Seller filled a vacant unit during the middle of our deal: part 2

[David Plaunt]

The saga continues. I posted a few weeks ago about this deal where Seller filled a unit in the middle of our closing on a duplex. Now we are moving towards cancellation, but seller feels he should retain earnest money. We obviously feel the opposite.

We didn't specifically mention on PA that unit should be vacant. We just took the listing agent at her word. (Bad idea).

Although the terms of the unexpected new lease are not ideal, that was not the deal breaker. The issue we have is that a boyfriend is also living with this new tenant. The lease only covers the girl, and specifically says "the premises my only be used by the Tenant and members of immediate family". In MN that does not include romantic partners. 

The Seller's argument is that we signed for and accepted the leases as-is. Case closed. 

We feel the deal has changed because there is now another person living in the property who is not included on a lease. We gave several options to the Seller and tenants allowing them both on our lease, but they were met with deaf ears. 

Can anybody offer advice on how to proceed?