Montgomery County's Office of Consumer Affairs abandoned its lawsuit against the owners of the Blue Ridge Manor apartments this week after reaching a settlement that will keep roughly half the units as rental housing and allow the developer to go ahead with conversion of the rest of the units into condominiums.

County officials filed suit against developer Richard Schlesinger of Wheaton Associates and the Balbec Corp. of Freeport, N.Y., last year, to prevent displacement of tenants, many low-income or elderly, during what county officials said was an illegal conversion process.

According to legal records, in April 1982, Schlesinger and his associates notified tenants in 60 units of their intent to convert the entire 154-unit Blue Ridge Manor apartments to a cooperative. A year later, Schlesinger filed to have the cooperative changed to a condominium. County officials claim he started marketing the units as condos earlier than that.

County officials said in their lawsuit that this action had denied displaced tenants protections guaranteed them by the Montgomery County and state laws governing condominium conversions. While there are few protections for tenants displaced by a cooperative conversion, the county code provides extensive protections for tenants displaced by condominium conversions.

Schlesinger defended his actions, saying he decided to convert to condominiums only after he had trouble selling the units as cooperatives, which he blamed on high interest rates.

The settlement, reached after weeks of discussions, was claimed as a victory by the county Office of Consumer Affairs.

"The settlement came extremely close to what we wanted to get out of the lawsuit," said Barbara Gregg, director of the Montgomery County Office of Consumer Affairs. "We wanted to have the tenant protections of the county code enforced and to have some of the property retained as rental stock. It came a long way towards meeting those needs."

Schlesinger said he was thankful the issue was settled but that he was not happy about the agreement.

"I am pleased with the settlement only because if I didn't agree to it I would have been financially destroyed by the county," said Schlesinger. "I believe I would have won in court eventually but the victory would have been hollow, as it would have caused me to lose the people I had lined up to purchase the condos."

Under the agreement, Schlesinger will be able to proceed with the sale of 135 units as condominiums, many of which were vacated by tenants last year and which are being rehabilitated. The other half of the complex, 124 units, will remain as rental housing for the next 5 1/2 years. Elderly, low-income or handicapped tenants in the part being converted to condo will be moved, whenever possible, into units remaining rental. The rental units will be maintained under rent control guidelines, not only for current tenants but for any tenants moving in over the next five years.

Schlesinger will be free to convert the rental units to condominiums at the end of five years, but must provide tenants with all the protections in the county code and offer the county the right to buy the units at fair market value. The county's right of first refusal prior to the sale of rental housing stock is part of the county code.

It was the issue of first refusal that most concerned county consumer officials, said Gregg. When Schlesinger filed to have the property converted from cooperative to condominium he offered it to the county as required by the ordinance. Schlesinger claims he offered it at fair market value, but county consumer officials said the price, $17 million, was four times higher than what they considered fair market value.

"If the county has the right to purchase rental property, it must be offered at a realistic price," said Joe Giloley, program manager for the Montgomery County Office of Consumer Affairs. "Part of why we decided to agree to the settlement was because we never were able to agree on a price" for the development.

Giloley said they were not disappointed about losing the 134-unit section from rental stock because with the rehabilitation already well underway, county officials were less interested in buying those units. Schlesinger said he would improve the facilities in the area to be kept rental and consider a condominium conversion when the restrictions in the settlement were lifted five years from now, but that he was unhappy about the prospects of doing business in Montgomery County in the future.

"This is just another example of how Montgomery County is frightening away business," said Schlesinger. "I would think many many times before I would invest in any property in the county again."