Extension of an agreement under which the District would continue to use the Parkside Hotel as a shelter for destitute families may be in jeopardy because of a suit brought by shelter residents against the hotels owners, a city official said yesterday.

Disclosure of the lawsuit came yesterday during a D.C. Superior Court hearing at which lawyers for the residents asked Judge John D. Fauntleroy to order the city to keep the shelter operating even if the District and the building's owners failed to reach agreement on a one-year extension by Friday, when the city's contract with Parkside Plaza Limited Partnership runs out.

Fauntleroy said that even though he was "sympathetic to the homeless people," he lacked the authority to compel a private party to enter into a contractural relationship with the city.

Under the present arrangement, the District pays more than $40,000 a month to the Parkside's owners to use the 10-story building at 1336 I St. NW as a home for destitute families. The shelter housed about 250 residents at one time last summer, but their number is now fewer than 30.

City officials said last week that an agreement in principle had been reached with Parkside's owners on a one-year extension of the shelter contract that would cost the city $530,000.

However, assistant corporation counsel G. Lindsay Simmons and Jon Stein, a lawyer for the owners, said yesterday that the proposed deal may now fall through because of the residents' suit, filed last month. The lawsuit alleges that shelter families are crowded into small rooms, forced to sleep five or six to a bed, subjected to bad food, vermin infestation and fire hazards. Homeless families have also been harassed or turned away from the hotel, according to Ellen Bass, of of their attorneys.

Owners' attorney Stein said that the owners want to continue using the hotel as a shelter "but don't want to buy another year of litigation."

Simmons said negotiations with the building's owners would continue this week. If the deal falls through, she said, the city will find alternative housing and the families living at the shelter "will not be in the streets."