The Montgomery County Council narrowly defeated a bill this week that would have given the county first purchase rights on rental complexes with 10 or more units when their owners offered the buildings for sale.

Proponents of the measure said it would have protected tenants from displacement and safeguarded the county's existing rental stock, but opponents, including the Apartment and Office Building Association of Greater Washington (AOBA), said the law amounted to unnecessary government intrusion. They predicted it would dampen investor interest in building in Montgomery County and eventually lower property values.

The council defeated the bill on a 4-to-3 vote. Council President William E. Hanna Jr. was among the opponents, saying passage of the law would have raised the specter of rent control, a concept that "hurts the rental investment market. . . . This is all part of a rent-control package. This bill is a blood relative of rent control."

The bill's sponsor, council member Scott Fosler, said the bill was "an act of foresight" designed to "forestall what invariably will be enormous pressure on both the county to build apartments and on existing moderate- and low-income housing stock," as the federal government continues to reduce its presence in the housing industry.

"We already have a housing emergency in the county for the elderly, the handicapped and those on fixed or low incomes," Fosler said. He added that, even with 4,000 units built in the last two years, there is only a 2.6 percent vacancy rate in apartments.

Fosler's bill sought to amend an earlier law passed in 1981 during the height of the rush to convert rental apartments into condominiums. This law gives the county the right of first refusal on rental properties for sale unless the contract purchaser agrees to maintain the development as rental for three years.

Since then, 35 properties with about 6,000 units have been sold. Of these, 31 of the new owners agreed to keep their complexes -- about 4,800 units -- as rentals. "As a result of this loophole, the county has not been able to exercise its right of first refusal in the vast majority of cases," Fosler said.

Higher rents and the threat of condominium conversions loom as the three-year agreements expire, Fosler said.

But Donald R. Slatton, executive vice president for AOBA, said, "There is just no proof that this will happen. In the 35 sales where the exception's been invoked, none have made any attempt to go condo because the rental market remains very strong."

But tenants at the Parkside apartments in Bethesda, who were given three-year rent agreements in 1981, have seen their rents increase from $350 to $640 since the agreement expired and part of the complex converted into condominiums, according to Millie Schaefer, a Parkside condominium owner.

Fosler said his amendment would have eliminated the three-year rental option and used federal bonds to purchase some properties at fair market value in areas where rental units were critically needed. The county, in turn, then would sell the buildings to private buyers who would agree to keep the units as rentals, Fosler said.

Original contract purchasers would get 1 percent of the purchase price for the time and trouble they invested in negotiating a contract if the county then preempted their purchase. But Slatton said that would not be enough to keep prospective investors interested in purchasing rental units in Montgomery.

"Eventually, property values would fall," he said.

The county's Housing Opportunities Commission supported the bill, as did the county's chapter of the NAACP. Both groups cited escalating rents and the 2.6 percent vacancy rate as indicators that a housing emergency still grips the county.

Hanna agreed that housing in Montgomery is critically short. "I want to see more low-income units built, but government intrusion into the private marketplace is not the way to encourage private investment," he said.