FINALLY, IN A in a city where enmity between tenants and landlords has been in the news, comes a story with an upbeat ending -- one that might have wider application. It concerns the Winchester Luzon apartments in upper Northwest.

Built back in the '40s, the place is now run-down as a consequence of age, fires, flooding and poor maintenance. "Nothing was ever really repaired, just patched up," says tenants' association president Iris Dial. This is neither surprising nor novel. By the time an apartment house is 30 to 40 years old, substantial renovations are necessary -- new appliances, perhaps a new roof and electrical system. Under rent control, it is more than just possible that there won't be enough revenue to pay for such renovations. Landlords and tenants predictably become adversaries, contending over better services, rent increases and rent rollbacks. Tenants who can move, do. The building deteriorates further. More and more money is necessary to restore it, while the tenants it gets and keeps are increasingly those with no choice and little incentive or means to improve the place. The building can become a hovel, or it can be bought and expensively refurbished and the old tenants thrown out.

Winchester Luzon was in a good neighborhood. Its residents were largely modest-to middle-income career employees, the kind the District needs to keep. When several considered moving, most of the attractive alternatives were in the Maryland suburbs. But today, most of those tenants are still at Winchester Luzon. They have $880,000 in building improvements: new kitchens, bathrooms, elevators, windows, hallways; a new roof, laundry room, electrical system. They achieved this with an above-rent-control-level rent increase of about $64 a month plus their electricity bills. How?

The residents did not panic when the building was sold. Those who wanted to stay on formed an association. The building's new owners -- Borger Management, Inc. -- wishing to keep those tenants, offered them a refurbishment plan and told the tenants they would not have to pay for the improvements until they were completed. A lender, National Bank of Washington, was sufficiently persuaded of the merit of all this to help finance the agreement. The project appears to have succeeded.

A city's rental market erodes when rent control stifles new construction and major renovations, when too many of the apartments that are availible are in varying stages of disrepair. City residents look to the suburbs as the most palatable alternative. And too often, as was the case during the tempestuous rent control battles in 1985, landlords and tenants view each other as bitter enemies who cannot negotiate and compromise for mutual benefit. This example shows thatthey can do better.