If you want to keep them as tenants because it may take awhile to find a suitable replacement, you could bite the bullet and then have them sign a current unit condition property form.If you think that the tenants are taking advantage of the situation, you do not trust them going forward and you would not be sorry to see them go, charge them for the fix or replacement (less depreciated value) and see what happens.BTW, how does the new PM suggest you handle this situation?

Explain that it could take a while to turn it over, that you can charge her for the work to get it ready, for advertising, and she would have to pay for all of that plus rent until you find another suitable tenant.  

Then, the law was changed, where the landlord has to give them the choice of either only charging them rent until a suitable tenant is found - or - agree to a flat termination fee of two month's rent.  

My thought is that I'll allow him to break the lease as long as I find a suitable tenant to replace him with and there is no loss of income. apparently he has someone who might be interested in taking over the lease. 

Finding a suitable tenant.I wouldn't rent to anyone that I needed that much from.

Your Option 1 - Tenants who are breaking their lease should put some effort into finding a suitable replacement for themselves. 

I call employers, references and previous landlords and if all checks out and the applicant in all regards is suitable I pull the credit check.

Regardless, I think he's on my side and is trying to help broker the peace.Per a conversation with the building inspector, re-routing the downspout into another drain and capping off the driveway drain will be a suitable fix.

Instead of him finding a suitable replacement (which I had agreed) he offered to pay 3 months of rent (his part) if I take the responsibility to find a replacement.

The overwhelming advantage of allowing pets into the property is that it increases the pool of potentially suitable renters.