The owners of the Parkside Hotel, a midtown flophouse used by the District government as an emergency shelter for homeless families, have applied for a permit to convert it into an office building, but have also agreed to keep the shelter operating for a year while city officials seek a permanent site.

The city is paying the owners more than $40,000 a month to use the building, which last week housed only 29 persons. Last summer the population reached 250, but the city cut off intake and moved most residents out when officials at the Department of Human Services, prodded by a federal judge, found what they said were building code violations and fire hazards in the hotel.

Prospective occupants roaming the city during the recent cold weather were turned away every day, according to workers at the hotel, while repairs were being made. Audrey Rowe, commissioner of social services at DHS, said that admission of homeless and destitute families to the shelter would resume when repairs are completed possibly this week.

The city's contract with the owners expires Jan. 31, but Rowe said agreement in principle has been reached on a one-year extension, at a cost to the city of $530,000. Jon Stein, a lawyer for the owners, confirmed that a tentative accord has been worked out. He said his clients were willing to continue operating the building as a shelter while their application for a zoning variance to permit office use is considered by the city board of Zoning Adjustment.

But meanwhile, the entire arragnement between DHS and the owners has been challenged in a lawsuit filed by attorneys for current and former Parkside residents. Their complaint, filed in late December in D.C. Superior Court, alleges that families at Parkside are crowded into small rooms, forced to sleep five or six to a bed, subjected to bad food, vermin infestation and fire hazards and harassed by blackjack-wielding security guards.

Cliaming that the owners, realtor Jeffrey N. Cohen and his Parkside Plaza Limited Partnership, have violated their contract "by their failure to make the Parkside Hotel structure decent, safe and sanitary," the suit asks that Cohen and the city be ordered to improve conditions and ensure better treatment for the homeless. Neither the District government nor Cohen has yet filed a response.

The Parkside is a fading 61-year-old, 10-story brick building at 1336 I St. NW that has seen better days. In another part of town, it might be a candidate for demolition, but the area around 14th Street between Pennsylvania Avenue and K Street has suddenly become hot commercial property where rents and land prices are soaring.

Rowe said she was trying to work out an arrangement with the District's Department of Housing to take over an abandoned, publicly owned apartment building and convert it to use as a permanent, city-operated family shelter. She said that would take about a year -- the term of the new contract to continue to use Parkside -- "after which Parkside will go their way and we will go ours."

A public hearing on Parkside's application for zoning variances is scheduled to be held by the Board of Zoning Adjustment on Feb. 11.