Knowledge Bank

Currently, acquisition of fee simple title to land in the CNMI is restricted to persons who are of Northern Marianas Islands Descent. What this means is that if an individual or business entity is not of NMI descent, as defined in the NMI Constitution, they cannot hold the fee simple title to land. There is, however, a system in place to lease land for a term of years. A person or business entity not of NMI descent may purchase a 55 year lease interest in privately owned real property, or a 40 year lease interest in government-owned land. (The longest lease on Public Lands is 25 years with a 15 year extension available upon legislative approval). Commercial and residential buildings are part of the land they are built on, and it is not possible to own the title to these buildings separately.

The only exception to the land ownership rules above involves condominium units above the first floor on privately held land. There have been several fee-simple condominiums developed in the CNMI, but none have had their legal sufficiency tested in the courts. Be aware that a fee-simple condominium cannot be created out of an existing leasehold estate without the landowner’s participation. If you have been offered a fee-simple condominium unit for sale, it is essential to examine the underlying documents to be sure that the fee-simple condominium was structured properly, and to be sure that you are really buying a valid fee-simple condominium interest and not a leasehold condominium interest.

In addition, it is essential that any person intending to lease land do a "title search." There is a Recorder's Office at the Courthouse in Susupe, Saipan, where all recorded land documents must be filed, and where members of the public can go to search records. In addition, there are private title companies, who will do a title search for a fee. If, for example, there has been a previous conveyance of a piece of property to someone other than the person who is attempting to sell or lease that property to you, then you are buying the equivalent of the Brooklyn Bridge—or nothing. It is essential that you examine the title to any property you plan to lease or buy before you pay for it. This is true for NMDs who seek to purchase the fee simple title as well. In addition, if you are a NMD, you may need to deal with probate issues if you are interested in acquiring the fee title to family land.

A lawyer can investigate all of these issues for you to make sure that you are buying what you think you are buying. Protecting your interests must be done before the purchase. This does add some time to the process of buying and selling, but the extra weeks or months spent at the beginning will give you the assurance that your money is well spent for the long term. The acquisition or sale of real property involves myriad issues, including drafting purchase and sale agreements, determining the title holder of the property; as well as the negotiation and documentation of development and construction related agreements, loans and other financing transactions, and the litigation of real estate issues, sometimes within the context of a probate proceeding. These issues routinely come up in the largest commercial settings, as well as the smallest residential settings. No transaction is too big or too small to examine the issues which will ensure a positive investment.

Sometimes, a group of would-be investors set up a deal to do business together. Usually it involves one person who wants to invest an amount of money in a business venture and another person who is developing the business venture. Often, all of the parties do not reside here in the CNMI. The parties want an agreement drawn up within the day to reflect their positions. This is usually not possible because United States lawyers have certain duties to protect our clients. As a result, a lawyer will typically insist on doing “due diligence” before drafting agreements for a client to lend money for a business venture.

Due diligence involves getting certain information before drawing up a business agreement, and this includes the sale of the assets of a business. The lawyer will usually want to get full personal information from each party, as well as details of the business. If there is an existing corporation, the lawyer will want to see corporate documents, including the annual report. If the transaction involves property, the lawyer will want to examine certain property related documents. Large amounts of money can be lost as a result of failure to do due diligence which could have been avoided if only the client had taken the extra time to carefully examine the business and consulted an attorney.

The absolute minimum amount of time required to put together most agreements is several days—and this can easily become a month or more if there are any difficulties or if the lawyer cannot obtain certain relevant information from the client. This is a very small amount of time, however, considering the length of time the parties intend to be in business together, and considering the time and expense involved in litigation to recover money when a business fails or a property interest is superseded by an intervening interest which could have been caught by a title search.

While many business people come to the CNMI hoping to set up a corporation, the CNMI also has a Limited Liability Company statute. Both the Limited Liability Company ("LLC") and corporation business forms protect members or shareholders from personal liability. LLCs are allowed to run themselves in a more informal manner than corporations. For example, LLCs don't have to hold formal meetings while corporations must hold annual meetings which must be filed with the Department of Commerce. A corporation is the best format when private and pubic capital must be raised by issuing shares. In addition, a corporation has the ability to set up corporate equity based employee plans with tax favored stock options and restricted stock bonus and purchase plans. Finally, corporations are rigidly set up with separate management, supervisory and investment roles which are automatically provided by the statutory framework. The LLC format is a strong option when there are a small number of owners. An LLC can be formed with as few as one member, whereas a corporation requires three members for its board of directors.

Keep in mind that the CNMI is bound by United States laws administered by the Securities and Exchange Commission when setting up a public corporation or company which intends to advertise to sell shares publicly. This is something for which a specialist must be consulted. Remember also that just because these corporate forms protect you ultimately in your personal capacity, it is still important to obtain property and liability insurance for the company or corporation. An LLC or corporation shields you from personal loss if the business fails, but having insurance can keep your business solvent and running if anything unexpected should happen. Finally, sometimes, it is advantageous or makes better sense to form other business entities, such as partnerships, joint ventures, or limited partnerships. Lawyers who deal with business formats are able to discuss the various possibilities so that the most advantageous form for your particular business may be utilized.

If you have established an LLC or Corporation, it is essential to maintain your business as a separate entity so that all of the protections you bargained for are there for you. If you commingle funds and treat your business like it is a personal account, it may be possible that you will not be shielded from personal liability in case of a lawsuit or business failure. To make sure that the protections of a corporation or LLC continue to exist, be sure to maintain separateness. Keep in mind that the LLC or corporation is a separate entity with its own assets: try to look at the business as separate from you personally. Make sure that you capitalize the business properly by establishing your start up costs in a separate corporate or LLC account. Do not mix your personal money with the corporate or LLC money. Keep bank accounts separate. Make sure to follow corporate or LLC formalities by holding annual meetings, keeping minutes of annual meetings, and filing your annual report. File separate tax returns if required. Also, be sure to sign documents properly, whether in your personal capacity or as an officer for a corporation or manager of an LLC. Signing a business document with only your name could subject you to personal liability. Finally, make sure you have a resident agent in place: and if for any reason the resident agent discontinues the relationship, make sure to put a new resident agent in place.

An attorney can be of great help in preparing and maintaining minutes and other authorizations for entity action; the conduct of shareholder, partner and member meetings; the use of proxies; required annual reporting; and the development of conflicts of interest, ethics and governance policies and procedures. In addition, a lawyer can assist clients with purchase agreements, supply agreements, office leases, retail leases, construction agreements, and all manner of business agreements.

Often simple estate planning done now can be the best way to prevent a long and drawn out family fight later. The CNMI has its own probate and intestacy provisions, so that if you die with property located here, the law will tell your family how your assets will be divided. But as many local residents know, often this will not prevent disputes. In addition, sometimes people think that the best way to do estate planning in the CNMI is to just convey a piece of property to a minor child (under age 18) outright. While this is understandable, it often causes problems. For example, if a grandparent conveys a deed or lease to a grandchild, but later decides that the property must be mortgaged, a bank will not give a mortgage because the grandparent no longer owns the property by law. Doing a re-conveyance from a minor is not the same as doing one from an adult—the minor is not legally competent to make such a conveyance. This causes a lot of extra expense and problems for all involved.

By consulting an attorney, a person can ensure that the right family members or friends receive the right assets; the appropriate personal representatives are named; and that spouses and children (including adopted children, children of prior marriages, and children born outside of a marriage) are fairly provided for. If an estate is large enough, a trust may be sought; as well as an entity which might hold, manage and transfer from one generation to the next family wealth and investments through family foundations, family partnerships, and limited liability companies.

A lawyer can help not only to organize the estate plan, but also to administer a probate. A lawyer may also consider issues of personal debt and business issues in the context of a probate as well, and this can benefit a family considerably.