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                                                                   Exhibit 10.18

                              EMPLOYMENT AGREEMENT

         EMPLOYMENT AGREEMENT (this "Agreement") made as of the seventeenth day
of July, 1997 by and between Robert H. Slater, residing at 816 Emerald Drive,
Alexandria, VA  22308 (hereinafter referred to as "Executive") and Avalon
Properties, Inc., a Maryland corporation, having its principal place of
business at 5904 Richmond Avenue, Alexandria, VA  22303 (hereinafter referred
to as the "Company").

         WHEREAS, Executive and the Company desire to enter into an Employment
Agreement effective as of January 1, 1997 on the terms and conditions
hereinafter set forth;

         NOW, THEREFORE, the parties hereto do hereby agree as follows:

         1.      Term.  The term of this Agreement commenced on January 1, 1997
and, unless earlier terminated as provided in Section 7 below, shall terminate
on December 31, 1999 (the "Original Term").  The Original Term shall be
extended automatically for additional one year periods (each a "Renewal Term"),
unless notice that this Agreement will not be extended is given by either party
to the other six months prior to the expiration of the Original Term or any
Renewal Term.  (The period of Executive's employment hereunder within the
Original Term and any Renewal Terms are herein referred to as the "Employment
Period.")

         2.      Employment Duties.

                 (a)  During the Employment Period, Executive shall be employed
in the business of the Company and its affiliates.  Executive shall serve as a
corporate officer with the title Senior Vice President-Property Operations.  In
the performance of his duties, Executive shall be subject to the direction of
the Chief Operating Officer of the Company and shall not be required to take
direction from or report to any other person.  Executive's duties and authority
shall be commensurate with his title and position with the Company.

                 (b)  Executive agrees to his employment as described in this
Section 2 and agrees to devote substantially all of his working time and
efforts to the performance of his duties under this Agreement; provided that
nothing herein shall be interpreted to preclude Executive from (i)
participating with the prior written consent of the Board of Directors of the
Company (the "Board of Directors") as an officer or director of, or advisor to,
any other entity or organization that is not a customer or material service
provider to the Company or a Competing Enterprise, as defined in Section 8, so
long as such participation does not interfere with the performance of
Executive's duties hereunder, whether or not such entity or organization is
engaged in religious, charitable or other community or non-profit activities,
or (ii) investing in any entity or organization which is not a customer or
material service provider to the Company or a Competing Enterprise, so long as
such investment does not interfere with the performance of Executive's duties
hereunder.

                 (c)  In performing his duties hereunder, Executive shall be
available for reasonable travel as the needs of the business require.
Executive shall be based in Alexandria, VA or otherwise in the greater
Washington, D.C. metropolitan area.  Breach by either party of any of its
respective obligations under this Section 2 shall be deemed a material breach
of that party's obligations hereunder.

         3.      Compensation/Benefits.  In consideration of Executive's
services hereunder, the Company shall provide Executive the following:

                 (a)  Base Salary.  The Company shall pay Executive an annual
salary at least equal to the following amounts during the Employment Period
("Base Salary"):  from January 1, 1997 through December 31, 1997, $185,000;
beginning January 1, 1998, $210,000; beginning January 1, 1999, $240,000.  If
the Employment Period is extended beyond December 31, 1999, Executive's Base
Salary shall be reviewed no less frequently than
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annually by the Company commencing January 1, 2000 and shall be increased to
the greatest of (i) an amount equal to Base Salary for the prior year plus 5%,
(ii) a factor measured by the increase, if any, in the Consumer Price Index for
Wage Earners and Clerical Workers (CPI-W) (City Average for Washington,
D.C.-MD-VA 1982-84 = 100), as published by the Bureau of Labor Statistics, for
the prior calendar year (the "CPI Adjustment") or (iii) such greater amount as
may be agreed by Executive and the Company.  Base Salary shall be payable in
accordance with the Company's normal business practices, but in no event less
frequently than monthly.

                 (b)  Bonuses.  Commencing at the close of each fiscal year
during the Employment Period, the Company shall review the performance of the
Company and of Executive during the prior fiscal year, and the Company may
provide Executive with additional compensation as a bonus if the Board of
Directors, or any compensation committee hereof, in its discretion, determines
that Executive's contribution to the Company warrants such additional payment
and the Company's anticipated financial performance of the present period
permits such payment.  The bonuses hereunder shall be paid as a lump sum not
later than 60 days after the end of the Company's preceding fiscal year.

                 (c)  Medical Insurance/Physical.  During the Employment
Period, the Company shall provide to Executive and Executive's immediate family
a comprehensive policy of health insurance.  During the Employment Period,
Executive shall be entitled to a comprehensive annual physical performed at the
expense of the Company by the physician or medical group of Executive's
choosing.

                 (d) Life Insurance/Disability Insurance.  During the
Employment Period, the Company shall keep in force and pay the premiums on the
split-dollar life insurance policy referenced in the Split Dollar Insurance
Agreement between the Company and Executive annexed hereto as Exhibit 1,
subject to reimbursement by Executive as provided in such Split Dollar
Agreement.  The Company shall reimburse Executive for the cost of the
comprehensive disability insurance policy, which is in effect on January 1,
1997, and shall also be responsible for any increases in premiums which become
effective during the Employment Period as may be necessary to maintain the same
level of insurance as in effect on January 1, 1997.  Executive agrees to submit
to such medical examinations as may be required in order to maintain such
policies of insurance.

                 (e)  Vacations.  Executive shall be entitled to reasonable
paid vacations during the Employment Period in accordance with the then regular
procedures of the Company governing executives, not to exceed six weeks per
annum in the aggregate.

                 (f)  Office/Secretary.  During the Employment Period,
Executive shall be entitled to secretarial services and a private office
commensurate with his title and duties.

                 (g)  Other Benefits.  During the Employment Period, the
Company shall provide to Executive such other benefits, excluding severance
benefits, but including the right to participate in such retirement and pension
plans, as are made generally available to employees of the Company from time to
time.

         4.      Expenses/Indemnification.

                 (a)  During the Employment Period, the Company shall reimburse
Executive for the reasonable business expenses incurred by Executive in the
course of performing his duties for the Company hereunder, upon submission of
invoices, vouchers or other appropriate documentation, as may be required in
accordance with the policies in effect from time to time for executive
employees of the Company.

                 (b)  To the full extent permitted by law, the Company shall
indemnify Executive with respect to any actions commenced against Executive in
his capacity as an officer or director or former officer or director of the
Company, or any affiliate thereof for which he may render service in such
capacity, whether by or on behalf of the Company, its shareholders or third
parties, and the Company shall advance to Executive on a timely basis an amount
equal to the reasonable fees and expenses incurred in defending such actions,
after receipt of an itemized request for such advance, and an undertaking from
Executive to repay the amount of such advance, with interest at a reasonable
rate from the date of the request, as determined by the Company, if it shall
ultimately be determined that he is not entitled to be indemnified against such
expenses.  The Company agrees to use its best efforts to secure and maintain
officers' and directors' liability insurance with respect to Executive.





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         5.      Employer's Authority/Policies.

                 (a)  General.  Executive agrees to observe and comply with the
rules and regulations of the Company as adopted by its Board of Directors
respecting the performance of his duties and to carry out and perform orders,
directions and policies communicated to him from time to time by the Board of
Directors.

                 (b)  Ethics Policies.  Executive agrees to comply with and be
bound by the Ethics Policies of the Company previously executed by Executive,
as reflected in the attachment at Annex A hereto and made a part hereof.

         6.      Records Nondisclosure Company Policies.

                 (a)  General.  All records, financial statements and similar
documents obtained, reviewed or compiled by Executive in the course of the
performance by him of services for the Company, whether or not confidential
information or trade secrets, shall be the exclusive property of the Company.
Executive shall have no rights in such documents upon any termination of this
Agreement.

                 (b)  Nondisclosure Agreement.  Without limitation on the
Company's rights under Section 6(a), Executive agrees to abide by and be bound
by the Nondisclosure Agreement of the Company previously executed by Executive
and the Company as reflected in the attachment at Annex B and made a part
hereof.

         7.      Termination; Severance and Related Matters.

                 (a)  At-Will Employment.  Executive's employment hereunder is
"at will" and, therefore, may be terminated at any time, with or without Cause,
at the option of the Company, subject only to the severance obligations under
this Section 7.  Upon any termination hereunder, the Employment Period shall
expire.

                 (b)  Definitions.  For purposes of this Section 7, the
following terms shall have the indicated definitions:

                          (1)  Cause.  "Cause" shall mean:

                                  (i)  Executive is convicted of or enters a
plea of nolo contendere to an act which is defined as a felony under any
federal, state or local law, not based upon a traffic violation, which
conviction or plea has or can be expected to have, in the good faith opinion of
the Board of Directors, a material adverse impact on the business or reputation
of the Company;

                                  (ii)  any one or more acts of theft, larceny,
embezzlement, fraud or material intentional misappropriation from or with
respect to the Company;

                                  (iii)  a breach by Executive of his fiduciary
duties under Maryland law as an officer or member of the Board of Directors;

                                  (iv)  Executive's commission of any one or
more acts of gross negligence or willful misconduct which in the good faith
opinion of the Board of Directors has resulted in material harm to the business
or reputation of the Company; or

                                   (v)  default by Executive in the performance
of his material duties under this Agreement; without correction of such action
within 15 days of written notice thereof.

                          Notwithstanding the foregoing, no termination of
Executive's employment by the Company shall be treated as for Cause or be
effective until and unless all of the steps described in subparagraphs (i)
through (iii) below have been complied with:





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                                  (i)  Notice of intention to terminate for
Cause has been given by the Company within 120 days after the Board of
Directors learns of the act, failure or event (or latest in a series of acts,
failures or events) constituting "Cause";

                                  (ii)  The Board of Directors has voted (at a
meeting of the Board of Directors duly called and held as to which termination
of Executive is an agenda item) to terminate Executive for Cause after
Executive has been given notice of the particular acts or circumstances which
are the basis for the termination for Cause and has been afforded at least 20
days' notice of the meeting and an opportunity to present his position in
writing; and

                                  (iii)  The Board of Directors has given a
Notice of Termination to Executive within 20 days of such Board meeting.

                          The Company may suspend Executive with pay at any
time during the period commencing with the giving of notice to Executive under
clause (i) above until final Notice of Termination is given under clause (iii)
above.  Upon the giving of notice as provided in clause (iii) above, no further
payments shall be due Executive.

                          (2)  Change in Control.  A "Change in Control" shall
mean the occurrence of any one or more of the following events:

                                  (i)  Any individual, entity or group (a
"Person") within the meaning of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934 (the "Act") (other than the Company, any corporation,
partnership, trust or other entity controlled by the Company (a "Subsidiary"),
or any trustee, fiduciary or other person or entity holding securities under
any employee benefit plan or trust of the Company or any of its Subsidiaries),
together with all "affiliates" and "associates" (as such terms are defined in
Rule 12b-2 under the Act) of such Person, shall become the "beneficial owner"
(as such term is defined in Rule 13d-3 under the Act) of securities of the
Company representing 30% or more of the combined voting power of the Company's
then outstanding securities having the right to vote generally in an election
of the Company's Board of Directors ("Voting Securities"), other than as a
result of (A) an acquisition of securities directly from the Company or any
Subsidiary or (B) an acquisition by any corporation pursuant to a
reorganization, consolidation or merger if, following such reorganization,
consolidation or merger the conditions described in clauses (A), (B) and (C) of
subparagraph (iii) of this Section 7(b)(2) are satisfied; or

                                  (ii)  Individuals who, as of the date hereof,
constitute the Company's Board of Directors (the "Incumbent Directors") cease
for any reason to constitute at least a majority of the Board of Directors,
provided, however, that any individual becoming a director of the Company
subsequent to the date hereof (excluding, for this purpose, (A) any such
individual whose initial assumption of office is in connection with an actual
or threatened election contest relating to the election of members of the Board
of Directors or other actual or threatened solicitation of proxies or consents
by or on behalf of a Person other than the Board of Directors, including by
reason of agreement intended to avoid or settle any such actual or threatened
contest or solicitation, and (B) any individual whose initial assumption of
office is in connection with a reorganization, merger or consolidation,
involving an unrelated entity and occurring during the Employment Period),
whose election or nomination for election by the Company's shareholders was
approved by a vote of at least a majority of the persons then comprising
Incumbent Directors shall for purposes of this Agreement be considered an
Incumbent Director; or

                                  (iii)  Approval by the shareholders of the
Company of a reorganization, merger or consolidation of the Company, unless,
following such reorganization, merger or consolidation, (A) more than 50% of,
respectively, the then outstanding shares of common stock of the corporation
resulting from such reorganization, merger or consolidation and the combined
voting power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then beneficially
owned, directly or indirectly, by all or substantially all of the individuals
and entities who were the beneficial owners, respectively, of the outstanding
Voting Securities immediately prior to such reorganization, merger or
consolidation, (B) no Person (excluding the Company, any employee benefit plan
(or related trust) of the Company, a Subsidiary or the corporation resulting
from such reorganization, merger or consolidation or any subsidiary thereof,
and any Person beneficially owning, immediately prior to such reorganization,
merger or consolidation, directly or indirectly, 30%





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or more of the outstanding Voting Securities), beneficially owns, directly or
indirectly, 30% or more of, respectively, the then outstanding shares of common
stock of the corporation resulting from such reorganization, merger or
consolidation or the combined voting power of the then outstanding voting
securities of such corporation entitled to vote generally in the election of
directors, and (C) at least a majority of the members of the board of directors
of the corporation resulting from such reorganization, merger or consolidation
were members of the Incumbent Board at the time of the execution of the initial
agreement providing for such reorganization, merger or consolidation;

                                  (iv)  Approval by the shareholders of the
Company of a complete liquidation or dissolution of the Company; or

                                  (v)  The sale, lease, exchange or other
disposition of all or substantially all of the assets of the Company, other
than to a corporation, with respect to which following such sale, lease,
exchange or other disposition (A) more than 50% of, respectively, the then
outstanding shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation entitled to
vote generally in the election of directors is then beneficially owned,
directly or indirectly, by all or substantially all of the individuals and
entities who were the beneficial owners of the outstanding Voting Securities
immediately prior to such sale, lease, exchange or other disposition, (B) no
Person (excluding the Company and any employee benefit plan (or related trust)
of the Company or a Subsidiary or such corporation or a subsidiary thereof and
any Person beneficially owning, immediately prior to such sale, lease, exchange
or other disposition, directly or indirectly, 30% or more of the outstanding
Voting Securities), beneficially owns, directly or indirectly, 30% or more of,
respectively, the then outstanding shares of common stock of such corporation
and the combined voting power of the then outstanding voting securities of such
corporation entitled to vote generally in the election of directors, and (C) at
least a majority of the members of the board of directors of such corporation
were members of the Incumbent Board at the time of the execution of the initial
agreement or action of the Board of Directors providing for such sale, lease,
exchange or other disposition of assets of the Company.

                          Notwithstanding the foregoing, a "Change in Control"
shall not be deemed to have occurred for purposes of this Agreement solely as
the result of an acquisition of securities by the Company which, by reducing
the number of shares of Voting Securities outstanding, increases the
proportionate voting power represented by the Voting Securities beneficially
owned by any Person to 30% or more of the combined voting power of all then
outstanding Voting Securities; provided, however, that if any Person referred
to in this sentence shall thereafter become the beneficial owner of any
additional shares of Stock or other Voting Securities (other than pursuant to a
stock split, stock dividend, or similar transaction), then a "Change in
Control" shall be deemed to have occurred for purposes of this Agreement.

                          (3)  Complete Change in Control.  A "Complete Change
in Control" shall mean that a Change in Control has occurred, after modifying
the definition of "Change in Control" by deleting clause (i) from Section
7(b)(2) of the Agreement.

                          (4)  Constructive Termination Without Cause.
"Constructive Termination Without Cause" shall mean a termination of
Executive's employment after a Change in Control initiated by Executive not
later than 12 months following the occurrence (not including any time during
which an arbitration proceeding referenced below is pending), without
Executive's prior written consent, of one or more of the following events (or
the latest to occur in a series of events), and effected after giving the
Company not less than 10 working days' written notice of the specific act or
acts relied upon and right to cure:

                                  (i)  a reduction in, or delay in payment of,
Executive's Base Salary, or a reduction in, delay in payment of, or adverse
change in the terms and conditions of, any cash bonus, stock grant or stock
award, or a failure to make or pay such an award in accordance with the terms,
conditions and performance targets, if any, established with respect thereto
before or after the date of the Change in Control;

                                  (ii)  the failure by the Company to continue
in effect any compensation plan in which Executive participates immediately
prior to the Change in Control which is material to Executive's total
compensation, including, but not limited to, the Avalon Properties, Inc.
Mid-Term Incentive Plan (February 1995) and the Avalon Properties, Inc. Amended
and Restated 1995 Equity Incentive Plan (the "Incentive Plans"), or any





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substitute plans adopted prior to the Change in Control, unless comparable
alternative arrangements (embodied in ongoing substitute or alternative plans)
have been implemented with respect to such plans, or the failure by the Company
to continue Executive's participation therein (or in such substitute or
alternative plans) on a basis not materially less favorable, in terms of the
amount of benefits provided and the level of Executive's participation relative
to other participants, as existed during the last completed fiscal year of the
Company prior to the Change in Control;

                                  (iii)  a material diminution of Executive's
responsibilities, or the assignment to Executive of responsibilities materially
inconsistent with the level of his responsibilities as Senior Vice
President-Property Operations of the Company immediately prior to the Change in
Control;

                                  (iv)  the failure to locate the Executive's
own office at the Company's principal executive office or the relocation of the
Company's principal executive office (for purposes of this Agreement, 5904
Richmond Avenue, Alexandria, VA 22303) to a location more than 50 miles from
Alexandria, VA; or

                                  (v)  the failure of the Company to obtain the
assumption in writing of its obligation to perform this Agreement by any
successor to all or substantially all of the assets of the Company within 15
days after a Change in Control.

                          Notwithstanding the foregoing, a Constructive
Termination Without Cause shall not be treated as having occurred unless
Executive has given a final Notice of Termination delivered after expiration of
the Company's cure period.  Executive or the Company may, at any time after the
expiration of the Company's cure period and either prior to or up until three
months after giving a final Notice of Termination, commence an arbitration
proceeding to determine the question of whether, taking into account the
actions complained of and any efforts made by the Company to cure such actions,
a termination by Executive of his employment should be treated as a
Constructive Termination Without Cause for purposes of this Agreement.  If
Executive or the Company commences such a proceeding prior to delivery by
Executive of a final Notice of Termination, the commencement of such a
proceeding shall be without prejudice to either party and Executive's and the
Company's rights and obligations under this Agreement shall continue unaffected
unless and until the arbitrator has determined such question in the
affirmative, or, if earlier, the date on which Executive or the Company has
delivered a Notice of Termination in accordance with the provisions of this
Agreement.

                          (5)  Covered Average Compensation.  "Covered Average
Compensation" shall mean the sum of Executive's Covered Compensation as
calculated for the calendar year in which the Date of Termination occurs and
for each of the two preceding calendar years, divided by three.

                          (6)  Covered Compensation.  "Covered Compensation,"
for any calendar year, shall mean an amount equal to the sum of (i) Executive's
Base Salary for the calendar year (disregarding any decreases made effective
during the Employment Period), (ii) the cash bonus actually paid to Executive
with respect to such calendar year, and (iii) the value of all stock and other
equity-based compensation awards made to Executive during such calendar year.

                          Covered Compensation shall be calculated according to
the following rules:

                                  (A)  In valuing awards for purposes of clause
(iii) above, all such awards shall be treated as if fully vested when granted,
stock grants shall be valued by reference to the fair market value on the date
of grant of the Company's common stock, par value $.01 per share, and other
equity-based compensation awards shall be valued at the value established by
the Compensation Committee of the Board of Directors on the date of grant.

                                  (B)  In determining the cash bonus actually
paid with respect to a calendar year, if no cash bonus has been paid with
respect to the calendar year in which the Date of Termination occurs, the cash
bonus paid with respect to the immediately preceding calendar year shall be
assumed to have been paid in each of the current and immediately preceding
calendar years, and if no cash bonus has been paid by the Date of Termination
with respect to the immediately preceding calendar year, the cash bonus paid
with respect to the second





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preceding calendar year shall be assumed to have been paid in all three of the
calendar years taken into account in determining Covered Average Compensation.

                                  (C)  If any cash bonus paid with respect to
the current or immediately preceding calendar year was paid within three months
of Executive's Date of Termination, and is lower than the last cash bonus paid
more than three months from the Date of Termination, any such cash bonus paid
within three months of the Date of Termination shall be disregarded and the
last cash bonus paid more than three months from the Date of Termination shall
be substituted for each cash bonus so disregarded.

                                  (D)  In determining the amount of stock and
other equity-based compensation awards made during a calendar year during the
averaging period, rules similar to those set forth in subparagraphs (B) and (C)
of this Section 7(b)(6) shall be followed, except that all awards made in
connection with the Company's initial public offering shall be disregarded.

                          (7)     Disability.  "Disability" shall mean
Executive has been determined to be disabled and to qualify for long-term
disability benefits under the long-term disability insurance policy obtained
pursuant to Section 3(d) of this Agreement.

                 (c)  Rights Upon Termination.

                          (i)  Payment of Benefits Earned Through Date of
Termination.  Upon any termination of Executive's employment during the
Employment Period, Executive, or his estate, shall in all events be paid all
accrued but unpaid Base Salary and all earned but unpaid cash incentive
compensation earned through his Date of Termination.  Executive shall also
retain all such rights with respect to vested equity-based awards as are
provided under the circumstances under the applicable grant or award agreement,
and shall be entitled to all other benefits which are provided under the
circumstances in accordance with the provisions of the Company's generally
applicable employee benefit plans, practices and policies, other than severance
plans.

                          (ii)  Death.  In the event of Executive's death
during the Employment Period, the Company shall, in addition to paying the
amounts set forth in Section 7(c)(i), take whatever action is necessary to
cause all of Executive's unvested equity-based awards to become fully vested as
of the date of death and, in the case of equity-based awards which have an
exercise schedule, to become fully exercisable and continue to be exercisable
for such period as is provided in the case of vested and exercisable awards in
the event of death under the terms of the applicable award agreements.

               (iii)  Disability.  In the event the Company elects to terminate
Executive's employment during the Employment Period on account of Disability,
the Company shall, in addition to paying the amounts set forth in Section
7(c)(i), pay to Executive, in one lump sum, no later than 31 days following the
Date of Termination, an amount equal to two times Covered Average Compensation.
The Company shall also, commencing upon the Date of Termination:

                                  (A)  Continue, without cost to Executive,
benefits comparable to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination under Section 3(c) and
Section 3(d) for a period of 24 months following the Date of Termination or
until such earlier date as Executive obtains comparable benefits through other
employment;

                                  (B)  Continue to pay, or reimburse Executive,
for all premiums then due or thereafter payable on the whole-life portion of
the split-dollar insurance policy referenced under Section 3(d) for so long as
such payments are due; and

                                  (C)  Take whatever action is necessary to
cause Executive to become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other equity-based awards and be
entitled to exercise and continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to retain such grants and
awards to the same extent as if they were vested upon termination of employment
in accordance with their terms.





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               (iv)  Non-Renewal. In the event the Company gives Executive a
Notice of Non-Renewal pursuant to Section 1 above within two years following
the occurrence of a Change in Control, the Executive shall receive the benefits
required to be provided under Section 7(c)(vi) hereof instead of the benefits
described in this Section 7(c)(iv).  In the event the Company gives Executive a
notice of non-renewal pursuant to Section 1 above, either prior to the
occurrence of a Change in Control or more than two years following the
occurrence of a Change in Control, the Company shall, in addition to paying the
amounts set forth in Section 7(c)(i), commencing upon the Date of Termination:

                                  (A)  Pay to Executive, for 12 consecutive
months, commencing with the first day of the month immediately following the
Date of Termination, a monthly amount equal to the result obtained by dividing
Covered Average Compensation by twelve;

                                  (B)  Continue, without cost to Executive,
benefits comparable to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination under Section 3(c) and
Section 3(d) for a period of 24 months following the Date of Termination or
until such earlier date as Executive obtains comparable benefits through other
employment;

                                  (C)  Take whatever action is necessary to
cause Executive to become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other equity-based awards and be
entitled to exercise and continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to retain such grants and
awards to the same extent as if they were vested upon termination of employment
in accordance with their terms; and

                                  (D)  Continue to pay, or reimburse Executive
for, all premiums then due or thereafter payable on the whole-life portion of
the split-dollar insurance policy referenced under Section 3(d) for so long as
such payments are due.

               (v)  Termination Without Cause.  In the event the Company
terminates Executive's employment without Cause, either prior to the occurrence
of a Change in Control or more than two years following the occurrence of a
Change in Control, the Company shall, in addition to paying the amounts set
forth in Section 7(c)(i), commencing upon the Date of Termination:

                                  (A)  Pay to Executive, for 12 consecutive
months, commencing with the first day of the month immediately following the
Date of Termination, a monthly amount equal to the result obtained by dividing
two times Covered Average Compensation by twelve;

                                  (B)  Continue, without cost to Executive,
benefits comparable to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination under Section 3(c) and
Section 3(d) for a period of 24 months following the Date of Termination or
until such earlier date as Executive obtains comparable benefits through other
employment;

                                  (C)  Take whatever action is necessary to
cause Executive to become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other equity-based awards and be
entitled to exercise and continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to retain such grants and
awards to the same extent as if they were vested upon termination of employment
in accordance with their terms; and

                                  (D)  Continue to pay, or reimburse Executive
for, all premiums then due or thereafter payable on the whole-life portion of
the split-dollar insurance policy referenced under Section 3(d) for so long as
such payments are due.

                          (vi)  Termination Without Cause after Change in
Control; Constructive Termination Without Cause; Termination after Complete
Change in Control.  In the event the Company or any successor to the Company
terminates Executive's employment without Cause, within two years after a
Change in Control, or if Executive terminates his employment at any time after
a Change in Control in a Constructive Termination Without Cause effected in the
manner prescribed by Section 7(b)(4), or if Executive terminates his employment
for any





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<PAGE>   9
reason within one year after a Complete Change in Control, the Company shall,
in addition to paying the amounts provided under Section 7(c)(i), pay to
Executive, in one lump sum no later than 31 days following the Date of
Termination, an amount equal to (x) three times Covered Average Compensation,
or (y) if Executive terminates his employment more than two years after a
Change in Control in a Constructive Termination Without Cause, two times
Covered Average Compensation.  The Company shall also, commencing upon the Date
of Termination:

                                  (A)  Continue, without cost to Executive,
benefits comparable to the medical and disability benefits provided to
Executive immediately prior to the Date of Termination under Section 3(c) and
Section 3(d) for a period of 36 months following the Date of Termination (24
months, if Executive terminates his employment in a Constructive Termination
Without Cause more than two years after a Change in Control) or until such
earlier date as Executive obtains comparable benefits through other employment;

                                  (B)  Continue to pay, or reimburse Executive,
for so long as such payments are due, all premiums then due or payable on the
whole-life portion of the split-dollar insurance policy referenced under
Section 3(d); and

                                  (C)  Take whatever action is necessary to
cause Executive to become vested as of the Date of Termination in all stock
options, restricted stock grants, and all other equity-based awards and be
entitled to exercise and continue to exercise all stock options and all other
equity-based awards having an exercise schedule and to retain such grants and
awards to the same extent as if they were vested upon termination of employment
in accordance with their terms.

                          (vii)  Termination for Cause; Voluntary Resignation.
In the event Executive's employment terminates during the Employment Period
other than in connection with a termination meeting the conditions of
subparagraphs (ii), (iii), (iv), (v) or (vi) of this Section 7(c), Executive
shall receive the amounts set forth in Section 7(c)(i) in full satisfaction of
all of his entitlements from the Company.  All equity-based awards not vested
as of the Date of Termination shall terminate and Executive shall have no
further entitlements with respect thereto.

                 (d)  Additional Benefits.

                          (i)  Anything in this Agreement to the contrary
notwithstanding, in the event it shall be determined that any payment or
distribution by the Company to or for the benefit of Executive, whether paid or
payable or distributed or distributable (1) pursuant to the terms of Section 7
of this Agreement, (2) pursuant to or in connection with any compensatory or
employee benefit plan, agreement or arrangement, including but not limited to
any stock options, restricted or unrestricted stock grants issued to or for the
benefit of Executive and forgiveness of any loans by the Company to Executive
or (3) otherwise (collectively, "Severance Payments"), would be subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), and any interest or penalties are incurred by Executive
with respect to such excise tax (such excise tax, together with any such
interest and penalties, are hereinafter collectively referred to as the "Excise
Tax"), then Executive shall be entitled to receive an additional payment (a
"Partial Gross-Up Payment"), such that the net amount retained by Executive,
before accrual or payment of any federal, state or local income tax or
employment tax, but after accrual or payment of the Excise Tax attributable to
the Partial Gross-Up Payment, is equal to the Excise Tax on the Severance
Payments.

                          (ii)  Subject to the provisions of Section 7(d)(iii),
all determinations required to be made under this Section 7, including whether
a Partial Gross-Up Payment is required and the amount of such Partial Gross-Up
Payment, shall be made by Coopers & Lybrand LLP or such other nationally
recognized accounting firm as may at that time be the Company's independent
public accountants (the "Accounting Firm"), which shall provide detailed
supporting calculations both to the Company and Executive within 15 business
days of the Date of Termination, if applicable, or at such earlier time as is
reasonably requested by the Company or Executive.  The initial Partial Gross-Up
Payment, if any, as determined pursuant to this Section 7(d)(ii), shall be paid
to Executive within five days of the receipt of the Accounting Firm's
determination.  If the Accounting Firm determines that no Excise Tax is payable
by Executive, the Company shall furnish Executive with an opinion of counsel
that failure to report the Excise Tax on Executive's applicable federal income
tax return would not result in the imposition of a negligence or similar
penalty.  Any determination by the Accounting Firm shall be binding upon the
Company and





                                      -9-
<PAGE>   10
Executive.  As a result of the uncertainty in the application of Section 4999
of the Code at the time of the initial determination by the Accounting Firm
hereunder, it is possible that Partial Gross-Up Payments which will not have
been made by the Company should have been made (an "Underpayment").  In the
event that the Company exhausts its remedies pursuant to Section 7(d)(iii) and
Executive thereafter is required to make a payment of any Excise Tax, the
Accounting Firm shall determine the amount of the Underpayment that has
occurred, consistent with the calculations required to be made hereunder, and
any such Underpayment, and any interest and penalties imposed on the
Underpayment and required to be paid by Executive in connection with the
proceedings described in Section 7(d)(iii), and any related legal and
accounting expenses, shall be promptly paid by the Company to or for the
benefit of Executive.

                          (iii)  Executive shall notify the Company in writing
of any claim by the Internal Revenue Service that, if successful, would require
the payment by the Company of the Partial Gross-Up Payment.  Such notification
shall be given as soon as practicable but no later than 10 business days after
Executive knows of such claim and shall apprise the Company of the nature of
such claim and the date on which such claim is requested to be paid.  Executive
shall not pay such claim prior to the expiration of the 30-day period following
the date on which he gives such notice to the Company (or such shorter period
ending on the date that any payment of taxes with respect to such claim is
due).  If the Company notifies Executive in writing prior to the expiration of
such period that it desires to contest such claim, Executive shall:

                                  (A)  give the Company any information
reasonably requested by the Company relating to such claim,

                                  (B)  take such action in connection with
contesting such claim as the Company shall reasonably request in writing from
time to time, including, without limitation, accepting legal representation
with respect to such claim by an attorney selected by the Company,

                                  (C)  cooperate with the Company in good faith
in order effectively to contest such claim, and

                                  (D)  permit the Company to participate in any
proceedings relating to such claim; provided, however that the Company shall
bear and pay directly all costs and expenses attributable to the failure to pay
the Excise Tax (including related additional interest and penalties) incurred
in connection with such contest and shall indemnify and hold Executive
harmless, for any Excise Tax up to an amount not exceeding the Partial Gross-Up
Payment, including interest and penalties with respect thereto, imposed as a
result of such representation, and payment of related legal and accounting
costs and expenses (the "Indemnification Limit").  Without limitation on the
foregoing provisions of this Section 7(d)(iii), the Company shall control all
proceedings taken in connection with such contest and, at its sole option may
pursue or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner, and Executive agrees to
prosecute such contest to a determination before any administrative tribunal,
in a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs
Executive to pay such claim and sue for a refund, the Company shall advance so
much of the amount of such payment as does not exceed the Excise Tax, and
related interest and penalties, to Executive on an interest-free basis and
shall indemnify and hold Executive harmless from any related legal and
accounting costs and expenses, and from any Excise Tax, including related
interest or penalties imposed with respect to such advance or with respect to
any imputed income with respect to such advance up to an amount not exceeding
the Indemnification Limit; and further provided that any extension of the
statute of limitations relating to payment of taxes for the taxable year of
Executive with respect to which such contested amount is claimed to be due is
limited solely to such contested amount.  Furthermore, the Company's control of
the contest shall be limited to issues with respect to which a Partial Gross-Up
Payment would be payable hereunder and Executive shall be entitled to settle or
contest, as the case may be, any other issues raised by the Internal Revenue
Service or any other taxing authority.

                                  (iv)  If, after the receipt by Executive of
an amount advanced by the Company pursuant to Section 7(d)(iii), Executive
becomes entitled to receive any refund with respect to such claim, Executive
shall (subject to the Company's complying with the requirements of Section
7(d)(iii)) promptly pay to the Company





                                      -10-
<PAGE>   11
so much of such refund (together with any interest paid or credited thereon
after taxes applicable thereto) (the "Refund") as is equal to (A) if the
Company advanced or paid the entire amount required to be so advanced or paid
pursuant to Section 7(d)(iii) hereof (the "Required Section 7(d) Advance"), the
aggregate amount advanced or paid by the Company pursuant to this Section 7(d)
less the portion of such amount advanced to Executive to reimburse him for
related legal and accounting costs, or (B) if the Company advanced or paid less
than the Required Section 7(d) Advance, so much of the aggregate amount so
advanced or paid by the Company pursuant to this Section 7(d) as is equal to
the difference, if any, between (C) the amount refunded to Executive with
respect to such claim and (D) the sum of the portion of the Required Section
7(d) Advance that was paid by Executive and not paid or advanced by the Company
plus Executive's related legal and accounting fees, as applicable.  If, after
the receipt by Executive of an amount advanced by the Company pursuant to
Section 7(d)(iii), a determination is made that Executive shall not be entitled
to any refund with respect to such claim and the Company does not notify
Executive in writing of its intent to contest such denial of refund prior to
the expiration of 30 days after such determination, then such advance shall be
forgiven and shall not be required to be repaid and the amount of such advance
shall offset, to the extent thereof, the amount of Partial Gross-Up Payment
required to be paid.

                 (e)  Notice of Termination.  Notice of non-renewal of this
Agreement pursuant to Section 1 hereof or of any termination of Executive's
employment (other than by reason of death) shall be communicated by written
notice (a "Notice of Termination") from one party hereto to the other party
hereto in accordance with this Section 7 and Section 9.

                 (f)  Date of Termination.  "Date of Termination," with respect
to any termination of Executive's employment during the Employment Period,
shall mean (i) if Executive's employment is terminated for Disability, 30 days
after Notice of Termination is given (provided that Executive shall not have
returned to the full-time performance of Executive's duties during such 30 day
period), (ii) if Executive's employment is terminated for Cause, the date on
which a Notice of Termination is given which complies with the requirements of
Section 7(b)(1) hereof, and (iii) if Executive's employment is terminated for
any other reason, the date specified in the Notice of Termination.  In the case
of a termination by the Company other than for Cause, the Date of Termination
shall not be less than 30 days after the Notice of Termination is given.  In
the case of a termination by Executive, the Date of Termination shall not be
less than 15 days from the date such Notice of Termination is given.
Notwithstanding the foregoing, in the event that Executive gives a Notice of
Termination to the Company, the Company may unilaterally accelerate the Date of
Termination and such acceleration shall not result in the termination being
treated as a Termination without Cause.  Upon any termination of his
employment, Executive will concurrently resign his membership on the Board of
Directors.

                 (g)  No Mitigation.  The Company agrees that, if Executive's
employment by the Company is terminated during the term of this Agreement,
Executive is not required to seek other employment or to attempt in any way to
reduce any amounts payable to Executive by the Company pursuant to Section
7(d)(i) hereof.  Further, the amount of any payment provided for in this
Agreement shall not be reduced by any compensation earned by Executive as the
result of employment by another employer, by retirement benefits, or, except
for amounts then due and payable in accordance with the terms of any promissory
notes given by Executive in favor of the Company, by offset against any amount
claimed to be owed by Executive to the Company or otherwise.

                 (h)  Nature of Payments.  The amounts due under this Section 7
are in the nature of severance payments considered to be reasonable by the
Company and are not in the nature of a penalty.  Such amounts are in full
satisfaction of all claims Executive may have in respect of his employment by
the Company or its affiliates and are provided as the sole and exclusive
benefits to be provided to Executive, his estate, or his beneficiaries in
respect of his termination of employment from the Company or its affiliates.

         8.      Non-Competition; Non-Solicitation; Specific Enforcement.

                 (a)  Non-Competition.  Because Executive's services to the
Company are special and because Executive has access to the Company's
confidential information, Executive covenants and agrees that, during the
Employment Period and, for a period of one year following the Date of
Termination by the Company for Cause or a termination by Executive prior to a
Change in Control, Executive shall not, without the prior written consent of
the Board of Directors, become associated with, or engage in any "Restricted
Activities" with respect to any "Competing Enterprise," as such terms are
hereinafter defined, whether as an officer, employee, principal, partner,





                                      -11-
<PAGE>   12
agent, consultant, independent contractor or shareholder.  "Competing
Enterprise," for purposes of this Agreement, shall mean any person,
corporation, partnership, venture or other entity which (a) is a publicly
traded real estate investment trust, or (b) is engaged in the business of
managing, owning, leasing or joint venturing residential real estate within 30
miles of residential real estate owned or under management by the Company or
its affiliates.  "Restricted Activities," for purposes of this Agreement, shall
mean executive, managerial, directorial, administrative, strategic, business
development or supervisory responsibilities and activities relating to all
aspects of residential real estate ownership, management, residential real
estate franchising, and residential real estate joint-venturing.

                 (b)  Non-Solicitation.  During the Employment Period, and for
a period of one year following the Date of Termination, Executive shall not,
without the prior written consent of the Company, except in the course of
carrying out his duties hereunder, solicit or attempt to solicit for employment
with or on behalf of any corporation, partnership, venture or other business
entity, any employee of the Company or any of its affiliates or any person who
was formerly employed by the Company or any of its affiliates within the
preceding six months, unless such person's employment was terminated by the
Company or any of such affiliates.

                 (c)  Specific Enforcement.  Executive and the Company agree
that the restrictions, prohibitions and other provisions of this Section 8 are
reasonable, fair and equitable in scope, terms, and duration, are necessary to
protect the legitimate business interests of the Company and are a material
inducement to the Company to enter into this Agreement.  Should a decision be
made by a court of competent jurisdiction that the character, duration or
geographical scope of the provisions of this Section 8 is unreasonable, the
parties intend and agree that this Agreement shall be construed by the court in
such a manner as to impose all of those restrictions on Executive's conduct
that are reasonable in light of the circumstances and as are necessary to
assure to the Company the benefits of this Agreement.  The Company and
Executive further agree that the services to be rendered under this Agreement
by Executive are special, unique and of extraordinary character, and that in
the event of the breach by Executive of the terms and conditions of this
Agreement or if Executive, without the prior consent of the Board of Directors,
shall take any action in violation of this Section 8, the Company will suffer
irreparable harm for which there is no adequate remedy at law.  Accordingly,
Executive hereby consents to the entry of a temporary restraining order or ex
parte injunction, in addition to any other remedies available at law or in
equity, to enforce the provisions hereof.  Any proceeding or action seeking
equitable relief for violation of this Section 8 must be commenced in the
federal or state courts, in either case in Virginia.  Executive and the Company
irrevocably and unconditionally submit to the jurisdiction of such courts and
agree to take any and all future action necessary to submit to the jurisdiction
of such courts.

                 9.       Notice.  Any notice required or permitted hereunder
shall be in writing and shall be deemed sufficient when given by hand or by
nationally recognized overnight courier or by Express, registered or certified
mail, postage prepaid, return receipt requested, and addressed, if to the
Company at the address indicated above and if to Executive at the address
indicated below (or to such other address as may be provided by notice).

                 10.      Miscellaneous.  This Agreement, together with
Schedule 1 and Annex A and Annex B, constitutes the entire agreement between
the parties concerning the subjects hereof and supersedes any and all prior
agreements or understandings, including, without limitation, any plan or
agreement providing benefits in the nature of severance, but excluding benefits
provided under other Company plans or agreements, except to the extent this
Agreement provides greater rights than are provided under such other plans or
agreements.  This Agreement may not be assigned by Executive without the prior
written consent of the Company, and may be assigned by the Company and shall be
binding upon, and inure to the benefit of, the Company's successors and
assigns.  Headings herein are for convenience of reference only and shall not
define, limit or interpret the contents hereof.

                 11.      Amendment.  This Agreement may be amended, modified
or supplemented by the mutual consent of the parties in writing, but no oral
amendment, modification or supplement shall be effective.  No waiver by either
party of any breach by the other party of any condition or provision contained
in this Agreement to be performed by such other party shall be deemed a waiver
of a similar or dissimilar condition or provision at the same or any prior or
subsequent time.  Any waiver must be in writing and signed by Executive or an
authorized officer of the Company, as the case may be.





                                      -12-
<PAGE>   13
                 12.      Severability.  The provisions of this Agreement are
severable.  The invalidity of any provision shall not affect the validity of
any other provision, and each provision of this Agreement shall be valid and
enforceable to the fullest extent permitted by law.

                 13.      Resolution of Disputes.

                          (a)  Procedures and Scope of Arbitration.  Except for
any controversy or claim seeking equitable relief pursuant to Section 8 of this
Agreement, all controversies and claims arising under or in connection with
this Agreement or relating to the interpretation, breach or enforcement thereof
and all other disputes between the parties, shall be resolved by expedited,
binding arbitration, to be held in Virginia in accordance with the National
Rules of the American Arbitration Association governing employment disputes
(the "National Rules").  In any proceeding relating to the amount owed to
Executive in connection with his termination of employment, it is the
contemplation of the parties that the only remedy that the arbitrator may award
in such a proceeding is an amount equal to the termination payments, if any,
required to be provided under the applicable provisions of Section 7(c) and, if
applicable, Section 7(d) hereof, to the extent not previously paid, plus the
costs of arbitration and Executive's reasonable attorneys fees and expenses as
provided below.  Any award made by such arbitrator shall be final, binding and
conclusive on the parties for all purposes, and judgment upon the award
rendered by the arbitrator may be entered in any court having jurisdiction
thereof.

                          (b)  Attorneys Fees.

                                  (i)  Reimbursement After Executive Prevails.
Except as otherwise provided in this paragraph, each party shall pay the cost
of his or its own legal fees and expenses incurred in connection with an
arbitration proceeding.  Provided an award is made in favor of Executive in
such proceeding, all of his reasonable attorneys fees and expenses incurred in
pursuing or defending such proceeding shall be promptly reimbursed to Executive
by the Company within five days of the entry of the award.

                                  (ii)  Reimbursement in Actions to Stay,
Enjoin or Collect.  In any case where the Company or any other person seeks to
stay or enjoin the commencement or continuation of an arbitration proceeding,
whether before or after an award has been made, or where Executive seeks
recovery of amounts due after an award has been made, or where the Company
brings any proceeding challenging or contesting the award, all of Executive's
reasonable attorneys fees and expenses incurred in connection therewith shall
be promptly reimbursed by the Company to Executive, within five days of
presentation of an itemized request for reimbursement, regardless of whether
Executive prevails, regardless of the forum in which such proceeding is
brought, and regardless of whether a Change in Control has occurred.

                                  (iii)  Reimbursement After A Change in
Control.  Without limitation on the foregoing, solely in a proceeding commenced
by the Company or by Executive after a Change in Control has occurred, the
Company shall advance to Executive, within five days of presentation of an
itemized request for reimbursement, all of Executive's legal fees and expenses
incurred in connection therewith, regardless of the forum in which such
proceeding was commenced, subject to delivery of an undertaking by Executive to
reimburse the Company for such advance if he does not prevail in such
proceeding (unless such fees are to be reimbursed regardless of whether
Executive prevails as provided in clause (ii) above).

         14.     Survivorship.  The provisions of Sections 4(b), 6, 8 and 13 of
this Agreement shall survive Executive's termination of employment.  Other
provisions of this Agreement shall survive any termination of Executive's
employment to the extent necessary to the intended preservation of each party's
respective rights and obligations.

         15.     Board Action.  Where an action called for under this Agreement
is required to be taken by the Board of Directors, such action shall be taken
by the vote of not less than a majority of the members then in office and
authorized to vote on the matter.

         16.     Withholding.  All amounts required to be paid by the Company
shall be subject to reduction in order to comply with applicable federal, state
and local tax withholding requirements.





                                      -13-
<PAGE>   14
         17.     Counterparts.  This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.  The execution of this
Agreement may be by actual or facsimile signature.

         18.     Governing Law.  This Agreement shall be construed and
regulated in all respects under the laws of the State of Maryland.

  IN WITNESS WHEREOF, this Agreement is entered into as of the date and year
                             first above written.

                            AVALON PROPERTIES, INC.


                            By:
                               ------------------------------------------------
                                     Its



                            ---------------------------------------------------
                            ROBERT S. SLATER





                                      -14-
<PAGE>   15
                                                                         Annex A

                            AVALON PROPERTIES, INC.

                                 CODE OF ETHICS

AVALON PROPERTIES, INC. (the "Company") is dedicated to the highest standards
of integrity and ethics.  Personal integrity and moral fiber are as important
as technical competence and work ethic in advancement at the Company.  We place
the highest trust, confidence, and responsibility in each person, and believe
in his/her fundamental honesty and integrity in daily relations with customers,
the public, and fellow associates and partners.  We will not tolerate an
employee who achieves results by violating laws or being involved in dishonest
or unscrupulous business dealings or who jeopardizes our reputation.  On the
other hand, we will always support an employee who passes up an opportunity or
advantage that could only be secured at the sacrifice of our principles.

Through our policies and actions, we seek from the Company the very best we can
achieve:  a business that both creates economic value and acts on ethical
principle.  It is the responsibility of the leaders of the Company to make
ethical behavior and efficient performance complementary.  We measure
excellence by qualitative values as well as by quantitative results, motivating
all employees to "do the right thing" while "doing things right."  We encourage
all employees to be alert to ethical ambiguity, to ask tough questions, and to
respond promptly to concerns about possible violations of laws and regulations.

We look to our leadership to uphold our policies and standards and to set the
example by instilling a spirit of honor in the workplace.  With this in mind,
the Company and each employee pledges to comply with the following standards to
the best of their ability:

Company Name.  We recognize the value of the name and reputation of the
Company.  We will use the name only in activities sanctioned by the Board of
Directors (the "Board"), and we will protect it by using it only in situations
where we are satisfied that our conduct measures up to our Code of Ethics in
every respect.

Quality and Fairness.  We will pursue quality in every product and service we
provide, and we expect to earn our customers' trust by giving full value.
Therefore, although we will protect our legitimate interests, we will not drive
unfair bargains that strain long-term relationships, nor will we deliver less
than the product we promise or that our customer expects.  We will attempt to
reach a fair result for both sides in any negotiation.

Equal Opportunity.  We will make employment decisions without regard to a
person's race, color, religion, national origin, sex, age, disability, or
military status.  We will make reasonable accommodations for a person's
disability or religious practice.  We strive to be a meritocracy, hiring,
retaining, and promoting based on the performance of each person.  We will not
tolerate any form of harassment in our workplace, including harassment on the
basis of sex.  Prohibited conduct includes unwelcome sexual advances, requests
for sexual favors, verbal or physical conduct of a sexual nature, such as
uninvited touching, and sexually related comments that create a hostile work
environment.  The Company has an antinepotism policy whereby we will not hire
relatives of any employee without approval of the Board of Directors.  In the
event employees marry after joining the Company, they can both continue with us
only as long as they are not working in the same department, or report to the
same person (or each other), and so long as the Board approves.

Health, Safety, and Environmental Protection.  We seek to manage our activities
so that associates and partners are protected from unreasonable health and
safety risks on the job, so that reasonable expectations concerning the work
environment are met, and so that our customers, the public, and the environment
are properly protected in the use of our facilities, products and services.

Assets and Funds.  Each employee with responsibility for the use of our
physical assets or funds is accountable and responsible for his/her proper
conduct as a fiduciary in relation to the use or protection of those assets.

Internal Financial Reports.  Each employee in the Company has ethical and legal
responsibilities for the proper use and protection of assets and for reporting
financial and other important information with the firm.  We have established
and must maintain high standards of accuracy, honesty, integrity, completeness
and confidentiality in our financial records and reporting.





<PAGE>   16
                 Uniformity in certain basic accounting definitions,
                 classifications and reporting and control practices is
                 necessary in order to provide financial information for
                 various components of the Company's business on a complete,
                 accurate, timely and comparable basis.  Consequently, accounts
                 and records will be maintained and financial reports will be
                 prepared in a manner which conforms with the firm's policies
                 and procedures.

Communication Regarding the Company; Confidential Information.  In various
situations, outsiders need or desire information concerning the Company and
virtually all employees have access to some information of a confidential
nature.

                 No employee will use confidential information for his/her own
                 benefit or that of another person outside a proper
                 relationship with the Company.  In particular, no employee
                 will trade securities of any issuer, or pass along information
                 about land, buildings, tenants, financing or other business
                 strategies on the basis of confidential information gained
                 through the Company or give such information to any other
                 person who might trade on the basis of or otherwise make use
                 of the information.

                 In disclosing information to outsiders for the Company
                 purposes, no employee will act until the persons designated to
                 make disclosure decisions have considered the interests of the
                 Company as a whole.

                 Authorized recipients of information regarding the Company are
                 entitled to rely on that information.  Therefore, we will take
                 all reasonable measures to ensure the accuracy of the
                 information in all material respects, and we will not disclose
                 information unless we are comfortable with its accuracy or
                 include appropriate qualifications.

Selection of Suppliers.  We select our suppliers on the basis of the needs of
our business.  Consequently, we employ only reputable, qualified individuals or
firms under market compensation agreements which are reasonable in relation to
the services.

                 No employee may select a supplier for any reason other than
                 its ability to fulfill the Company's needs.  In particular, no
                 employee may, in his/her personal capacity, accept any goods
                 or services or other forms of compensation or favors from a
                 supplier for less than cost.  Further, no associate or partner
                 may own an interest in the business of a supplier or be a
                 creditor of a supplier, unless the interest is represented by
                 a publicly traded security and the employee does not own more
                 than five percent of the outstanding securities of any class.

                 The provisions of this section are not intended to apply to
                 routine, reasonable business entertainment customary in local
                 business relationships.

                 No employee may utilize a supplier, consultant or
                 subcontractor to work on his personal residence(s) or those of
                 related persons without the prior approval of the appropriate
                 Company officer.

Improper Payments.  The Company expects all employees to use only legitimate
practices in commercial operations and in promoting the Company's position on
issues before governmental authorities.  Kickbacks, fees, commissions or any
form of "bribes" intended to induce or reward favorable decisions and
governmental actions are unacceptable and prohibited.

                 No employee will, in violation of any applicable law, offer or
                 make directly or indirectly through any person or firm, any
                 payment of anything of value to:

    Any person or firm employed by or acting for or on behalf of

         Any customer, whether private or governmental for the purpose of
         inducing or rewarding any favorable action by the customer in any
         business transaction; or





                                      -2-
<PAGE>   17
         Any governmental entity, for the purpose of inducing or rewarding
         action (or withholding of action) by a governmental entity in any
         governmental matter;

    Any governmental official, political party, or official of such party, or
    any candidate for political office, for the purpose of inducing or
    rewarding favorable action (or withholding of action) or the exercise of
    influence by such official, party or candidate in any business transaction
    or in any governmental matter.

                          Employees are encouraged to participate in the
                          political process at local, regional and national
                          levels, and this may include legally allowed
                          political contributions to candidates as well as
                          working in campaigns.

Outside Activities of Employees.  The Company recognizes and respects the right
of its employees to engage in outside activities which they may deem proper and
desirable, provided that these activities are legal, do not impair or interfere
with the conscientious performance of the employee's duties for the Company, do
not involve the misuse of the Company's influence, facilities, information or
other resources, do not divert opportunities from the Company and do not
reflect discredit upon the name and reputation of the Company.

                 Accordingly, for all business relationships with outside
                 individuals, companies and organizations and for all personal
                 undertakings, the Company's employees should:

    Act in accordance with the law.

    Consider the rights, interests and responsibilities of the outside
    individuals, companies and organizations and themselves.

    Consider that employment with the Company, unless expressly agreed
    otherwise, is full-time.

    Protect their own reputations and the interests of the Company against
    actual or potential conflicting interests with outside parties.

    Avoid personal transactions or situations in which their own interests
    conflict or might be construed to conflict with those of the Company.

                 Individuals with managerial responsibilities will not engage
                 actively or invest passively (other than through a
                 non-controlling interest in a publicly traded entity, a
                 personal residence, or a personal recreational property) in
                 any business involving real estate (including development,
                 leasing, sale, brokerage, or mortgage banking, etc.) other
                 than through the Company unless disclosed to and approved in
                 writing by the Board.  Further, no employee may directly or
                 indirectly buy, sell or lease any property, facilities,
                 services or equipment from or to the Company or use any such
                 property, facility, service, or equipment for personal
                 benefit, except with full disclosure and the approval of a
                 supervisor or department head.  No significant personal use of
                 property, facilities, services or equipment of the Company
                 should be approved except in unusual circumstances and only
                 when approved by a supervisor.

                 In this connection, every employee shall disclose promptly, in
                 writing, any personal situation or transaction which is or may
                 be in conflict with the intent of this policy.

Fiduciary Duty To Shareholders.  Every Company employee that manages assets or
business does so for the benefit of the Company's shareholders.  In these
situations, employees act as stewards and must exercise the highest standards
of fiduciary responsibility.

Observance of Code of Ethics.  Each employee has an obligation to observe and
support this Code of Ethics.  Since the appearance of impropriety undermines
general support of the Code of Ethics, everyone should avoid even the
appearance of impropriety.  Violations of this Code may result in disciplinary
actin, up to and including discharge.





                                      -3-
<PAGE>   18
Any questions about the meaning or applicability of our Code of Ethics should
be addressed to your supervisor or to appropriate officer designated from time
to time by the Board.

Please sign and date in the spaces below.

Read, understood and agreed to:





----------------------------------
            Robert S. Slater



Date:
     -----------------------------




                                      -4-
<PAGE>   19
                                                                         Annex B

                            NONDISCLOSURE AGREEMENT

         AGREEMENT made as of the          day of           , 1997, by and
between the undersigned individual (hereinafter referred to as "Employee") and
AVALON PROPERTIES, INC., a Maryland corporation, having its principal place of
business in Wilton, CT (hereinafter referred to as the "Company").

         WHEREAS, Employee is being employed by the Company in a capacity
wherein Employee will come into possession of material of a confidential,
sensitive or proprietary nature concerning the business, plans and trade
secrets of the Company and its Affiliates (as defined below) and of third
parties; and

         WHEREAS, the continued confidential treatment of such information is
vital to the success of the Company's business.

         NOW THEREFORE, the parties agree as follows:

         1.      Employee acknowledges that his work as an employee of the
Company will bring him into close contact with the Confidential Information (as
defined below) of the Company and third parties.  Employee acknowledges that
such Confidential Information is reposed in him in trust.

         2.      Employee hereby agrees that he shall, both during and after
his employment, maintain such Confidential Information in confidence and
neither disclose to others (nor cause to be disclosed) nor use personally (nor
cause to be used) such Confidential Information without the prior written
permission of the Company.  Employee also will take reasonable precautions to
prevent the inadvertent exposure of Confidential Information to unauthorized
persons or entities.

         3.      Employee acknowledges that he may, during his employment, add
to the Company's Confidential Information and he agrees that any such additions
shall fall within the strictures of this Nondisclosure Agreement.

         4.      Employee agrees that upon any termination of his employment
with the Company or any Affiliate thereof, or upon request if sooner, he shall
forthwith return to the Company all reports, correspondence, notes, financial
statements, computer printouts and other documents and recorded material of
every nature (including all copies thereof) that may be in his possession or
under his control dealing with Confidential Information.

         5.      Employee acknowledges that the covenants in this Agreement are
expressions of his duty as an employee not to use the Confidential Information
to the detriment of the Company.  In addition, Employee acknowledges that he
shall benefit from entry into this Agreement as the Company shall be willing to
continue to provide access to Confidential Information to Employee.

         6.      Employee acknowledges that the Company would be irreparably
damaged and there would be no adequate remedy at law for Employee's breach of
this Agreement, and accordingly, the terms of this Agreement shall be
specifically enforced.  Employee hereby consents to the entry of any temporary
restraining order or preliminary or ex parte injunction, in addition to any
other remedies available at law or in equity, to enforce the provisions hereof.

         7.      This Agreement is not an agreement of employment and nothing
herein shall be construed to obligate the Company to employ Employee for any
definite duration or upon any specific terms.

         8.      As used herein, "Confidential Information" shall mean all
confidential information and trade secrets of the Company or any of its
Affiliates, whether now existing or hereafter acquired or developed, including
without limitation financial statements, business, plans, working methods,
investments, materials, processes, programs, designs, drawings, names of and
relationships with current or potential vendors and lenders and other third
parties, contractual arrangements, profit formulas, experimental
investigations, studies, current or potential customer names and requirements,
current or potential professional associations or contracts, information
submitted to the Company or its Affiliates by third parties on a confidential
basis and similar other non-public or otherwise





                                      -1-
<PAGE>   20
confidential, sensitive or proprietary information.  "Confidential Information"
shall not include information that has become generally known within the
Company's industry without breach of any obligation of confidentiality of
Employee or any third party.

         9.      As used herein, the term "Affiliate" shall mean any individual
or entity controlling, controlled by or under common control with the Company,
now or in the future.

         10.     This Agreement shall survive the termination of the employment
of Employee and shall not be amended except by a writing signed by the parties
hereto.  This Agreement shall be binding upon the Employee and his heirs, legal
representatives, successors and assigns.

         11.     This Agreement shall be governed and construed in accordance
with the laws of the State of Maryland.

         IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed as of the date first above written.

                                AVALON PROPERTIES, INC.

                                By:
                                   --------------------------------------------
                                     Its:

                                EMPLOYEE:


                                -----------------------------------------------
                                Name:  Robert S. Slater
                                Address:  816 Emerald Drive
                                                Alexandria, VA  22308





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