<PAGE>
 
                           SEVENTEENTH AMENDMENT TO
                          FIRST AMENDED AND RESTATED
                       AGREEMENT OF LIMITED PARTNERSHIP
                                      OF
                   CHARLES E. SMITH RESIDENTIAL REALTY L.P.


     THIS SEVENTEENTH AMENDMENT TO FIRST AMENDED AND RESTATED AGREEMENT OF
LIMITED PARTNERSHIP OF CHARLES E. SMITH RESIDENTIAL REALTY L.P. (this
"Seventeenth Amendment"), dated as of December 2, 1998, is entered into by
Charles E. Smith Residential Realty, Inc., a Maryland corporation, as general
partner (the "General Partner") of Charles E. Smith Residential Realty L.P. (the
"Partnership"), for itself and on behalf of the limited partners of the
Partnership.

     WHEREAS, the General Partner has entered into a Rights Agreement dated as
of December 4, 1998 between the General Partner and First Union National Bank,
as rights agent (the "Rights Agreement"), pursuant to which the General Partner
has agreed to issue to the holder of its shares of common stock Rights to
purchase shares of a newly created series of capital stock, designated Series D
Junior Participating Preferred Stock (the "Series D Preferred Stock") upon and
subject to the terms and conditions set forth in the Rights Agreement;

     WHEREAS, pursuant to Section 4.2B of the Partnership Agreement, the
Partnership will issue to the General Partner rights to purchase a new class of
Units, to be entitled "Series D Junior Participating Preferred Units" from time
to time concurrently with the issuance by the General Partner from time to time
of a like number Series D Preferred Stock purchase rights pursuant to the Rights
Agreement; and

     WHEREAS, pursuant to the authority granted to the General Partner pursuant
to Section 14.1B of the Partnership Agreement, the General Partner desires to
amend the Partnership Agreement (i) to establish a new class of Units, to be
entitled Series D Junior Participating Preferred Units (the "Series D Preferred
Units"), and to set forth the designations, rights, powers, preferences and
duties of such Series D Preferred Units, which are substantially the same as
those of the Series D Preferred Stock, pursuant to Section 4.2A of the
Partnership Agreement; (ii) to protect the economic interests of limited
partners in the Partnership to the extent provided herein upon exercise by
holders of certain rights to purchase Series D Preferred Stock granted under the
Rights Agreement and Articles Supplementary relating to such preferred stock;
and (iii) to make certain other changes to the Partnership Agreement.

     NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which hereby are
acknowledged, the General Partner hereby amends the Partnership Agreement, as
follows:

     1.   Article 1 of the Partnership Agreement shall be amended to include the
definition entitled "Exercise Percentage" and to amend and restate the
definition of "REIT Shares Amount" in its entirety as follows:

         "Exercise Percentage" has the meaning set forth in Section 4.4.
          -------------------                                           

         "REIT Shares Amount" means a number of REIT Shares equal to the product
          ------------------                                                    
of the 

                                      E-3
<PAGE>
 
number of Common Units offered for redemption by a Redeeming Partner, multiplied
by the Conversion Factor; provided that in the event the General Partner issues
to all holders of REIT Shares rights, options, warrants or convertible or
exchangeable securities entitling the shareholders to subscribe for or purchase
REIT Shares, or any other securities or property (collectively, the "rights")
and if the Partnership does not issue to all of the holders of Common Units at
such time (other than the General Partner) corresponding rights to subscribe for
or purchase Common Units or other securities or property corresponding to the
securities or property covered by the rights granted by the General Partner,
then the REIT Shares Amount shall also include such rights that a holder of that
number of REIT Shares would be entitled to receive had it owned such REIT Shares
at the time such rights were issued, provided further that, if the rights issued
by the General Partner are issued pursuant to a stockholder rights plan (or
other arrangement having the same objective and substantially the same effect),
then the REIT Shares Amount shall include only such rights to the extent that
such rights have not been exercised by the holders thereof (and have not
otherwise terminated or been eliminated).

     2.   Section 4.2 of the Partnership Agreement is hereby amended to add
after Section 4.2.F the following section:

          G.   Series D Preferred Units.  Under the authority granted to it by
               ------------------------                                       
Section 4.2.A. hereof, the General Partner hereby establishes an additional
class of Partnership Units entitled "Series D Junior Participating Preferred
Units" (the "Series D Preferred Units"). Series D Preferred Units shall have the
designations, preferences, rights, powers and duties as set forth in Exhibit I
                                                                     ---------
hereto.

     3.   Section 4.4 of the Partnership Agreement is hereby amended and
restated in its entirety as follows:

          If the General Partner acquires any Class A Units using the proceeds
from any exercise of any rights (as defined in the definition of REIT Shares
Amount) issued under a stockholder rights plan (or other arrangement having the
same objective and substantially the same effect), then (a) the holders of
Common Units at such time (other than the General Partner) as a group shall have
the right to acquire, at the same price per Class A Unit paid by the General
Partner, a total number of additional Class A Units equal to the product of (i)
the total number of Common Units held by such holders, multiplied by (ii) a
fraction, the numerator of which is the number of Class A Units issued to the
General Partner as a result of the exercise of such rights and the denominator
of which is the total number of Class A Units held by the General Partner
immediately prior to such issuance (which fraction is referred to as the
"Exercise Percentage"), and (b) each holder of a Class A Unit or Class B Unit at
such time shall have the right to acquire, at the same price per Class A Unit
paid by the General Partner, a number of Class A Units equal to the product of
(iii) the aggregate number of Common Units that such holder holds at such time,
multiplied by (iv) the Exercise Percentage.  (Thus, for example, if the General
Partner were to acquire 2,000,000 Class A Units at $5 per Unit from the proceeds
of the exercise of outstanding rights issued under a stockholder rights plan at
a time when the General Partner already owned 8,000,000 Class A Units out of a
total of 12,000,000 outstanding Common Units (which would represent a 25%
increase in the number of Class A Units held by the General Partner), then the
other holders of Common Units as a group would have the right to purchase a
total of 1,000,000 Class A Units at $5 per Class A Unit, and each holder of a
Class A Unit or Class B Unit 
<PAGE>
 
would be entitled to purchase his proportionate share of such Class A Units, or
 .25 Class A Units for each Class A Unit or Class B Unit then held by such
holder.) In the event Partnership Units or Partnership Interests other than
Class A Units (including, without limitation, Series D Preferred Units) are
issued to the General Partner using proceeds of any exercise of rights issued
under a stockholder rights plan (or other arrangement), the holders of Common
Units shall be granted the right to acquire such other Partnership Units or
Partnership Interests at the same price as paid by the General Partner and in
such amounts as would be comparable to their rights had Class A Units been
issued instead. The General Partner shall provide prompt written notice to the
holders of Common Units of its acquisition of Class A Units (or other
Partnership Units or Partnership Interests) using such proceeds and shall
establish in good faith such procedures as it deems appropriate (including,
without limitation, procedures to eliminate the issuance of fractional
Partnership Units if the General Partner deems appropriate) to effectuate the
rights of the holders of Common Units under the preceding provisions of this
Section 4.4. Except to the extent expressly granted by the Partnership pursuant
to this Section 4.4 or another agreement, no person shall have any preemptive,
preferential or other similar right with respect to (i) additional Capital
Contributions or loans to the Partnership; or (ii) issuance or sale of any
Partnership Units or other Partnership Interests.

     4.   Exhibits to Partnership Agreement.
          --------------------------------- 

          A.  The General Partner shall maintain the information set forth in
Exhibit A to the Partnership Agreement, as such information shall change from
---------                                                                    
time to time, in such form as the General Partner deems appropriate for the
conduct of the Partnership's affairs, and Exhibit A shall be deemed amended from
                                          ---------                             
time to time to reflect the information so maintained by the General Partner,
whether or not a formal amendment to the Partnership Agreement has been executed
amending such Exhibit A.  In addition to the designation of Series D Preferred
              ---------                                                       
Units pursuant to this Seventeenth Amendment, such information shall reflect
(and Exhibit A shall be deemed amended from time to time to reflect) the
     ---------                                                          
issuance of any additional Partnership Units to the General Partner or any other
Person, the transfer of Partnership Units and the redemption of any Partnership
Units, all as contemplated herein.

          B.   The Partnership Agreement is hereby amended by attaching thereto
as Exhibit I the Exhibit I attached hereto.
   ---------     ---------                 

     5.   Certain Capitalized Terms.  All capitalized terms used in this
            -------------------------                                     
Seventeenth Amendment and not otherwise defined shall have the meanings assigned
in the Partnership Agreement or in the Articles Supplementary of the General
Partner.  Except as modified herein, all terms and conditions of the Partnership
Agreement shall remain in full force and effect, which terms and conditions the
General Partner hereby ratifies and affirms.

                      [Page Break Intentionally Inserted]
<PAGE>
 
     IN WITNESS WHEREOF, the undersigned has executed this Seventeenth Amendment
as of the date first set forth above.

                         CHARLES E. SMITH RESIDENTIAL REALTY, INC.,
                         as General Partner of
                         Charles E. Smith Residential Realty L.P.
                         and on behalf of existing Limited Partners


                         By:     /s/ Ernest A. Gerardi, Jr.                
                                ---------------------------                     
                         Name:   Ernest A. Gerardi, Jr.
                                ---------------------------
                         Title:  President
                                ---------------------------

                                       4
<PAGE>
 
                                   EXHIBIT I

           DESIGNATION OF THE PREFERENCES AND OTHER RIGHTS, VOTING 
          POWERS, RESTRICTIONS, LIMITATIONS AS TO SERIES D PREFERRED 
                                     UNITS

     The Series D Preferred Units shall have the following designations,
preferences, rights, powers and duties:

     (1) Certain Defined Terms.  The following capitalized terms used in this
         ---------------------                                               
Exhibit I shall have the respective meanings set forth below:
---------                                                    

     "Quarterly Distribution Payment Date" means shall mean the 15th day (or if
such day is not a Business Day, the next Business Day thereafter) of February,
May, August and November of each year, commencing February 15, 1999.

     "Parity Units" has the meaning ascribed thereto in Section 3(A).

     (2)    Distributions.
            ------------- 

          (A) The General Partner, in its capacity as the holder of the then
outstanding Series D Preferred Units, shall be entitled to receive out of funds
legally available therefor, when, as and if declared by the General Partner,
quarterly distributions payable in cash on the Quarterly Distribution Payment
Date at the rate per Series D Preferred Unit equal to the greater of (a) $10.00
or (b) subject to the provision for adjustment hereinafter set forth, one
thousand (1,000) times the aggregate per share amount of all cash distributions,
and one thousand (1,000) times the aggregate per share amount (payable in kind)
of all non-cash or other distributions (other than a distribution payable in
Class A Units or Class B Units of the General Partner, or a subdivision of the
outstanding Class A Units or Class B Units (by reclassification or otherwise))
declared on such Class A or Class B Units, since the immediately preceding
Quarterly Distribution Payment Date, or, with respect to the first Quarterly
Distribution Payment Date, since the first issuance of any Series D Preferred
Units or a fraction thereof.  In the event the General Partner shall at any time
after December 2, 1998 (the "Rights Declaration Date") (i) declare or pay any
distribution on Class A Units or Class B Units payable in Class A Units or Class
B Units, (ii) subdivide the outstanding Class A Units or Class B Units, or (iii)
combine the outstanding Class A Units or Class B Units into a smaller number of
units, then in each such case the amount to which holders of Series D Preferred
Units were entitled immediately prior to such event under clause (b) of the
preceding sentence shall be adjusted by multiplying such amount by a fraction,
the numerator of which is the number of Common Units outstanding immediately
after such event and the denominator of which is the number of shares of Common
Units that were outstanding immediately prior to such event.

          (B) The General Partner shall declare a distribution on the Series D
Preferred Units as provided in paragraph (A) above immediately after it declares
a distribution on any Common Units (other than a distribution payable in Common
Units); provided that, in the event no distribution shall have been declared on
the Common Units during the period between any Quarterly Distribution Payment
Date and the next subsequent Quarterly Distribution Payment Date, a distribution
of $10.00 per unit on the Series D Preferred Units shall nevertheless be payable
on such subsequent Quarterly Distribution Payment Date.

                                      I-1
<PAGE>
 
          (C) Distributions shall begin to accrue and be cumulative on
outstanding Series D Preferred Units from the Quarterly Distribution Payment
Date next preceding the date of issue of such Series D Preferred Units, unless
the date of issue of such units is prior to the record date set for the first
Quarterly Distribution Payment Date, in which case distributions on such units
shall begin to accrue from the date of issue of such units, or unless the date
of issue is a Quarterly Distribution Payment Date or is a date after the record
date for the determination of holders of Series D Preferred Units entitled to
receive a quarterly distribution and before such Quarterly Distribution Payment
Date, in either of which events such distributions shall begin to accrue and be
cumulative from such Quarterly Distribution Payment Date. Accrued but unpaid
distributions shall not bear interest. Distributions paid on the Series D
Preferred Units in an amount less than the total amount of such distributions at
the time accrued and payable on such units shall be allocated pro rata on a 
unit-by-unit basis among all such units at the time outstanding. The Board of
Directors of the General Partner may fix a record date for the determination of
holders of Series D Preferred Units entitled to receive payment of a
distribution declared thereon, which record date shall be no more than 60 days
prior to the date fixed for the payment thereof.

     (3)   Certain Restrictions.
           -------------------- 

          (A) Whenever distributions payable on the Series D Preferred Units as
provided in Section (2) are not paid, thereafter and until such distributions,
whether or not declared, on Series D Preferred Units outstanding shall have been
paid in full, the Partnership shall not:

              (i)   declare or pay distributions on, or redeem or purchase or
otherwise acquire for consideration any units ranking junior (either as to
distributions or upon liquidation, dissolution or winding up) to the Series D
Preferred Units; or

              (ii)  declare or pay distributions on any units ranking on a
parity (either as to distributions or upon liquidation, dissolution or winding
up) (the "Parity Units") with the Series D Preferred Units, except distributions
paid ratably on the Series D Preferred Units and all such Parity Units on which
distributions are payable in proportion to the total amounts to which the
holders of all such units are then entitled; or

              (iii) redeem or purchase or otherwise acquire for consideration
any Parity Units, provided that the Partnership may at any time redeem, purchase
or otherwise acquire any such Parity Units in exchange for any units ranking
junior (either as to distributions or upon dissolution, liquidation or winding
up) to the Series D Preferred Units; or

              (iv)  redeem or purchase or otherwise acquire for consideration
any Series D Preferred Units, or any Parity Units, except in accordance with a
purchase offer made in writing or by publication (as determined by the Board of
Directors of the General Partner) to all holders of such units upon such terms
as the Board of Directors of the General Partner, after consideration of the
respective annual distribution rates and other relative rights and preferences
of the respective series and classes, shall determine in good faith will result
in fair and equitable treatment among the respective series or classes.

                                      I-2
<PAGE>
 
               (B) The General Partner shall not permit any subsidiary of the
Partnership to purchase or otherwise acquire for consideration any units of the
Partnership unless the

Partnership could, under paragraph (A) of this Section 3, purchase or otherwise
acquire such units at such time and in such manner.

     (4)   Liquidation, Dissolution or Winding Up.
           -------------------------------------- 

          (A) Upon any liquidation (voluntary or otherwise), dissolution or
winding up of the Partnership, no distribution shall be made to the holders of
units ranking junior (either as to distributions or upon liquidation,
dissolution or winding up) to the Series D Preferred Units unless, prior
thereto, the holders of Series D Preferred Units shall have received (i)
$108,000 per Unit, plus (ii) any unpaid distributions accrued and unpaid
thereon, whether or not declared, to the date of such payment (the "Series D
Junior Liquidation Preference"). Following the payment of the full amount of the
Series D Junior Liquidation Preference, no additional distributions shall be
made to the holders of Series D Preferred Units unless, prior thereto, the
holders of Common Units shall have received an amount per unit (the "Common
Adjustment") equal to the quotient obtained by dividing (i) the Series D Junior
Liquidation Preference by (ii) 1,000 (as appropriately adjusted as set forth in
subparagraph (C) below to reflect such events as unit splits, unit distributions
and recapitalizations with respect to the Common Units) (such number in clause
(ii) immediately above as so adjusted being referred to as the "Adjustment
Number"). Following the payment of the full amount of the Series D Junior
Liquidation Preference and the Common Adjustment in respect of all outstanding
Series D Preferred Units and Common Units, respectively, holders of Series D
Preferred Units and holders of Common Units shall receive their ratable and
proportionate share of the remaining assets to be distributed in the ratio of
the Adjustment Number to one (1) with respect to such Series D Preferred Units
and Common Units, on a per unit basis, respectively.

          (B) In the event, however, that there are not sufficient assets
available to permit payment in full of the Series D Junior Liquidation
Preference and the liquidation preferences of all other series of preferred
units, if any, which rank on a parity with the Series D Preferred Units, then
such remaining assets shall be distributed ratably to the holders of such Parity
Units in proportion to their respective liquidation preferences. In the event,
however, that there are sufficient assets available to permit payment in full of
the Common Adjustment, then such remaining assets shall be distributed ratably
to the holders of Common Units.

          (C) In the event the Partnership shall at any time after the Rights
Declaration Date (i) declare any distribution on Class A Units or Class B Units
payable in Class A Units or Class B Units, (ii) subdivide the outstanding Class
A Units or Class B Units, or (iii) combine the outstanding Class A Units or
Class B Units into a smaller number of units, then in each such case the
Adjustment Number in effect immediately prior to such event shall be adjusted by
multiplying such Adjustment Number by a fraction, the numerator of which is the
number of Common Units outstanding immediately after such event and the
denominator of which is the number of Common Units that were outstanding
immediately prior to such event.

     5.     Consolidation, Merger, Etc.  In case the Partnership shall enter
            --------------------------                                      
into any consolidation, merger, combination or other transaction in which Class
A Units or Class B Units are exchanged for or changed into other units or
securities, cash and/or any other property, then in any such case the Series D

                                      I-3
<PAGE>
 
Preferred Units shall at the same time be similarly exchanged or changed into
such units or securities, cash and/or any other property in an amount per unit
(subject to the provision for adjustment hereinafter set forth) equal to one
thousand (1,000) times the aggregate amount of units, securities, cash and/or
any other property (payable in kind), as the case may be, into which or for
which each Class A Unit or Class B Unit is changed or exchanged.  In the event
the Partnership shall at any time after the Rights Declaration Date (i) declare
any distribution on Class A Units or Class B Units payable in Class A Units or
Class B Units, (ii) subdivide the outstanding Class A Units or Class B Units, or
(iii) combine the outstanding Class A Units or Class B Units into a smaller
number of units, then in each such case the amount set forth in the preceding
sentence with respect to the exchange or change of Series D Preferred Units (as
previously adjusted, if any prior adjustment has occurred) shall be adjusted by
multiplying such amount by a fraction, the numerator of which is the number of
Class A Units or Class B Units outstanding immediately after such event and the
denominator of which is the number of Class A Units or Class B Units that were
outstanding immediately prior to such event.

     6.   Redemption Right.  The outstanding Series D Preferred Units may be
          ----------------                                                  
redeemed as a whole, but not in part, at any time, or from time to time, at the
option of the Board of Directors of the General Partner, at a cash price per
share equal to 105 percent of (i) the product of the Adjustment Number times the
Average Market Value (as such term is hereinafter defined) of the Class A Units
or Class B Units, plus (ii) all distributions which on the redemption date are
payable on the Class A Units or Class A Units to be redeemed and have not been
paid, earned or declared and a sum sufficient for the payment thereof set apart,
without interest.  The "Average Market Value" of a Class A or Class B Unit shall
equal the average of the closing sale prices of the Common Stock of the General
Partner during the 30 day period immediately preceding the date before the
redemption date on the Composite Tape for New York Stock Exchange Listed Stocks,
or, if such stock is not quoted on the Composite Tape, on the New York Stock
Exchange, or, if such stock is not listed on such Exchange, on the principal
United States securities exchange registered under the Securities Exchange Act
of 1934, as amended, on which such stock is listed, or, if such stock is not
listed on any such exchange, the average of the closing sale prices with respect
to a share of Common Stock during such 30 day period, as quoted on the National
Association of Securities Dealers, Inc. Automated Quotations System or any
system then in use, or if no such quotations are available, the fair market
value of the Common Stock as determined by the Board in good faith.

     7.   Ranking.  Notwithstanding anything contained herein to the contrary,
          -------                                                             
the Series D Preferred Units shall rank junior to all other series of the
preferred units as to voting rights, the payment of distributions and the
distribution of assets in liquidation, unless the terms of any such series shall
provide otherwise.

     8.   Voting Rights.  The holders of Series D Preferred Units shall have
          -------------                                                     
the following voting rights:

               (A) Subject to the provision for adjustment hereinafter set
forth, each Series D Preferred Unit shall entitle the holder thereof to one
thousand (1,000) votes on all matters submitted to a vote of the Partners. In
the event the General Partner shall at any time after the Rights Declaration
Date (i) declare any distribution on Class A Units or Class B Units payable in
Class A Units or Class B Units, (ii) subdivide the outstanding Class A Units or
Class B Units, or (iii) combine the outstanding Class A Units or Class B Units
into a smaller number of units, then in each such case the number of votes per
share to which holders of Series D Preferred Units were entitled immediately
prior to such event shall be adjusted by multiplying such number by a fraction,
the numerator of which is the number of Common Units outstanding immediately
after such event and the denominator of which is the number of Common Units that
were outstanding immediately prior to such event.

                                      I-4
<PAGE>
 
          (B) Except as otherwise provided by law, the holders of Series D
Preferred Units and the holders of Common Units and any Partnership Units having
general voting rights shall vote together as one class on all matters submitted
to a vote of stockholders of the Partners.

          (C) Except as set forth herein, holders of Series D Preferred Units
shall have no special voting rights and their consent shall not be required
(except to the extent they are entitled to vote with holders of Common Units as
set forth herein) for taking any Partnership action.

     9.   General.  The rights of the General Partner, in its capacity as the
          -------                                                            
holder of the Series D Preferred Units, are in addition to and not in limitation
on any other rights or authority of the General Partner, in any other capacity,
under the Partnership Agreement.  In addition, nothing contained in this Exhibit
                                                                         -------
I shall be deemed to limit or otherwise restrict any rights or authority of the
-                                                                              
General Partner under the Partnership Agreement, other than in its capacity as
the holder of the Series D Preferred Units.
                              *     *     *     *

                                      I-5