The commission, which will formally make its report to the City Council later this month, did not recommend a moratorium on conversions.

It recommended provisions that would allow some of those who now hold conversion permits to convert if they meet the new guidelines or if the developer could pass an "investment test" designed to determine if the conversion would displace many of the current residents.

The proposed guidelines are much stricter than the present ones:

The current high rent floor for unchallenged conversions would be raised considerably, perhaps, even doubled, according to the estimate of one commission member. That would mean, for example, that the current floor of $314 for 2-bedroom apartments would be more than $600. As a result, far fewer units could be converted without tenant approval.

A "rationing system" would be adopted to limit the number of conversions that could take place in any given area during a single calendar year to 5 percent of the area's total apartment units.

Tenants trying to purchase their buildings would have 180-days -- twice as long as the current law allows -- to submit an acceptable offer to the apartment owner, a provision that would allow the tenant groups additional time to come up with the necessary money.

In what is likely to be one of the more controversial recommendations, the commission suggested that "the conversion of non-luxury buildings be used (by the city government) as a positive force for community development" in middle income areas of the city.

The commission said that if the city encouraged the conversion of apartments to condominiums and cooperatives that neighborhood residents could afford, the city could stem displacement, prod the housing industry into providing low income homes it has decided not to do and "assure an orderly conversion process."

Timothy Jenkins, chairman of the commission, said afterward that he expects more than half the commission members to file individual reports, in some cases taking exception to the formal recommendations of the panel.