I suspect they'll have to move on.

I suspect the same in other cities. 

At a bare minimum, I suspect he (or his family) will come after you for some medical bills.My first call would be to the insurance company, not an attorney.

@Champ LeongIf this is not a pad for a pump, I suspect this is a grease trap for the kitchen drain.

I would be much more willing to lower my price by 100 or more if I were desperate to open up the tenant pool than risk loosing money in the long run letting a suspect tenant with horrible credit and an eviction on their record.  

I suspect it took a long time. 

I suspect its a threat.did you sign a contract with them ?

The LL is breaking the lease by taking away a yard and driveway (assuming the yard and driveway are not excluded in the lease) and they are breaking the lease by performing new construction on your rented property (again assuming it is not explicitly covered in the lease).I am not a lawyer but suspect my knowledge in this area exceeds your LL but suggest you verify what I indicate with a tenant rights attorney.  

You can also give them a third option which is for them to move out in less than 30 days, forfeit the deposit, and everyone moves on.If they're making this up, which I suspect they are, they will likely take the latter option.

I suspect many section 8 landlords get into this situation where they collect the amount of rent the agency pays them.