A municipality may establish and enforce an inspection program for rental units. An inspection program is typically operated in collaboration with a rental registration program. Upon an annual rental registration, a municipality will then require some type of inspection to ensure a property meets safety and habitability standards, as required under state law and local health codes. Normally, an inspection conducted by a municipality comes at a per unit or door cost, which can make these inspections very costly.

While a municipality may operate a rental inspection program, for rental inspection programs created after July 1, 1984, a rental unit or rental unit community managed by a professional real estate manager may obtain a third-party inspection and/or submit a qualifying written inspection report versus having to pay for a costly inspection by a municipality. Ind. Code § 36-1-20-4.1(c).

In Indiana, there are only two municipalities, Bloomington (1961) and West Lafayette (1976), that had rental inspection programs before July 1, 1984, which forces property owners to be inspected by those local government’s programs.

A professional real estate manager is not defined in state law and could be argued broadly to include anyone receiving payment or having experience in managing real estate. That argument improves as that manager attains industry training and certifications.    

If a property has a professional real estate manager, then a property can obtain a third-party inspection and submit a written report. The easiest way to exercise this exception is for those properties subject to a United States Department of Housing and Urban Development (HUD) inspection, which typically occurs via HUD’s Real Estate Assessment Center (REAC) inspection or, beginning October 1, 2023, a National Standards for the Physical Inspection of Real Estate (NSPIRE) inspection. Ind. Code § 36-1-20-4.1(c)(2)(A)  Specifically, if a HUD inspection is submitted, that inspection report is valid for purposes of a municipality’s rental inspection program until the date specified in the HUD inspection report or 3 years after the date of the HUD inspection report, depending on whichever is earlier. Ind. Code § 36-1-20-4.1(e)

If a property is not subject to HUD inspections, there are numerous other ways to obtain a third-party independent inspection. State law provides that a property can be inspected by another federal or state agency. This could include the United State Department of Agriculture (USDA) or the Indiana Housing and Community Development Authority (IHCDA). Ind. Code § 36-1-20-4.1(c)(2)(A). Additionally, a property could be inspected by a financial institution (bank or mortgage company) or insurance company authorized to do business in Indiana. Finally, a property could also be inspected by a registered architect, professional engineer, or a person that meets qualifications for an inspector as set by the municipality. However, in all cases, the inspector cannot be an employee of either the property owner or the property management company. Ind. Code § 36-1-20-4.1(c)(2)(A) & (B)    Indiana Code provides guidelines upon how many units must be inspected as part of a third party inspection.  Ind. Code § 36-1-20-4.1(c)(3).

Beginning July 1, 2023, inspections conducted by third-parties must inspect a random sample of the apartments in the rental unit community and the sample size must be at least the same sample size required by the United States Department of Housing and Urban Development’s rules for sample sizes on inspection under its new National Standards for the Physical Inspection of Real Estate (NSPIRE) Program. Ind. Code § 36-1-20-4.1(c)(3).

An inspection and the written inspection report must verify that the rental unit or the rental unit community is safe and habitable with respect to the following categories: electrical supply and electrical systems; plumbing and plumbing systems; water supply (including hot water); heating, ventilation, and air conditioning equipment and systems; bathroom and toilet facilities; doors windows, stairways, and hallways; functioning smoke detectors; and the structure in which a rental unit is located. Under state law, a municipality cannot add to the above categories. Ind. Code § 36-1-20-4.1(c)(3). For example, a municipality could not require that the inspector to inspect the rental unit community’s pool or spa. Inspections and inspection reports issued by a third-party inspector are valid for at least 12 months. Ind. Code § 36-1-20-4.1(c)(2).

While Indiana law provides that a third-party inspector can issue a written report to satisfy requirements of a municipality’s rental inspection program, that is NOT a prohibition against a municipality conducting other inspections. Indiana law permits a municipality or its code enforcement or health department to investigate complaints from residents. Additionally, a municipality can inspect a property if it has reason to believe the rental unit does not comply with health and safety codes or building codes and standards. It is advisable for a property owner to ask a government inspector to provide proof of a complaint or explain their reasoning for believing a specific unit is not in compliance with state or local laws. If a municipality discovers violations of code requirements, it may penalize the property owner, but it may not charge for conducting the inspection. Ind. Code § 36-1-20-4.1(d).