unvented gas water heater

I had a new experience a few days ago. In our town, new businesses must pass a inspection from a fire inspector and myself, (the building inspector), in order to obtain their business license. I was inspecting two floors of short and long term residential units above retail space. When I did my inspection I found to my dismay, a natural gas water heater in a utility closet on the second floor, entirely without a vent nor combustion air. The combustion products were released into the closet, someone had busted the plaster in the ceiling to let the heat into the ceiling and floor framing. The manager pointed out that there was a battery operated carbon monoxide alarm in the closet and it hadn't gone off, duhh. Like this was any protection?!
I am surprised that the heat hadn't started a fire, most of the units are unoccupied, I'm certain that this helped reduce the amount of heat released.
A local mechanical contractor had contacted me about this proposed install six months ago. I contacted the building's owner with my concern, told me that this wasn't the case at all. Now I find that he was lying. I believe that this install is at least criminal negligence. I immediately turned off the fuel to the water heater and condemned the water heater. My next thread will concern the space heating of these residential units.