For example, their rent is $2000, they pay me $1000, I then apply the $1000 to the renovation project, which they estimate to be around $8,000.How should I write up the lease agreement as far as collecting the rents?

These documents are the lifeline to your capital so as Jeff and @Chris Seveney have noted, don't skimp on the documents or the use of an Attorney to make use of the terms within those documents.I once heard Gary Keller of Keller Williams note that legal documents shouldn't be called 'agreements' but 'disagreements' because they only become valuable when there is a disagreement between 2 parties. 

what about quit claiming the two owners onto title as tenants in common and managing the ownership through a TIC agreement?

U may also consider cash for keys so long as agreement is in writing.

Have a separate bank account from your personal, make sure the operating agreement spells out how to value if anyone exits, who can buy into it, you can vote to not distribute funds- if your sued they can come after your property but also your Cashflow stream.  

At least until y'all make some agreements to clear that equity ownership like an inheritance arrangement doc. 

This can help with limiting the time your unit sits vacant.These situations can get tricky, but I always recommend staying level headed during your interactions with the tenant.The worst case scenario is the tenant ends up unhappy that you don't want them to break the lease early and/or they don't want to pay for an early lease break (hopefully defined in your lease agreement with them) and ends up damaging your property, costing more, prior to their actual move out date.

That said I would start negotiations billing back the full amount of the job to the tenant per their lease agreement and responsibility for the install.

I'm not a home inspector, but I point out many items to the buyer, so the buyer enters into the purchase agreement with eyes wide open before spending money on a home inspector.

They require you to sign an exclusive agreement with them.