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LOS ANGELES-In a major victory for the state’s house and condominium builders, the California Supreme Court has ruled that homeowners can no longer sue developers for negligence unless construction defects have caused an injury or demonstrable economic loss.

Until now, a homeowner who found a code violation or other defect could sue as long as the home had been purchased within the last 10 years. The lawsuit could proceed even if the defect hadn’t damaged the property or caused the owner to lose money.

The State Supreme Court ruling, handed down in San Francisco, changes all that. Now, a suit can be filed only if the defect already has caused real damage, either physically or financially.

Condominium and townhome builders have long been particularly critical of state law. Many have stopped building condos altogether, saying that even a minor technical flaw that wouldn’t cause a buyer any harm opened them up to potentially bankrupting lawsuits.

“Spending millions of dollars to correct technical defects… is something of an economic waste,” says Orange County attorney Gregory L. Dillion, who defended Newport Beach-based builder William Lyon Co. in the case.

The suit, Aas v. William Lyon Co., was filed by a group of San Diego owners in a condo and single-family home development that Lyon built. They had contended that their homes had several defects, including inadequate insulation for fire protection, so they sued to cover the cost of repairs–and the loss of future value in their homes.

The State Supreme Court rejected those arguments, instead upholding William Lyon Co.’s earlier wins in trial court and the Court of Appeal. The decision could prompt more builders to once again consider condo and townhome projects, experts say, because it drastically reduces the ability of an unhappy owner to file suit.

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