Tenants of the Walter Reed Gardens apartments in Arlington and the developer who is converting the units to condominiums have settled their differences out of court.

The residents filed suit against GLM Corp. after the county Board of Zoning Appeals gave the developer special permission to proceed with the conversion over the tenants' objections.

Virginia State Del. James F. Almand, a Democrat and a housing activist, is representing the Walter Reed tenants. Almand said that the suit was dropped in return for a pledge from the developer to reserve nine apartments at below-market-rate rents for the use of elderly and handicapped residents of the complex for three years.

While documents have not been signed, the tenants and GLM have reached an agreement in principle, Almand and the developer said.

Under the agreement, the rent for the nine units will be $325 for a one-bedroom apartment, and $375 for a two-bedroom unit. Rent will be subject only to cost-of-living increases, Almand said.

Before conversion began, monthly rents ranged from $300 for long-time occupants to $360 for new renters of a one-bedroom apartment, and $360 to $410 for two-bedroom apartments.

The tenants association will devise a "priority plan" for selecting the elderly residents who will remain at Walter Reed Gardens, Almand said.

Sam Collicchio, a member of a committee formed to oppose the conversion, said the tenants association will begin work on the plan soon, and hopes to have it completed next week. He said age and length of residence at Walter Reed Gardens probably will be major considerations in choosing tenants who will remain.

The agreement also provides for larger payments for moving expenses for other tenants than is required by law, and restrictions on the type and amount of renovation work that can be done while tenants are still in apartments.

The tenants group will receive $15,000 from the developer, which it probably will use to augment the moving expense payments from the developer, Collicchio said.

"The tenants can divide it up as we like, and we haven't settled this," he said. "We must make certain the money goes to members of the association and no one else. It comes out to less than $100 per person."

Condominium converters are required by law to help displaced residents with moving expenses. Walter Reed tenants were offered the choice of a $500 reimbursement, based on receipts for actual expenses, or a $300 to $350 payment in advance of the move. The $300 goes to residents in one-bedroom apartments, and $350 for tenants in two-bedroom units.

GLM official William Dietch said his company is "delighted" to have a settlement, which he called "equitable."

The law requires condominium converters to reserve 20 percent of the units for leasing to elderly and handicapped residents except when the building must have substantial renovation. Walter Reed Gardens needs substantial work, according to the developer. It thus was not subject to the law.

The dispute over the Walter Reed complex "has shown that we need to take another look at our ordinance to see if we can tighten it up," said Arlington County Board member Mary Margaret Whipple, a housing activist. "Every converter can describe his renovation as substantial."

The county "needs to have no exception to the condominium codel or tighten up that exception, which has been exposed as a problem," Whipple said.