When Developers Fail to Perform: “Due Diligence” and Zoning in Real Estate Contracts

Real estate development deals often depend on local approvals, and when a buyer’s performance hinges on obtaining those approvals, the obligation to act diligently becomes a make-or-break issue. The Connecticut Appellate Court’s decision in Land Group, Inc. v. Palmieri (123 Conn. App. 84, 2010) illustrates what happens when a developer fails to follow through.

The Land Group agreed to purchase a parcel in Westport for $1.6 million, contingent upon obtaining approvals to build between thirteen and sixteen condominium units. Only five units were allowed under existing zoning regulations, so approval of additional units was essential to make the project financially viable. Under the contract, the buyer was given ninety days, with possible six-month extensions, to pursue those approvals. Despite this, the buyer did little beyond commissioning a new survey and some architectural drawings. No zoning application was ever filed.

When the sellers expressed frustration at the lack of progress, the developer offered an upfront payment of $625,000, which was rejected. Shortly afterward, the sellers terminated the contract. The buyer claimed this was wrongful termination, arguing that the zoning contingency was only a condition that could excuse performance if approvals were not obtained, not an obligation to act. The court disagreed.

The Appellate Court affirmed that the clause requiring the buyer to “pursue approvals and obtain permits with due diligence” was a binding promise. The use of the word “shall,” the court noted, created a mandatory obligation. “Due diligence” meant taking all reasonable steps necessary to move the process forward, not merely preparing or observing others’ efforts. The buyer’s inactivity violated that obligation. Because the buyer breached first, the sellers were entitled to terminate the contract and retain damages.

This case is a clear reminder that “due diligence” is not decorative language. It carries enforceable weight and requires concrete action, not passive waiting. Sellers can protect themselves by defining what diligence means—such as filing applications, attending hearings, or providing progress reports—while developers must document every step of their permitting efforts. In real estate, promises of diligence without evidence of progress can easily become the difference between closing a deal and losing both the property and the deposit.

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