HOLDEN – A new warrant article authorizing applications for grant money to replace the failed septic system at Holden Square Apartments was defeated Tuesday by a 48-36 vote.

The warrant article was proposed by town councilors seeking indemnity from potential liability in connection with the septic system project. They sought protection from items like cost overruns and any potential construction problems.

In essence, town councilors were asking voters to rescind the warrant article they passed during their June town meeting approving the applications for $97,000 from the Community Development Block Grant program and the Small Community Grant program.

The original article then would have been replaced with a new one authorizing the applications, but with an added provision authorizing town councilors to require indemnity from Holden Square Associates, operator of the complex, developer Pamela Gleichman and possibly others.

Holden Square Apartments is a 25-unit residential complex for very low-, low- and moderate-income residents located on the Upper Dedham Road. Complex operators and tenants have expressed concerns that the complex could be shut down for lack of a working septic system.

During deliberations, Brewer lawyer Joe Ferris, representing Holden Square Associates, was among those opposed to the town officials’ position on the liability issue. He argued that the town’s only role in the project was to submit the applications and make sure the funds reached the appropriate parties.

Council Chairman Michael Legasse, however, said he and other local officials weren’t convinced the town was fully protected. Despite numerous requests, he said, officials had yet to receive an indemnity agreement with which they could abide.

Donna Hall, last to speak before the vote, said the most important objective was to prevent the tenants from losing their homes.

“Money should not be the issue, it should be these folks,” she said.

The units were built in 1989 and operated at less than full capacity until four years ago, when federal rent subsidies became available. Because of that, complex operators have said, Holden Square has not been able to build up a fund for major repair projects, such as replacing the septic system.