2011 California Code
Civil Code
DIVISION 2. PROPERTY [654 - 1422]
CHAPTER 2.6. Legal Estates Principal and Income Law
Section 731.11

(a) Where any part of the principal consists of property in lands from which may be taken timber, minerals, oils, gas, or other natural resources, and the tenant in possession is not under a duty to change the form of the investment of the principal, or (the duty to change the form of the investment being absent) is authorized by law or by the terms of the transaction by which the principal was established, to lease or otherwise develop such natural resources, and no provision is made for the disposition of the net proceeds thereof after the payment of expenses and carrying charges on such property, such proceeds shall be deemed income, whether received as rent or bonus on a lease or as a consideration, by way of royalties or otherwise for the permanent severance of such natural resources from the lands. A duty to change the form of the investment shall be negatived, and authority to develop such natural resources shall be deemed to exist (not excluding other cases where appropriate intent is manifested) where: (1) the resources or the right to exploit them is specifically devised or granted, or (2) where development or exploitation of the resources had begun prior to the transaction by which the principal was established, or (3) where by the terms of that transaction a general authority to lease or otherwise develop is conferred, or (4) where the lands are directed to be retained. The fact that such property received upon creation of the principal does not fall within the category of investments which the tenant or a trustee would be authorized to make under the law or the terms of the particular instrument by which the principal is established, nor the conferring of a mere authority, as distinguished from a direction, to sell such property, shall not be deemed to evidence an intent that the form of the investment shall be changed.

(b) Where any part of the principal consists of property in lands containing such natural resources, and the conditions under which the proceeds thereof become income shall not exist, then in the absence of the expression of contrary intent in the terms of the transaction by which the principal was established, all such proceeds from such resources, not in excess of 5 percent per annum of the inventory value of such resources as fixed by the appraiser or appraisers regularly appointed by the court, or in default thereof their fair market value at the time the principal was established, or their cost if acquired later, shall be deemed income and the remainder principal.

(c) Nothing in this section shall be construed to abrogate or extend any right which may otherwise have accrued by law to a tenant to develop or work such natural resources for his own benefit.

(Added by Stats. 1968, Ch. 193.)