A D.C. Court of Appeals panel has invalidated a key portion of a 1980 law that protects District tenants from condominium conversions, saying that a provision requiring tenant approval unconstitutionally infringes on developers' rights.

The panel's ruling could cripple the District's condominium conversion law, which was passed at a time when condominium conversions were considered a serious threat to the city's rental housing supply and which was considered to be one of the strictest tenant protection statutes in the country.

In a decision handed down Friday -- 3 1/2 years after arguments were heard in the case -- the appeals court cited similar court decisions in other states in ruling that the tenant approval clause is "deficient" and allows conversion decisions to "be left to the unreviewable whims of a narrow segment of the community."

"We do not mean to suggest that the legitimate concerns of tenants lack relevance in determining whether a particular conversion should be permitted," the opinion reads. But the D.C. law, the judges wrote, gives tenants "an absolute, unreviewable veto power over any condominium conversion" that cannot be justified by the D.C. Council's argument that a shortage of affordable rental units exists.

The appeals court ruling came as an unexpected blow to tenant activists who have successfully fended off other challenges to the law.

"I'm disturbed about it," said Valerie Costello, chairwoman of the Tenants Organization Public Action Committee.

"Anything that interferes with the rights of tenants in condo conversion -- where so many of the tenants are elderly and could be uprooted and have no place to go -- is disturbing."

But C. William Tayler, former president of the Washington chapter of the Community Associations Institute, noted that the market for condominiums has softened and that the rush to convert apartment buildings to individually sold units has slowed considerably since the early 1980s.

"The long-range impact, however, is to cause a significant erosion in the rights of tenants," he said.

Senior Judge Gerard D. Reilly and Associate Judges John M. Ferren and John A. Terry wrote the opinion, which was appealed from the lower court by the owners of the 203-unit Savoy, a rental apartment building at 1101 New Hampshire Ave. NW.

The owner, David Hornstein, attempted to convert that building to condominium units shortly before the 1980 law went into effect but failed to meet the grandfathering requirements needed to qualify. City officials rejected the project before it could be put to a vote of tenants.

Another portion of Hornstein's challenge, which stated that the conversion law combined with the city's rent control statute deprived him of his property without just compensation -- was remanded to the Superior Court for further consideration on the grounds that the lower court, which rejected Hornstein's lawsuit, did not take all of the facts into account when it rendered its decision.

Deputy D.C. Corporation Counsel Charles Reischel said yesterday that the city plans to have the entire appeals court reconsider the case. The court decision, Reischel said, is a "very important holding" but "we think that it's wrong."

"We hope it's a temporary victory" for the developers, Reischel said.

"To get the full court to hear it is not easy normally, but this is a very important issue nationally where there are other condominium conversion laws around the country."

Burton Schwalb, the attorney who represented Hornstein on the case, said the court made a "correct" decision but noted that much of Hornstein's challenge remains unresolved pending a new decision by the lower court.

Although it rejected the requirement that at least 50 percent of eligible tenants approve any conversion, the ruling said the D.C. Council could legally entrust such approval to a government agency for tenants. Such an agency, the judges said, could base its actions on tenant votes, but only if it adhered to "some enunciated standards" that were broader than the tenants' whims.

Council member Charlene Drew Jarvis (D-Ward 4), who chairs the council's Committee on Housing and Economic Development, said that such a provision seems "to leave open the possibility of establishing a way for the government to continue to offer tenants the opportunity of becoming homeowners in buildings where they have for years paid rent."

In addition to requiring tenant approval, the 1980 law gave all tenants in the city the right of first refusal on their units if their building were sold. Some landlords have complained over the years that the statute has prevented them from making a fair profit on their properties.