Tenant wants to change term lease to month-to-month

[Elizabeth Ruhf]

I wasn't sure how to word this in the subject, but here is the situation.  New tenant moved into basement apartment, and on the same day a few hours later the main sewer line backed up into the apartment (ugh).  Thankfully none of her stuff was moved in yet except for some groceries, and prior to the incident she had decided that was all she was going to move in until the following weekend.  Anyway, we immediately took action, got a plumber there to fix the issue, and called in a water extraction company.  We also reported the claim to our insurance.  Since it was black water pretty much all of the flooring in the unit and the vanity in the bathroom had to be ripped up.  We were under the impression that the tenant was not residing there, per the above comment of not moving in yet, but apparently she has been sleeping on a blow up mattress in one of the unaffected rooms.  Water extraction company is finished now and contractor is coming in to do all of the repairs.  Since the bathroom and floors will be unusable for a few days we agreed to put the tenant in a hotel.  However, now the tenant is stating that she would like to switch her already signed one year lease to a month-to-month lease because she is afraid something like this is going to happen again.  She also has a huge list of demands that she wants fixed before she moves in such as her own trash can (the duplex has a shared trash and recycling can which she knew about), a different mail box, etc, and she wants a guarantee that they will be done.  My question is, how do we proceed legally.  The lease has been signed, so if she refused to stay in that lease do we keep the money she has paid thus far (first months rent and security deposits) and agree to terminate the lease?  I know that would normally happen, but I am not sure if the circumstances change due to the unexpected events.  Thanks for your help!