Tenant Backed out 2 hours before handing them the keys?

[Chris LeMay]

Need some guidance on this one as this is a first for me.  Here is the situation....

We purchased a condo on Jan 16th. We found tenants and they have signed a 12 month lease. They were scheduled to move in yesterday at 5pm. At 3pm yesterday, they sent me an e-mail and said they would not be moving in because of the HOA terms. They did not specify which terms they cannot agree to, but I suspect they simply found a better place and are using the HOA as an excuse. Today, they asked for their Security Deposit back. At this point, I do not believe that I need to return the money to them because I have to start the entire process over. (Show the unit, process applications, run background checks, sign new leases etc.) The lease is in MN and the lease itself really does not say anything that would help me determine what I must do legally. From my perspective, they broke the lease by not moving in on the scheduled day. The Security Deposit will not be returned because I owe the bank the first month's rent in addition to the costs I stated above. Please let me know your thoughts from a legal perspective.

Thanks!