Which sensetive spot did I press? 

However, if the lease says rent is due on the 1st, enforce the late fee and continue to press back on the tenant.

You have to consider the fact that what they did would likely disqualify them from your approval process, in and of itself, if you decided to press charges. 

I pressed him a couple of times to explain my risk in this, and as best as I can tell, I'm risking $3,000 if I keep them separate.The reason I cannot escrow them is because the blanket policy has to be paid for once a month in one payment (or twice a year or once a year, whatever you like), and not from four different "pools."

Short list of free or cheap references for Small Claims & Collections:Everybody's Guide to Small Claims Court Nolo Press Amazon $29.99Filing & Winning Small Claims For Dummies Dummy SeriesTips for Collecting Your JudgmentJudgment CollectionsHow to collect court judgments

I hate to tell you this but you're going to be hard pressed to find any property manager who'll take on that job.

I am no accountant, but I read the Nolo Press tax book for landlords a few years ago to advise my daughter on her rental, and I have a memory of reading that it's better tax-wise to repair rather than replace.  

I'm not so sure city/county care as much as you think.There was a case recently in the press, where an un-permitted dwelling in a townhouse in San Francisco had been occupied for years.

Things are still not clear, but we are probably going to press ahead in the next year and sub-meter another.BTW: My statements above were that sub-metering may not be possible for all utilities in all jurisdictions and not that it was illegal throughout Canada.  

For Dogs:Only allow adult (specify number), non-aggressive breeds (no pits, chows, German Shepherds, Dobermans, or any other breed that gets bad press).